REGISTRATION NO. 333-216771
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
PRE-EFFECTIVE AMENDMENT NO.1
TO FORM S-1/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MONY LIFE INSURANCE COMPANY OF
AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------------
ARIZONA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
6311
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
86-0222062
(I. R. S. EMPLOYER IDENTIFICATION NUMBER)
525 WASHINGTON BOULEVARD
JERSEY CITY, NJ 07310
(212) 554-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRAT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------
SHANE DALY
VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
AXA EQUITABLE LIFE INSURANCE COMPANY
1290 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10104
(212) 554-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-----------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus contained
herein also relates to Registration Statement No. 333-195491. Upon
effectiveness, this Registration Statement, which is a new Registration
Statement, will also act as a post-effective amendment to such earlier
Registration Statement.
If this Form is a registration statement pursuant to General Instruction I.D.
or a post-effective amendment thereto that shall become effective upon filing
with the commission pursuant to Rule 462(e) under the Securities Act, check the
following box. [_]
If this Form is a post-effective amendment to a registration statement filed
pursuant to General Instruction I.D. filed to register additional securities or
additional classes of securities pursuant to Rule 413(b) under the Securities
Act, check the following box. [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X](do not check if Smaller reporting company [ ]
a smaller
reporting company)
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
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Interests in Variable Indexed Options $52,226,056 $ $ $6,053
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Life Insurance Company -- -- -- None
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(1)An indeterminate number or amount of interests in the Market Stabilizer
Option/(R)/ of AXA Equitable Life Insurance Company that may from time to
time be issued at indeterminate prices, in U.S. dollars. Units of interest
are only sold in U.S. dollar amounts. In no event will the aggregate maximum
offering price of all securities issued pursuant to this registration
statement exceed $52,226,056.
(2)Prior to the filing of this Registration Statement, $47,000,000 of units of
interest under the Market Stabilizer Option (R) remained unregistered and
unsold, pursuant to Registration Statement File No. 333-195491 on Form S-1,
which was filed with the Commission on April 25, 2014. The registration fee
of $6,053 associated with those unsold units of interest was used as payment
for the registration fee associated with the $52,226,056 units of interest
registered hereunder pursuant to Rule 457(p), and such unsold units of
interest were deemed deregistered upon effectiveness of this Registration
Statement.
-----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
Market Stabilizer Option(R) Available Under Certain Variable Life Insurance
Policies Issued by MONY Life Insurance Company of America
PROSPECTUS DATED MAY 1, 2017
PLEASE READ AND KEEP THIS PROSPECTUS FOR FUTURE REFERENCE. IT CONTAINS
IMPORTANT INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING OR TAKING ANY
OTHER ACTION UNDER YOUR POLICY. THIS PROSPECTUS SUPERSEDES ALL PRIOR
PROSPECTUSES. ALSO, THIS PROSPECTUS MUST BE READ ALONG WITH THE APPROPRIATE
VARIABLE LIFE INSURANCE POLICY PROSPECTUS. THIS PROSPECTUS IS IN ADDITION TO
THE APPROPRIATE VARIABLE LIFE INSURANCE POLICY PROSPECTUS AND ALL INFORMATION
IN THE APPROPRIATE VARIABLE LIFE INSURANCE POLICY PROSPECTUS CONTINUES TO APPLY
UNLESS ADDRESSED BY THIS PROSPECTUS.
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MONY Life Insurance Company of America (the "Company" or "MONY America") issues
the Market Stabilizer Option(R) described in this Prospectus. The Market
Stabilizer Option(R) is available only under certain variable life insurance
policies that we offer and may not be available through your financial
professional.
Among the many terms associated with the Market Stabilizer Option(R) are:
.. Index-Linked Return for approximately a one year period tied to the
performance of the S&P 500 Price Return index, which excludes dividends as
described below.
.. Index-Linked Return will be applied at the end of the period (your Segment
Term) on the Segment Maturity Date and only to amounts remaining within the
segment until the Segment Maturity Date. The Index-Linked Return will not
be applied before the Segment Maturity Date.
.. The Index-Linked Return could be positive, zero or in certain circumstances
negative as described below. In the event that the S&P 500 Price Return
index sustains a 100% loss, the maximum loss of principal would be 75%.
THEREFORE, THERE IS THE POSSIBILITY OF A NEGATIVE RETURN ON THIS INVESTMENT
AT THE END OF YOUR SEGMENT TERM, WHICH COULD RESULT IN A SIGNIFICANT LOSS
OF PRINCIPAL.
.. An Early Distribution Adjustment will be made for distributions (including
deductions) from the Segment Account Value before the Segment Maturity
Date. ANY EARLY DISTRIBUTION ADJUSTMENT THAT IS MADE WILL CAUSE YOU TO LOSE
PRINCIPAL THROUGH THE APPLICATION OF A PUT OPTION FACTOR, AS EXPLAINED
LATER IN THIS PROSPECTUS, AND THAT LOSS COULD POTENTIALLY BE SUBSTANTIAL.
Therefore you should carefully consider whether to make such distributions
and/or maintain enough value in your Unloaned Guaranteed Interest Option
("Unloaned GIO") and/or variable investment options to cover your monthly
deductions. The Unloaned GIO is the portion of the Guaranteed Interest
Option ("GIO") that is not being held to secure policy loans you have
taken. As described later in this Prospectus, we will attempt to maintain a
reserve (Charge Reserve Amount) to cover your monthly deductions, but it is
possible that the Charge Reserve Amount will be insufficient to cover your
monthly deductions.
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THESE ARE ONLY SOME OF THE TERMS ASSOCIATED WITH THE MARKET STABILIZER
OPTION(R). PLEASE READ THIS PROSPECTUS FOR MORE DETAILS ABOUT THE MARKET
STABILIZER OPTION(R). ALSO, THIS PROSPECTUS MUST BE READ ALONG WITH THE
APPROPRIATE VARIABLE LIFE INSURANCE POLICY PROSPECTUS AS WELL AS THE
APPROPRIATE VARIABLE LIFE INSURANCE POLICY AND POLICY RIDER FOR THIS OPTION.
PLEASE REFER TO PAGE 4 OF THIS PROSPECTUS FOR A DEFINITIONS SECTION THAT
DISCUSSES THESE AND OTHER TERMS ASSOCIATED WITH THE MARKET STABILIZER
OPTION(R). PLEASE REFER TO PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION OF RISK
FACTORS.
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OTHER MONY AMERICA POLICIES. We offer a variety of fixed and variable life
insurance policies which offer policy features, including investment options,
that are different from those offered by this Prospectus. Not every policy or
feature is offered through your financial professional. You can contact us to
find out more about any other MONY America insurance policy.
WHAT IS THE MARKET STABILIZER OPTION(R)?
The Market Stabilizer Option(R) ("MSO") is an investment option available under
certain MONY America variable life insurance policies. The option provides for
participation in the performance of the S&P 500 Price Return index, which
excludes dividends (the "Index") up to the Growth Cap Rate that we set on the
Segment Start Date. While the Growth Cap Rate is set at the Company's sole
discretion, the Growth Cap Rate will not change during a Segment Term and the
Growth Cap Rate will always be at least 6%. On the Segment Maturity Date, we
will apply the Index-Linked Rate of Return to the Segment Account Value based
on the performance of the Index. If the performance of the Index has been
positive for the Segment Term and equal to or below the Growth Cap Rate, we
will apply to the Segment Account Value an Index-Linked Rate of Return equal to
the full Index performance. If the performance of the Index has been positive
for the Segment Term and above the Growth Cap Rate, we will apply an
Index-Linked Rate of Return equal to the Growth Cap Rate. If the Index has
negative performance, the Index-Linked Rate of Return will be 0% unless the
Index performance goes below -25% for the Segment Term. In that case only the
negative performance in excess of -25% will be applied to the Segment Account
Value and you bear the entire risk of loss of principal for the portion of
negative performance that exceeds -25%. Please see "Index-Linked Return" in
"Description of the Market Stabilizer Option(R)" later in this Prospectus.
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PLEASE NOTE THAT YOU WILL NOT BE CREDITED WITH ANY POSITIVE INDEX PERFORMANCE
WITH RESPECT TO AMOUNTS THAT ARE REMOVED FROM A SEGMENT PRIOR TO THE SEGMENT
MATURITY DATE. EVEN WHEN THE INDEX PERFORMANCE HAS BEEN POSITIVE, SUCH EARLY
REMOVALS WILL CAUSE YOU TO LOSE SOME PRINCIPAL. PLEASE SEE "EARLY DISTRIBUTION
ADJUSTMENT" LATER IN THIS PROSPECTUS.
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Although under the appropriate variable life insurance policy, we reserve the
right to apply a transfer charge up to $25 for each transfer among your
investment options, there are no transfer charges for transfers into or out of
the MSO Holding Account. Please note that once policy account value has been
swept from the MSO Holding Account into a Segment, transfers into or out of
that Segment before its Segment Maturity Date will not be permitted.
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The Market Stabilizer Option(R) is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P") or its third party licensors. Neither S&P nor its
third party licensors makes any representation or warranty, express or implied,
to the owners of the Market Stabilizer Option(R) or any member of the public
regarding the advisability of investing in securities generally or in the
Market Stabilizer Option(R) particularly or the ability of the S&P 500 Price
Return index (the "Index") to track general stock market performance. S&P's and
its third party licensor's only relationship to MONY America is the licensing
of certain trademarks and trade names of S&P and the third party licensors and
of the Index which is determined, composed and calculated by S&P or its third
party licensors without regard to MONY America or the Market Stabilizer
Option(R). S&P and its third party licensors have no obligation to take the
needs of MONY America or the owners of the Market Stabilizer Option(R) into
consideration in determining, composing or calculating the Index. Neither S&P
nor its third party licensors is responsible for and has not participated in
the determination of the prices and amount of the Market Stabilizer Option(R)
or the timing of the issuance or sale of the Market Stabilizer Option(R) or in
the determination or calculation of the equation by which the Market Stabilizer
Option(R) is to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Market
Stabilizer Option(R).
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THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE CONTRACTS ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK
GUARANTEED. THEY ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL.
EVM-109 (5/17) Cat # 235457
NB (IL Leg II/IL Leg III and IL Optimizer III - all states except NY and PR) #262021
Contents of this Prospectus
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MARKET STABILIZER OPTION(R)
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Who is MONY Life Insurance Company of America? 3
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1. DEFINITIONS 4
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2. FEE TABLE SUMMARY 6
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3. RISK FACTORS 7
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4. DESCRIPTION OF THE MARKET STABILIZER OPTION(R) 9
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5. DISTRIBUTION OF THE POLICIES 19
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6. ADDITIONAL INFORMATION 20
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APPENDICES
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I -- Policy/rider variations I-1
II -- Early Distribution Adjustment Examples II-1
III -- Information about MONY Life Insurance
Company of America III-1
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"We," "our," and "us" refer to MONY America.
When we address the reader of this Prospectus with words such as "you" and
"your," we mean the person who has the right or responsibility that the
Prospectus is discussing at that point. This is usually the policy owner.
2
CONTENTS OF THIS PROSPECTUS
Who is MONY Life Insurance Company of America?
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We are MONY Life Insurance Company of America (the "Company"), an Arizona stock
life insurance corporation organized in 1969. MONY Life Insurance Company of
America is an indirect wholly owned subsidiary of AXA Financial, Inc., which is
an indirect wholly owned subsidiary of AXA S.A. ("AXA"), a French holding
company for an international group of insurance and related financial services
companies. As the ultimate sole shareholder of the Company, AXA exercises
significant influence over the operations and capital structure of the Company.
No company other than the Company, however, has any legal responsibility to pay
amounts that the Company owes under the policies. The Company is solely
responsible for paying all amounts owed to you under your policy.
AXA Financial, Inc. and its consolidated subsidiaries managed approximately
$588.7 billion in assets as of December 31, 2016. MONY America is licensed to
sell life insurance and annuities in forty-nine states (not including New
York), the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Our
main administrative office is located at 525 Washington Boulevard, Jersey City,
NJ 07310.
HOW TO REACH US
Please refer to the "How to reach us" section of the appropriate variable life
insurance policy prospectus for more information regarding contacting us and
communicating your instructions. We also have specific forms that we recommend
you use for electing the MSO and any MSO transactions.
3
WHO IS MONY LIFE INSURANCE COMPANY OF AMERICA?
1. Definitions
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CHARGE RESERVE AMOUNT -- A minimum amount of policy account value in the
Unloaned GIO (the portion of the Guaranteed Interest Option ("GIO") that is not
being held to secure policy loans you have taken.) that you are required to
maintain in order to approximately cover all of the estimated monthly charges
for the policy (including, but not limited to, the policy's monthly cost of
insurance charge, the policy's monthly administrative charge, the policy's
monthly mortality and expense risk charge, the MSO's monthly Variable Index
Segment Account Charge (the monthly charge deducted from the policy account)
and any monthly optional rider charges, (please see "Charges" later in this
Prospectus for more information) during the Segment Term. The Charge Reserve
Amount will be determined on each Segment Start Date as an amount projected to
be sufficient to cover all of the policy's monthly deductions during the
Segment Term, assuming at the time such calculation is made that no interest or
investment performance is credited to or charged against the policy account and
that no policy changes or additional premium payments are made. The Charge
Reserve Amount will be reduced by each subsequent monthly deduction (but not to
less than zero). THERE IS NO REQUIREMENT TO MAINTAIN A CHARGE RESERVE AMOUNT,
WHICH WOULD COVER APPROXIMATELY ALL ESTIMATED MONTHLY POLICY CHARGES, IF YOU
ARE NOT IN A SEGMENT. Please see "Segments" later in this Prospectus for more
information about the investment options from which account value could be
transferred to the Unloaned GIO on a Segment Start Date in order to meet this
requirement.
DOWNSIDE PROTECTION (ALSO REFERRED TO IN YOUR POLICY AS THE "SEGMENT LOSS
ABSORPTION THRESHOLD RATE") -- This is your protection against negative
performance of the S&P 500 Price Return index for a Segment held until its
Segment Maturity Date. It is currently -25%. THE DOWNSIDE PROTECTION IS SET ON
THE SEGMENT START DATE AND ANY DOWNSIDE PROTECTION IN EXCESS OF -25% WILL BE
SET AT THE COMPANY'S SOLE DISCRETION. However, the Downside Protection will not
change during a Segment Term and at least -25% of Downside Protection will
always be provided when a Segment is held until the Segment Maturity Date.
EARLY DISTRIBUTION ADJUSTMENT ("EDA," MAY ALSO BE REFERRED TO IN YOUR POLICY AS
THE "MARKET VALUE ADJUSTMENT") -- The EDA is an adjustment that we make to your
Segment Account Value, before a Segment matures, in the event you surrender
your policy, take a loan from a Segment or if we should find it necessary to
make deductions for monthly charges or any other distribution from a Segment.
(Such other distributions would include any distributions from the policy that
we deem necessary to continue to qualify the policy as life insurance under
applicable tax law, any unpaid loan interest, or any distribution in connection
with the exercise of a rider available under your policy.) AN EDA THAT IS MADE
WILL CAUSE YOU TO LOSE PRINCIPAL THROUGH THE APPLICATION OF A PUT OPTION
FACTOR, WHICH ESTIMATES THE MARKET VALUE, AT THE TIME OF AN EARLY DISTRIBUTION,
OF THE RISK THAT YOU WOULD SUFFER A LOSS IF YOUR SEGMENT WERE CONTINUED
(WITHOUT TAKING THE EARLY DISTRIBUTION) UNTIL ITS SEGMENT MATURITY DATE AND
THAT LOSS COULD BE SUBSTANTIAL. However, because of a pro rata refund of
certain charges already paid that is included in the EDA , the net effect of
the EDA will not always result in the reduction of principal. The EDA will
usually result in a reduction in your Segment Account Value and your other
policy values. Therefore, you should give careful consideration before taking
any early loan or surrender, or allowing the value in your other investment
options to fall so low that we must make any monthly deduction from a Segment.
Please see "Early Distribution Adjustment" later in this Prospectus for more
information.
GROWTH CAP RATE -- The maximum rate of return that will be applied to a Segment
Account Value. THE GROWTH CAP RATE IS SET FOR EACH SEGMENT ON THE SEGMENT START
DATE. WHILE THE GROWTH CAP RATE IS SET AT THE COMPANY'S SOLE DISCRETION, the
Growth Cap Rate will not change during a Segment Term and the Growth Cap Rate
will always be at least 6%.
INDEX -- The S&P 500 Price Return index, which is the S&P 500 index excluding
dividends. This index includes 500 leading companies in leading industries in
the U.S. economy.
INDEX PERFORMANCE RATE -- The Index Performance Rate measures the percentage
change in the Index during a Segment Term for each Segment. If the Index is
discontinued or if the calculation of the Index is substantially changed, we
reserve the right to substitute an alternative index. We also reserve the right
to choose an alternative index at our discretion. Please see "Change in Index"
for more information.
The Index Performance Rate is calculated by ((b) divided by (a)) minus one,
where:
(a)is the value of the Index at the close of business on the Segment Start
Date, and
(b)is the value of the Index at the close of business on the Segment Maturity
Date.
We determine the value of the Index at the close of business, which is the end
of a business day. Generally, a business day is any day the New York Stock
Exchange is open for trading. If the New York Stock Exchange is not open for
trading or if the Index value is, for any other reason, not published on the
Segment Start Date or a Segment Maturity Date, the value of the Index will be
determined as of the end of the most recent preceding business day for which
the Index value is published.
INDEX-LINKED RATE OF RETURN -- The rate of return we apply to calculate the
Index-Linked Return which is based on the Index Performance Rate adjusted to
reflect the Growth Cap Rate and protection against negative performance.
Therefore, if the performance of the Index is zero or positive, we will apply
that performance up to the Growth Cap Rate. If the performance of the Index is
negative, we will apply performance of zero unless the decline in the
performance of the Index is below -25% in which case negative performance in
excess of -25% will apply. Please see the chart under "Index-Linked Return" for
more information.
4
DEFINITIONS
INDEX-LINKED RETURN -- The amount that is applied to the Segment Account Value
on the Segment Maturity Date that is equal to that Segment's Index-Linked Rate
of Return multiplied by the Segment Account Value on the Segment Maturity Date.
The Index-Linked Return may be positive, negative or zero. The Indexed-Linked
Return is only applied to amounts that remain in a Segment Account Value until
the Segment Maturity Date. For example, a surrender of your policy before
Segment maturity will eliminate any Index-Linked Return and be subject to an
Early Distribution Adjustment.
INITIAL SEGMENT ACCOUNT -- The amount initially transferred to a Segment from
the MSO Holding Account on its Segment Start Date, net of:
(a)the Variable Index Benefit Charge (see "Charges" later in this Prospectus)
and
(b)the amount, if any, that may have been transferred from the MSO Holding
Account to the Unloaned GIO to cover the Charge Reserve Amount (see "Charge
Reserve Amount" later in this Prospectus). Such a transfer would be made
from the MSO Holding Account to cover the Charge Reserve Amount only (1) if
you have given us instructions to make such a transfer or (2) in the other
limited circumstances described under "Segments" later in this Prospectus.
MSO HOLDING ACCOUNT -- This is a portion of the EQ/Money Market variable
investment option that holds amounts designated by the policy owner for
investment in the MSO prior to any transfer into the next available new Segment.
SEGMENT -- The portion of your total investment in the MSO that is associated
with a specific Segment Start Date. You create a new Segment each time an
amount is transferred from the MSO Holding Account into a Segment Account.
SEGMENT ACCOUNT VALUE (ALSO REFERRED TO IN YOUR POLICY AS THE "SEGMENT
ACCOUNT") -- The amount of an Initial Segment Account subsequently reduced by
any monthly deductions, policy loans and unpaid loan interest, and
distributions from the policy that we deem necessary to continue to qualify the
policy as life insurance under applicable tax law, which are allocated to the
Segment. Any such reduction in the Segment Account Value prior to its Segment
Maturity Date will result in a corresponding Early Distribution Adjustment,
which will cause you to lose principal, and that loss could be substantial. The
Segment Account Value is used in determining policy account values, death
benefits, and the net amount at risk for monthly cost of insurance calculations
of the policy and the new base policy face amount associated with a requested
change in death benefit option.
For example, if you put $1,000 into the MSO Holding Account, $992.50 would go
into a Segment. This amount represents the Initial Segment Account. The Segment
Account Value represents the value in the Segment which gets reduced by any
deductions allocated to the Segment, with corresponding EDAs, through the
course of the Segment Term. The Segment Distribution Value represents what you
would receive upon surrendering the policy and reflects the EDA upon surrender.
SEGMENT DISTRIBUTION VALUE (ALSO REFERRED TO IN YOUR POLICY AS THE "SEGMENT
VALUE") -- This is the Segment Account Value minus the Early Distribution
Adjustment that would apply on a full surrender of that Segment at any time
prior to the Segment Maturity Date. Segment Distribution Values will be used in
determining policy value available to cover monthly deductions, any applicable
proportionate surrender charges for requested face amount reductions, and other
distributions; cash surrender values and maximum loan values subject to any
applicable base policy surrender charge. They will also be used in determining
whether any outstanding policy loan and accrued loan interest exceeds the
policy account value.
SEGMENT MATURITY GIO LIMITATION -- A specified percentage limitation on the
amount of your Segment Maturity Value that may be allocated to the guaranteed
interest option. MONY America reserves the right to implement a specified
percentage limitation on the amount of your Segment Maturity Value that may be
allocated to the guaranteed interest option. The specified percentage
limitation can be changed at anytime, but it will never be less than 5% of your
Segment Maturity Value. We will transfer any portion of your Segment Maturity
Value that is allocated to the guaranteed interest option in excess of the
Segment Maturity GIO Limitation to the EQ/Money Market variable investment
option unless we receive your instructions prior to the Segment Maturity Date
that the Segment Maturity Value should be allocated to the MSO Holding Account
or to any other available variable investment option. See "Appendix I --
Policy/rider variations" for more information.
SEGMENT MATURITY DATE -- The date on which a Segment Term is completed and the
Index-Linked Return for that Segment is applied to a Segment Account Value.
SEGMENT MATURITY VALUE -- This is the Segment Account Value adjusted by the
Index-Linked Return for that Segment.
SEGMENT START DATE -- The Segment Start Date is the day on which a Segment is
created.
SEGMENT TERM -- The duration of a Segment. The Segment Term for each Segment
begins on its Segment Start Date and ends on its Segment Maturity Date one year
later. We are currently only offering Segment Terms of approximately one year.
We may offer different durations in the future.
5
DEFINITIONS
2. Fee Table Summary
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WHEN CHARGE IS GUARANTEED
MSO CHARGES DEDUCTED CURRENT NON-GUARANTEED MAXIMUM
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Variable Index On Segment Start Date 0.75% 0.75%
Benefit Charge/(1)/
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Variable Index At the beginning of 0.65% 1.65%
Segment Account each policy month
Charge/(1)/ during the Segment
Term
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Total 1.40% 2.40%
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MAXIMUM SPREAD
WHEN CHARGE IS PERCENTAGE THAT MAY
OTHER DEDUCTED BE DEDUCTED
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Loan Interest On each policy Oregon policies: 2%
Spread/(2)/ for anniversary (or on (for Incentive Life
Amounts of Policy loan termination, Legacy(R) II only)
Loans Allocated to if earlier) All other policies:
MSO Segment 5%
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MAXIMUM AMOUNT
WHEN CHARGE IS THAT MAY BE
OTHER DEDUCTED DEDUCTED
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Early Distribution On surrender or other 75% of Segment Account Value/(3)/
Adjustment distribution
(including loan) from
an MSO Segment prior
to its Segment
Maturity Date
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(1)These charges represent annual rates.
(2)We charge interest on policy loans but credit you with interest on the
amount of the policy account value we hold as collateral for the loan. The
"spread" is the difference between the interest rate we charge you on a
policy loan and the interest rate we credit to you on the amount of your
policy account value that we hold as collateral for the loan.
(3)The actual amount of an Early Distribution Adjustment is determined by a
formula that depends on, among other things, how the Index has performed
since the Segment Start Date, as discussed in detail under "Early
Distribution Adjustment" later in this Prospectus. The maximum amount of the
adjustment would occur if there is a total distribution at a time when the
Index has declined to zero.
This fee table applies specifically to the MSO and should be read in
conjunction with the fee table in the appropriate variable life insurance
policy prospectus.
The base variable life insurance policy's mortality and expense risk charge
will also apply to a Segment Account Value or any amounts held in the MSO
Holding Account. The mortality and expense risk charge is part of the policy
monthly charges. Please see "How we deduct policy monthly charges during a
Segment Term" for more information. Please refer to the appropriate variable
life insurance policy prospectus for more information.
CHANGES IN CHARGES
Any changes that we make in our current charges or charge rates will be on a
basis that is equitable to all policies belonging to a given class, and will be
determined based on reasonable assumptions as to expenses, mortality,
investment income, lapses and policy and contract claims associated with
morbidity. For the sake of clarity, the assumptions referenced above include
taxes, the cost of hedging, longevity, volatility, other market conditions,
surrenders, persistency, conversions, disability, accident, illness, inability
to perform activities of daily living, and cognitive impairment, if applicable.
Any changes in charges may apply to then in force policies, as well as to new
policies. You will be notified in writing of any changes in charges under your
policy.
6
FEE TABLE SUMMARY
3. Risk Factors
--------------------------------------------------------------------------------
There are risks associated with some features of the Market Stabilizer
Option(R):
.. There is a risk of a substantial loss of your principal because you agree
to absorb all losses from the portion of any negative Index performance
that exceeds -25%.
.. Your Index-Linked Return is also limited by the Growth Cap Rate, which
could cause your Index-Linked Return to be lower than it would otherwise be
if you participated in the full performance of the S&P 500 Price Return
index.
.. You will not know what the Growth Cap Rate is before the Segment starts.
Therefore, you will not know in advance the upper limit on the return that
may be credited to your investment in a Segment.
.. Negative consequences apply if, for any reason, amounts you have invested
in a Segment are removed before the Segment Maturity Date. Specifically,
with respect to the amounts removed early, you would (1) forfeit any
positive Index performance and (2) be subject to an Early Distribution
Adjustment that exposes you to a risk of potentially substantial loss of
principal. This exposure is designed to be consistent with the treatment of
losses on amounts held to the Segment Maturity Date. EVEN WHEN THE INDEX
PERFORMANCE HAS BEEN POSITIVE, THE EDA WILL CAUSE YOU TO LOSE SOME
PRINCIPAL ON AN EARLY REMOVAL.
.. The following types of removals of account value from a Segment will result
in the above-mentioned penalties to you, if the removals occur prior to the
Segment Maturity Date: (a) a surrender of your policy; (b) a loan from your
policy; (c) a distribution in order to enable your policy to continue to
qualify as life insurance under the federal tax laws; (d) certain
distributions in connection with the exercise of a rider available under
your policy; and (e) a charge or unpaid policy loan interest that we deduct
from your Segment Account Value because the Charge Reserve Amount and other
funds are insufficient to cover them in their entirety. The Charge Reserve
Amount may become insufficient because of policy changes that you request,
additional premium payments, investment performance, policy loans, policy
partial withdrawals from other investment options besides the MSO, and any
increases we make in current charges for the policy (including for the MSO
and optional riders).
.. Certain of the above types of early removals can occur (and thus result in
penalties to you) without any action on your part. Examples include
(i) certain distributions we might make from your Segment Account Value to
enable your policy to continue to qualify as life insurance and
(ii) deductions we might make from your Segment Account Value to pay
charges if the Charge Reserve Amount becomes insufficient.
.. Any applicable EDA will generally be affected by changes in both the
volatility and level of the S&P 500 Price Return Index. Any EDA applied to
any Segment Account Value is linked to the estimated value of a put option
on the S&P 500 Price Return index as described later in this Prospectus.
The estimated value of the put option and, consequently, the amount of the
EDA will generally be higher after increases in market volatility or after
the Index experiences a negative return following the Segment Start Date.
.. Once policy account value is in a Segment, you cannot transfer out of a
Segment and you can only make withdrawals out of a Segment if you surrender
your policy. This would result in the imposition of any applicable
surrender charges and EDA.
.. We may not offer new Segments so there is also the possibility that a
Segment may not be available for a Segment Renewal at the end of your
Segment Term(s).
.. We also reserve the right to substitute an alternative index for the S&P
500 Price Return index, which could reduce the Growth Cap Rates we can
offer.
.. No company other than MONY America has any legal responsibility to pay
amounts that MONY America owes under the policies. An owner should look to
the financial strength of MONY America for its claims-paying ability.
.. You do not have any rights in the securities underlying the index,
including, but not limited to, (i) interest payments, (ii) dividend
payments or (iii) voting rights.
.. Your Segment Maturity Value is dependent on the performance of the index on
the Segment Maturity Date.
.. Upon advance notification, MONY America reserves the right to implement a
Segment Maturity GIO Limitation
.. Past performance of the index is no indication of future performance.
.. The amounts required to be maintained in the Unloaned GIO for the Charge
Reserve Amount during the Segment Term may earn a return that is less than
the return you might have earned on those amounts in another investment
option had you not invested in a Segment.
.. You must forgo the additional no lapse guarantee benefit provided by the
Extended No Lapse Guarantee Rider if you want to allocate to the MSO.
Please see "Extended No Lapse Guarantee Rider" later in this Prospectus for
more information.
.. If you do not specify a minimum Growth Cap Rate acceptable to you, your
account value could transfer into a Segment with a Growth Cap Rate that may
be lower than what you would have chosen.
.. The MSO is not available while the Paid Up Death Benefit Guarantee is in
effect. Please see "Paid Up Death Benefit Guarantee" later in this
Prospectus for more information.
.. For certain variable life insurance policies, if a paid up death benefit
guarantee is included with your policy, and if you elect the paid up death
benefit guarantee while any Segment is in effect, all Segments will be
terminated with corresponding Early Distribution Adjustments. If this
occurs, the Segment Distribution Value will be used in place of the Segment
Account Value in the calculation of your policy account value for purposes
of determining the paid up death benefit guarantee face amount.
.. If your policy has the Loan Extension Endorsement, and your policy goes on
Loan Extension while you have amounts invested
7
RISK FACTORS
in MSO, you will forfeit any positive index performance and be subject to an
Early Distribution Adjustment with respect to these amounts. In addition,
MSO will no longer be available once you go on Loan Extension. Please see
"Loan Extension" later in this Prospectus for more information.
.. If you elect the Long-Term Care Services/SM/ Rider, after a period of
coverage ends before coverage is continued as a Nonforfeiture Benefit, if
any MSO Segments are in effect, they will be terminated with corresponding
early distribution adjustments. Please see "Long-Term Care Services/SM/
Rider" later in this Prospectus for more information.
.. If a Living Benefits Rider or an accelerated death benefit rider (which may
be referred to as a "total and permanent disability accelerated death
benefit rider" or a "limited life expectancy accelerated death benefit
rider") is included with your policy, the portion of the cash surrender
value that is on lien and is allocated to your values in the variable
investment options under your policy and investment in the MSO will be
transferred to and maintained as part of the Unloaned GIO. Please see
"Living Benefits Rider" later in this Prospectus for more information.
8
RISK FACTORS
4. Description of the Market Stabilizer Option(R)
--------------------------------------------------------------------------------
We offer a Market Stabilizer Option(R) that provides a rate of return tied to
the performance of the Index.
MSO HOLDING ACCOUNT
The amount of each transfer or loan repayment you make to the MSO, and the
balance of each premium payment you make to the MSO after any premium charge
under your base policy has been deducted, will first be placed in the MSO
Holding Account. The MSO Holding Account is a portion of the regular EQ/Money
Market variable investment option that will hold amounts allocated to the MSO
until the next available Segment Start Date. The MSO Holding Account has the
same rate of return as the EQ/Money Market variable investment option and is
subject to the same underlying portfolio operating expenses as that variable
investment option. Please refer to "Risk/benefit summary: charges and expenses
you will pay" of the appropriate variable life insurance policy prospectus for
more information regarding such expenses. We currently plan on offering new
Segments on a monthly basis but reserve the right to offer them less frequently
or to stop offering them or to suspend offering them temporarily.
Before any account value is transferred into a Segment, you can transfer
amounts from the MSO Holding Account into other investment options available
under your policy at any time subject to any transfer restrictions within your
policy. You can transfer into and out of the MSO Holding Account at any time up
to and including the Segment Start Date provided your transfer request is
received at our administrative office by such date. For example, you can
transfer policy account value into the MSO Holding Account on the 3rd Friday of
June. That policy account value would transfer into the Segment starting on
that date, subject to the conditions mentioned earlier. You can also transfer
policy account value out of the MSO Holding Account before the end of the
business day on the Segment Start Date and that account value would not be
swept into the Segment starting on that date. Please refer to the "How to reach
us" section of the appropriate variable life insurance policy prospectus for
more information regarding contacting us and communicating your instructions.
We also have specific forms that we recommend you use for electing the MSO and
any MSO transactions.
On the Segment Start Date, account value in the MSO Holding Account, excluding
charges and any account value transferred to cover the Charge Reserve Amount,
will be transferred into a Segment if all requirements and limitations are met
that are discussed under "Segments" immediately below.
SEGMENTS
Each Segment will have a Segment Start Date of the 3rd Friday of each calendar
month and will have a Segment Maturity Date on the 3rd Friday of the same
calendar month in the succeeding calendar year.
In order for any amount to be transferred from the MSO Holding Account into a
new Segment on a Segment Start Date, all of the following conditions must be
met on that date:
(1)The Growth Cap Rate for that Segment must be equal to or greater than your
minimum Growth Cap Rate (Please see "Growth Cap Rate" later in this
Prospectus).
(2)There must be sufficient account value available within the Unloaned GIO and
the variable investment options including the MSO Holding Account to cover
the Charge Reserve Amount as determined by us on such date (Please see
"Charge Reserve Amount" later in this Prospectus).
(3)The Growth Cap Rate must be greater than the sum of the annual interest rate
we are currently crediting on the Unloaned GIO ("A"), the Variable Index
Benefit Charge rate ("B"), the annualized monthly Variable Index Segment
Account Charge rate ("C") and the current annualized monthly mortality and
expense risk charge rate ("D"). The Growth Cap Rate must be greater than
(A+B+C+D). This is to ensure that the highest possible rate of return that
could be received in a Segment after these charges (B+C+D) have been
considered exceeds the interest crediting rate currently being offered in
the Unloaned GIO.
(4)It must not be necessary, as determined by us on that date, for us to make a
distribution from the policy during the Segment Term in order for the policy
to continue to qualify as life insurance under applicable tax law.
(5)The total amount allocated to your Segments under your policy on that date
must be less than any limit we may have established.
If there is sufficient policy account value in the Unloaned GIO to cover the
Charge Reserve Amount, then no transfers from other investment options to the
Unloaned GIO will need to be made. If there is insufficient value in the
Unloaned GIO to cover the Charge Reserve Amount and we do not receive
instructions from you specifying the investment options from which we should
transfer the account value to the Unloaned GIO to meet Charge Reserve Amount
requirements at the Segment Start Date, or the transfer instructions are not
possible due to insufficient funds, then the required amount will be
transferred proportionately from your variable investment options including the
MSO Holding Account.
If after any transfers there would be an insufficient amount in the Unloaned
GIO to cover the Charge Reserve Amount or the Growth Cap Rate for the next
available Segment does not qualify per your minimum Growth Cap Rate
instructions and the conditions listed above, then your amount in the MSO
Holding Account will remain there until we receive further instruction from
you. We will mail you a notice informing you that your account value did or did
not transfer from the MSO Holding Account into a Segment. These notices are
mailed on or about the next business day after the applicable
9
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
Segment Start Date. Please see "Requested Face Amount Increases" later in this
Prospectus for more information about the investment options from which account
value could be transferred to the Unloaned GIO on the effective date of a
requested face amount increase.
SEGMENT MATURITY
Near the end of the Segment Term, we will notify you between 15 and 45 days
before the Segment Maturity Date that a Segment is about to mature. At that
time, you may choose to have all or a part of:
(a)the Segment Maturity Value rolled over into the MSO Holding Account
(b)the Segment Maturity Value transferred to the variable investment options
available under your policy
(c)the Segment Maturity GIO transferred to the Unloaned GIO subject to any
Segment Maturity GIO Limitation that we may impose.
If we do not receive your transfer instructions before the Segment Maturity
Date, your Segment Maturity Value will automatically be rolled over into the
MSO Holding Account for investment in the next available Segment, subject to
the conditions listed under "Segments" above.
However, if we are not offering the MSO at that time, we will transfer the
Segment Maturity Value to the investment options available under your policy
per your instructions or to the EQ/Money Market investment option if no
instructions are received. If the Segment Maturity GIO Limitation is in effect,
then you may only allocate up to a specified percentage of your Segment
Maturity Value to the guaranteed interest option. That limitation will never be
less than 5% of your Segment Maturity Value. Any portion of the Segment
Maturity Value that is allocated to the guaranteed interest option in excess of
the Segment Maturity GIO Limitation will be allocated to the EQ/Money Market
variable investment option unless we receive your instructions prior to the
Segment Maturity Date that the Segment Maturity Value should be allocated to
any other available variable investment option. Please see "Right to
Discontinue and Limit Amounts Allocated to the MSO" and "Segment Maturity GIO
Limitation" for more information. Although under the appropriate variable life
insurance policy we reserve the right to apply a transfer charge up to $25 for
each transfer among your investment options, there will be no transfer charges
for any of the transfers discussed in this section.
GROWTH CAP RATE
By allocating your account value to the MSO, you can participate in the
performance of the Index up to the applicable Growth Cap Rate that we declare
on the Segment Start Date.
Please note that this means you will not know the Growth Cap Rate for a new
Segment until after the account value has been transferred from the MSO Holding
Account into the Segment and you are not allowed to transfer the account value
out of a Segment before the Segment Maturity Date. Please see "Transfers" below.
Each Segment is likely to have a different Growth Cap Rate. However, the Growth
Cap Rate will never be less than 6%.
Your protection against negative performance for a Segment held until its
Segment Maturity Date is currently -25% ("Downside Protection" also referred to
in your policy as the "Segment Loss Absorption Threshold Rate"). We reserve the
right, for new Segments, to increase your Downside Protection against negative
performance. For example, if we were to adjust the Downside Protection for a
Segment to -100%, the Index-Linked Rate of Return for that Segment would not go
below 0%. Please note that any increase in the protection against negative
performance would likely result in a lower Growth Cap Rate than would otherwise
apply. We will provide notice between 15 and 45 days before any change in the
Downside Protection is effective. Any change would only apply to new Segments
started after the effective date of the change, which (coupled with the 15-45
day notice we will give) will afford you the opportunity to decline to
participate in any Segment that reflects a change in the Downside Protection.
ANY INCREASES IN THE GROWTH CAP RATE ABOVE THE MINIMUM 6% AND INCREASES IN
DOWNSIDE PROTECTION FROM THE MINIMUM -25% ARE SET AT THE COMPANY'S SOLE
DISCRETION. However, the Growth Cap Rate can never be less than 6% and we may
only increase your Downside Protection from the current -25%.
As part of your initial instructions in selecting the MSO, you will specify
what your minimum acceptable Growth Cap Rate is for a Segment. You may specify
a minimum Growth Cap Rate from 6% to 10%. If the Growth Cap Rate we set, on the
Segment Start Date, is below the minimum you specified then the account value
will not be transferred from the MSO Holding Account into that Segment. If you
do not specify a minimum Growth Cap Rate then your minimum Growth Cap Rate will
be set at 6%. Therefore, if you do not specify a minimum acceptable Growth Cap
Rate, account value could transfer into a Segment with a Growth Cap Rate that
may be lower than what you would have chosen. In addition, for account value to
transfer into a Segment from the MSO Holding Account, the Growth Cap Rate must
be greater than the sum of the annual interest rate we are currently crediting
on the Unloaned GIO ("A"), the Variable Index Benefit Charge rate ("B"), the
annualized monthly Variable Index Segment Account Charge rate ("C") and the
current annualized monthly mortality and expense risk charge rate ("D"). The
Growth Cap Rate must be greater than (A+B+C+D).
For example, assume that the annual interest rate we are currently crediting on
the Unloaned GIO were 4.00%, the Variable Index Benefit Charge rate were 0.75%,
the annualized monthly Variable Index Segment Account charge rate were 0.65%
and the annualized monthly mortality and expense risk charge rate were 0.85%.
Based on those assumptions (which we provide only for illustrative purposes and
will not necessarily correspond to actual rates), because these numbers total
6.25%, no amounts would be transferred into any Segment unless we declare a
Growth Cap Rate that is higher than 6.25%. Please see "Index-Linked Return"
later in this Prospectus for more information.
As another example, you may specify a minimum Growth Cap Rate of 8%. If we set
the Growth Cap Rate at 8% or higher for a Segment then a transfer from the MSO
Holding Account will be made into that new Segment provided all other
requirements and conditions discussed in this Prospectus are met. If we set the
Growth Cap Rate below 8% then no transfer from the MSO Holding Account will be
made into that Segment. No transfer will be made until a Segment Growth Cap
Rate equal to or greater than 8% is set and all requirements are met or you
transfer account value out of the MSO Holding Account.
10
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
GROWTH CAP RATE AVAILABLE DURING INITIAL YEAR
If you allocate policy account value to any Segment that commences during the
first year that the MSO is available to you under your policy, our current
practice is to establish a Growth Cap Rate that is at least 15%. This 15%
minimum Growth Cap Rate would apply to all Segment Terms that commence:
.. During the first policy year, if the MSO was available to you as a feature
of your policy when the policy was issued; or
.. For in-force policies, during the one year period beginning with the date
when the MSO was first made available to you after your policy was issued.
We may terminate or change this 15% initial year minimum Growth Cap Rate at any
time; but any such change or termination would apply to you only if your policy
is issued, or the MSO was first made available to you, after such modification
or termination.
After this initial year 15% minimum Growth Cap Rate, the minimum Growth Cap
Rate will revert back to 6%.
INDEX-LINKED RETURN
We calculate the Index-Linked Return for a Segment by taking the Index-Linked
Rate of Return and multiplying it by the Segment Account Value on the Segment
Maturity Date. The Segment Account Value is net of the Variable Index Benefit
Charge described below as well as any monthly deductions, policy loans and
unpaid interest, distributions from the policy that we deem necessary to
continue to qualify the policy as life insurance under applicable tax law and
any corresponding Early Distribution Adjustments. The Segment Account Value
does not include the Charge Reserve Amount described later in this Prospectus.
The following table demonstrates the Index-Linked Rate of Return and the
Segment Maturity Value on the Segment Maturity Date based upon a hypothetical
range of returns for the S&P 500 Price Return index. This example assumes a 15%
Growth Cap Rate and a $1,000 investment in the MSO Segment.
------------------------------------------------------------------------------------------------------
INDEX PERFORMANCE RATE OF
THE S&P 500 PRICE RETURN INDEX-LINKED RATE
INDEX OF RETURN SEGMENT MATURITY VALUE
------------------------------------------------------------------------------------------------------
50% 15% $1,150
------------------------------------------------------------------------------------------------------
25% 15% $1,150
------------------------------------------------------------------------------------------------------
10% 10% $1,100
------------------------------------------------------------------------------------------------------
0% 0% $1,000
------------------------------------------------------------------------------------------------------
-25% 0% $1,000
------------------------------------------------------------------------------------------------------
-50% -25% $750
------------------------------------------------------------------------------------------------------
-75% -50% $500
------------------------------------------------------------------------------------------------------
-100% -75% $250
------------------------------------------------------------------------------------------------------
For instance, we may set the Growth Cap Rate at 15%. Therefore, if the Index
has gone up 20% over your Segment Term, you will receive a 15% credit to your
Segment Account Value on the Segment Maturity Date. If the Index had gone up by
13% from your Segment Start Date to your Segment Maturity Date then you would
receive a credit of 13% to your Segment Account Value on the Segment Maturity
Date.
If the Index had gone down 20% over the Segment Term then you would receive a
return of 0% to your Segment Account Value on the Segment Maturity Date.
If the Index had gone down by 30% by your Segment Maturity Date then your
Segment Account Value would be reduced by 5% on the Segment Maturity Date. The
Downside Protection feature of the MSO will absorb the negative performance of
the Index up to -25%.
The minimum Growth Cap Rate is 6%. However, account value will only transfer
into a new Segment from the MSO Holding Account if the Growth Cap Rate is equal
to or greater than your specified minimum Growth Cap Rate and meets the
conditions discussed earlier in the "Growth Cap Rate" section.
In those instances where the account value in the MSO Holding Account does not
transfer into a new Segment, the account value will remain in the MSO Holding
Account until the next available, qualifying Segment unless you transfer the
account value into the Unloaned GIO and/or other investment option available
under your policy subject to any conditions and restrictions.
For instance, if we declare the Growth Cap Rate to be 6% and your specified
minimum Growth Cap Rate is 6% but we are currently crediting an annual interest
rate on the Unloaned GIO that is greater than or equal to 6% minus the sum of
the charges (B+C+D) discussed in the Growth Cap Rate section then your account
value will remain in the MSO Holding Account on the date the new Segment would
have started.
As indicated above, you must transfer account value out of the MSO Holding
Account into the Unloaned GIO and/or other investment options available under
your policy if you do not want to remain in the MSO Holding Account.
If we declare the Growth Cap Rate to be 6% and your specified minimum Growth
Cap Rate is 6% and if the sum of the charges (B+C+D) discussed in the "Growth
Cap Rate" section plus the annual interest rate on the Unloaned GIO are less
than 6% and all requirements are met then the net amount of the account value
in the MSO Holding Account will transfer into a new Segment.
If you specified a minimum Growth Cap Rate of 10% in the above examples then
account value would not transfer into a new Segment from the MSO Holding
Account because the Growth Cap Rate did not meet your specified minimum Growth
Cap Rate.
The Index-Linked Return is only applied to amounts that remain in a Segment
until the Segment Maturity Date. For example, a surrender of your policy before
Segment maturity will eliminate any Index-Linked Return and be subject to a
Early Distribution Adjustment.
CHANGE IN INDEX
If the Index is discontinued or if the calculation of the Index is
substantially changed, we reserve the right to substitute an alternative index.
We also reserve the right to choose an alternative index at our discretion.
If we were to substitute an alternative index at our discretion, we would
provide notice 45 days before making that change. The new index would only
apply to new Segments. Any outstanding Segments would mature on their original
Segment Maturity Dates.
11
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
With an alternative index, the Downside Protection would remain the same or
greater. However, an alternative index may reduce the Growth Cap Rates we can
offer. We would attempt to choose a substitute index that has a similar
investment objective and risk profile to the S&P 500 Price Return index.
If the S&P 500 Price Return index were to be discontinued or substantially
changed, thereby affecting the Index-Linked Return of existing Segments, we
will mature the Segments based on the most recently available closing value of
the Index before it is discontinued or changed. Such maturity will be as of the
date of such most recently available closing value of the Index and we will use
that closing value to calculate the Index-linked Return through that date. We
would apply the full Index performance to that date subject to the full Growth
Cap Rate and Downside Protection. For example, if the Index was up 12% at the
time we matured the Segment and the Growth Cap Rate was 8%, we would credit an
8% return to your Segment Account Value. If the Index was down 30% at the time
we matured the Segment, we would credit a 5% negative return to your Segment
Account Value. We would provide notice about maturing the Segment, as soon as
practicable and ask for instructions on where to transfer your Segment Maturity
Value.
If we are still offering Segments at that time, you can request that the
Segment Maturity Value be invested in a new Segment, in which case we will hold
the Segment Maturity Value in the MSO Holding Account for investment in the
next available Segment subject to the same terms and conditions discussed above
under MSO Holding Account and Segments.
In the case of any of the types of early maturities discussed above, there
would be no transfer charges or EDA applied and you can allocate the Segment
Maturity Value to the investment options available under your policy. Please
see "Segment Maturity" earlier in this Prospectus for more information. If we
continued offering new Segments, then such a change in the Index may cause
lower Growth Cap Rates to be offered. However, we would still provide a minimum
Growth Cap Rate of 6% and minimum Downside Protection of -25%. We also reserve
the right to not offer new Segments. Please see "Right to Discontinue and Limit
Amounts Allocated to the MSO" later in this Prospectus.
CHARGES
There is a current percentage charge of 1.40% of any policy account value
allocated to each Segment. We reserve the right to increase or decrease the
charge although it will never exceed 2.40%. Of this percentage charge, 0.75%
will be deducted on the Segment Start Date from the amount being transferred
from the MSO Holding Account into the Segment as an up-front charge ("Variable
Index Benefit Charge"), with the remaining 0.65% annual charge (of the current
Segment Account Value) being deducted from the policy account on a monthly
basis during the Segment Term ("Variable Index Segment Account Charge").
-----------------------------------------------------
CURRENT
NON- GUARANTEED
MSO CHARGES GUARANTEED MAXIMUM
-----------------------------------------------------
Variable Index Benefit Charge 0.75% 0.75%
-----------------------------------------------------
Variable Index Segment Account 0.65% 1.65%
Charge
-----------------------------------------------------
Total 1.40% 2.40%
-----------------------------------------------------
This fee table applies specifically to the MSO and should be read in
conjunction with the fee table in the appropriate variable life insurance
policy prospectus. Please also see Loans later in this Prospectus for
information regarding the "spread" you would pay on any policy loan.
The base variable life insurance policy's mortality and expense risk charge
will also be applicable to a Segment Account Value or any amounts held in the
MSO Holding Account. The mortality and expense risk charge is part of the
policy monthly charges. Please see "How we deduct policy monthly charges during
a Segment Term" for more information. Please refer to the appropriate variable
life insurance policy prospectus for more information.
If a Segment is terminated prior to maturity by policy surrender, or reduced
prior to maturity by monthly deductions (if other funds are insufficient) or by
loans or a Guideline Premium Force-out as described below, we will refund a
proportionate amount of the Variable Index Benefit Charge corresponding to the
surrender or reduction and the time remaining until Segment Maturity. The
refund will be administered as part of the Early Distribution Adjustment
process as described above. This refund will increase your surrender value or
remaining Segment Account Value, as appropriate. Please see Appendix II for an
example and further information.
CHARGE RESERVE AMOUNT
If you elect the Market Stabilizer Option(R), you are required to maintain a
minimum amount of policy account value in the Unloaned GIO to approximately
cover the estimated monthly charges for the policy, (including, but not limited
to, the MSO and any optional riders) for the Segment Term. This is the Charge
Reserve Amount.
The Charge Reserve Amount will be determined on each Segment Start Date as an
amount projected to be sufficient to cover all of the policy's monthly
deductions during the Segment Term, assuming at the time such calculation is
made that no interest or investment performance is credited to or charged
against the policy account and that no policy changes or additional premium
payments are made. The Charge Reserve Amount on other than a Segment Start Date
(or the effective date of a requested face amount increase -- please see
"Requested Face Amount Increases" below for more information) will be the
Charge Reserve Amount determined as of the latest Segment Start Date (or
effective date of a face amount increase) reduced by each subsequent monthly
deduction during the longest remaining Segment Term, although it will never be
less than zero. This means, for example, that if you are in a Segment (Segment
A) and then enter another Segment (Segment B) 6 months later, the Charge
Reserve Amount would be re-calculated on the start date of Segment B. The
Charge Reserve Amount would be re-calculated to cover all of the policy's
monthly deductions during the Segment Terms for both Segments A and B.
When you select the MSO, as part of your initial instructions, you will be
asked to specify the investment options from which we should transfer the
account value to the Unloaned GIO to meet Charge Reserve Amount requirements,
if necessary. No transfer restrictions apply to amounts that you wish to
transfer into the Unloaned GIO to meet the Charge Reserve Amount requirement.
If your values in the variable investment options including the MSO Holding
Account and the unloaned portion of our GIO are insufficient to cover the Charge
12
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
Reserve Amount, no new Segment will be established. Please see "Segments" above
for more information regarding the Charge Reserve Amount and how amounts may be
transferred to meet this requirement.
Please note that the Charge Reserve Amount may not be sufficient to cover
actual monthly deductions during the Segment Term. Although the Charge Reserve
Amount will be re-calculated on each Segment Start Date, and the amount already
present in the Unloaned GIO will be supplemented through transfers from your
value in the variable investment options including the MSO Holding Account, if
necessary to meet this requirement, actual monthly deductions could vary up or
down during the Segment Term due to various factors including but not limited
to requested policy changes, additional premium payments, investment
performance, loans, policy partial withdrawals from other investment options
besides the MSO, and any changes we might make to current policy charges.
HOW WE DEDUCT POLICY MONTHLY CHARGES DURING A SEGMENT TERM
Under your base variable life insurance policy, monthly deductions are
allocated to the variable investment options and the Unloaned GIO according to
deduction allocation percentages specified by you or based on a proportionate
allocation should any of the individual investment option values be
insufficient.
However, if the Market Stabilizer Option(R) is elected, on the Segment Start
Date, deduction allocation percentages will be changed so that 100% of monthly
deductions will be taken from the Charge Reserve Amount and then any remaining
value in the Unloaned GIO, if the Charge Reserve Amount is depleted, during the
Segment Term. In addition, if the value in the Unloaned GIO is ever
insufficient to cover monthly deductions during the Segment Term, the base
policy's proportionate allocation procedure will be modified as follows:
1. The first step will be to take the remaining portion of the deductions
proportionately from the values in the variable investment options,
including any value in the MSO Holding Account but excluding any Segment
Account Values.
2. If the Unloaned GIO and variable investment options, including any value in
the MSO Holding Account, are insufficient to cover deductions in their
entirety, the remaining amount will be allocated to the individual Segments
proportionately, based on the current Segment Distribution Values.
3. Any portion of a monthly deduction allocated to an individual Segment will
generate a corresponding Early Distribution Adjustment of the Segment
Account Value.
The effect of those procedures is that account value will be taken out of a
Segment to pay a monthly deduction (and an EDA therefore applied) only if there
is no remaining account value in any other investment options, as listed in 1.
and 2. above.
In addition, your base variable life insurance policy will lapse if your net
policy account value or net cash surrender value (please refer to your base
variable life insurance policy prospectus for a further explanation of these
terms) is not enough to pay your policy's monthly charges when due (unless one
of the available guarantees against termination is applicable). If you have
amounts allocated to MSO Segments, the Segment Distribution Value will be used
in place of the Segment Account Value in calculating the net policy account
value and net cash surrender value.
These modifications will apply during any period in which a Segment exists and
has not yet reached its Segment Maturity Date.
EARLY DISTRIBUTION ADJUSTMENT
OVERVIEW
Before a Segment matures, if you surrender your policy, take a loan from a
Segment or if we should find it necessary to make deductions for monthly
charges or other distributions from a Segment, we will apply an Early
Distribution Adjustment.
The application of the EDA is based on your agreement (under the terms of the
MSO) to be exposed to the risk that, at the Segment Maturity Date, the Index
will have fallen by more than 25%. The EDA uses what we refer to as a Put
Option Factor to estimate the market value, at the time of an early
distribution, of the risk that you would suffer a loss if your Segment were
continued (without taking the early distribution) until its Segment Maturity
Date. By charging you with a deduction equal to that estimated value, the EDA
provides a treatment for an early distribution that is designed to be
consistent with how distributions at the end of a Segment are treated when the
Index has declined over the course of that Segment.
In the event of an early distribution, even if the Index has experienced
positive performance since the Segment Start Date, the EDA will cause you to
lose principal through the application of the Put Option Factor and that loss
may be substantial. That is because there is always some risk that the Index
would have declined by the Segment Maturity Date such that you would suffer a
loss if the Segment were continued (without taking any early distribution)
until that time. However, the other component of the EDA is the proportionate
refund of the Variable Index Benefit Charge (discussed below under "Important
Considerations") which is a positive adjustment to you. As a result, the
overall impact of the EDA is to reduce your Segment Account Value and your
other policy values except in the limited circumstances where the proportionate
refund is greater than your loss from the Put Option Factor.
We determine the EDA and the Put Option Factor by formulas that are described
below under "ADDITIONAL DETAIL."
IMPORTANT CONSIDERATIONS
When any surrender, loan, charge deduction or other distribution is made from a
Segment before its Segment Maturity Date:
1. YOU WILL FORFEIT ANY POSITIVE INDEX PERFORMANCE WITH RESPECT TO THESE
AMOUNTS. INSTEAD, ANY OF THESE PRE- SEGMENT MATURITY DATE DISTRIBUTIONS WILL
CAUSE AN EDA TO BE APPLIED THAT WILL USUALLY RESULT IN A REDUCTION IN YOUR
VALUES. THEREFORE, YOU SHOULD GIVE CAREFUL CONSIDERATION BEFORE TAKING ANY
SUCH EARLY LOAN OR SURRENDER, OR ALLOWING THE VALUE IN YOUR OTHER INVESTMENT
OPTIONS TO FALL SO LOW THAT WE MUST MAKE ANY MONTHLY DEDUCTION FROM A
SEGMENT; AND
2. The EDA will be applied, which means that:
a. IF THE INDEX HAS FALLEN MORE THAN 25% SINCE THE SEGMENT START DATE, the
EDA would generally have the effect of charging you for (i) the full
amount of that loss below 25%, plus (ii) an additional amount for the
risk that the Index might decline further by the Segment Maturity Date.
(Please see example III in Appendix II for further information.)
13
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
b. IF THE INDEX HAS FALLEN SINCE THE SEGMENT START DATE, BUT BY LESS THAN
25%, the EDA would charge you for the risk that, by the Segment Maturity
Date, the index might have declined further to a point more than 25%
below what it was at the Segment Start Date. (Please see example I in
Appendix II for further information.) This charge would generally be less
than the amount by which the Index had fallen from the Segment Start Date
through the date we apply the EDA. It also would generally be less than
it would be under the circumstances in 2a. above.
c. IF THE INDEX HAS RISEN SINCE THE SEGMENT START DATE, the EDA would not
credit you with any of such favorable investment performance. Instead,
the EDA would charge you for the risk that, by the Segment Maturity Date,
the index might have declined to a point more than 25% below what it was
at the Segment Start Date. (Please see examples II and IV in Appendix II
for further information.) This charge would generally be less than it
would be under the circumstances in 2a. and 2b. above.
In addition to the consequences discussed in 2. above, the EDA also has the
effect of pro rating the Variable Index Benefit Charge. As discussed further
below, this means that you in effect would receive a proportionate refund of
this charge for the portion of the Segment Term that follows the early
surrender, loan, policy distribution, or charge deduction that caused us to
apply the EDA. In limited circumstances, this refund may cause the total EDA to
be positive.
For the reasons discussed above, the Early Distribution Adjustment to the
Segment Account Value will usually reduce the amount you would receive when you
surrender your policy prior to a Segment Maturity Date. For loans and charge
deductions, the Early Distribution Adjustment would usually further reduce the
account value remaining in the Segment Account Value and therefore decrease the
Segment Maturity Value.
ADDITIONAL DETAIL
For purposes of determining the Segment Distribution Value prior to a Segment
Maturity Date, the EDA is:
(a)the Put Option Factor multiplied by the Segment Account Value
-minus-
(b)a pro rata portion of the 0.75% Variable Index Benefit Charge attributable
to the Segment Account Value. (Please see "Charges" earlier in this
Prospectus for an explanation of this charge.)
The Put Option Factor multiplied by the Segment Account Value represents, at
any time during the Segment Term, the estimated market value of your potential
exposure to negative S&P 500 Price Return index performance that is worse than
-25%. The Put Option Factor, on any date, represents the estimated value on
that date of a hypothetical "put option" (as described below) on the Index
having a notional value equal to $1 and strike price at Segment Maturity equal
to $0.75 ($1 plus the Downside Protection which is currently -25%). The strike
price of the option ($0.75) is the difference between a 100% loss in the S&P
500 Price Return index at Segment Maturity and the 25% loss at Segment Maturity
that would be absorbed by the Downside Protection feature of the MSO (please
see "Growth Cap Rate" earlier in this Prospectus for an explanation of the
Downside Protection.) In a put option on an index, the seller will pay the
buyer, at the maturity of the option, the difference between the strike price
-- which was set at issue -- and the underlying index closing price, in the
event that the closing price is below the strike price. Prior to the maturity
of the put option, its value generally will have an inverse relationship with
the index. The notional value can be described as the price of the underlying
index at inception of the contract. Using a notional value of $1 facilitates
computation of the percentage change in the Index and the put option factor.
The Company will utilize a fair market value methodology to determine the Put
Option Factor.
For this purpose, we use the Black Scholes formula for valuing a European put
option on the S&P 500 Price Return index, assuming a continuous dividend yield,
with inputs that are consistent with current market prices.
The inputs to the Black Scholes Model include:
(1)Implied Volatility of the Index -- This input varies with (i) how much time
remains until the Maturity Date of the Segment from which an early
distribution is being made, which is determined by using an expiration date
for the hypothetical put option that corresponds to that time remaining and
(ii) the relationship between the strike price of the hypothetical put
option and the level of the S&P 500 Price Return index at the time of the
early distribution. This relationship is referred to as the "moneyness" of
the hypothetical put option described above, and is calculated as the ratio
of the $0.75 strike price of that hypothetical put option to what the level
of the S&P 500 Price Return index would be at the time of the early
distribution if the Index had been $1 at the beginning of the Segment.
Direct market data for these inputs for any given early distribution are
generally not available, because put options on the Index that actually
trade in the market have specific maturity dates and moneyness values that
are unlikely to correspond precisely to the Maturity Date and moneyness of
the hypothetical put option that we use for purposes of calculating the EDA.
Accordingly, we use the following method to estimate the implied volatility
of the index. We receive daily quotes of implied volatility from banks using
the same Black Scholes model described above and based on the market prices
for certain S&P 500 Price Return put options. Specifically, implied
volatility quotes are obtained for put options with the closest maturities
above and below the actual time remaining in the Segment at the time of the
early distribution and, for each maturity, for those put options having the
closest moneyness those put options having the closest moneyness value above
and below the actual moneyness of the hypothetical put option described
above, given the level of the S&P 500 Price Return index at the time of the
early distribution. In calculating the Put Option Factor, we will derive a
volatility input for your Segment's time to maturity and strike price by
linearly interpolating between the implied volatility quotes that are based
on the actual adjacent maturities and moneyness values described above, as
follows:
(a)We first determine the implied volatility of a put option that has the
same moneyness as the hypothetical put option but
14
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
with the closest available time to maturity shorter than your Segment's
remaining time to maturity. This volatility is derived by linearly
interpolating between the implied volatilities of put options having the
moneyness values that are above and below the moneyness value of the
hypothetical put option.
(b)We then determine the implied volatility of a put option that has the
same moneyness as the hypothetical put option but with the closest
available time to maturity longer than your Segment's remaining time to
maturity. This volatility is derived by linearly interpolating between
the implied volatilities of put options having the moneyness values that
are above and below the moneyness value of the hypothetical put option.
(c)The volatility input for your Segment's time to maturity will then be
determined by linearly interpolating between the volatilities derived in
steps (a) and (b).
(2)LIBOR Rate -- Key duration LIBOR rates will be retrieved from a recognized
financial reporting vendor. LIBOR rates will be retrieved for maturities
adjacent to the actual time remaining in the Segment at the time of the
early distribution. We will use linear interpolation to derive the exact
remaining duration rate needed as the input.
(3)Index Dividend Yield -- On a daily basis we will get the projected annual
dividend yield across the entire Index. This value is a widely used
assumption and is readily available from recognized financial reporting
vendors.
In general, the Put Option Factor has an inverse relationship with the S&P 500
Price Return index. In addition to the factors discussed above, the Put Option
Factor is also influenced by time to Segment Maturity. We determine Put Option
Factors at the end of each business day. Generally, a business day is any day
the New York Stock Exchange is open for trading. If any inputs to the Black
Scholes formula are unavailable on a business day, we would use the value of
the input from the most recent preceding business day. The Put Option Factor
that applies to a transaction or valuation made on a business day will be the
Factor for that day. The Put Option Factor that applies to a transaction or
valuation made on a non-business day will be the Factor for the next business
day.
Appendix II at the end of this Prospectus provides examples of how the Early
Distribution Adjustment is calculated.
TRANSFERS
There is no charge to transfer into and out of the MSO Holding Account and you
can make a transfer at any time to or from the investment options available
under your policy subject to any transfer restrictions within your policy. You
may not transfer into the MSO Holding Account while the Extended No Lapse
Guarantee Rider is in effect with your policy, if applicable. You must
terminate the Extended No Lapse Guarantee Rider before electing MSO. Any
restrictions applicable to transfers between the MSO Holding Account and such
investment options would be the same transfer restrictions applicable to
transfers between the investment options available under your policy. However,
once policy account value has been swept from the MSO Holding Account into a
Segment, transfers into or out of that Segment before its Segment Maturity Date
will not be permitted. Please note that while a Segment is in effect, before
the Segment Maturity Date, the amount available for transfers from the Unloaned
GIO will be limited to avoid reducing the Unloaned GIO below the remaining
Charge Reserve Amount.
Thus the amount available for transfers from the Unloaned GIO will not be
greater than any excess of the Unloaned GIO over the remaining Charge Reserve
Amount.
WITHDRAWALS
Once policy account value has been swept from the MSO Holding Account into a
Segment, you will not be allowed to withdraw the account value out of a Segment
before the Segment Maturity Date unless you surrender your policy. You may also
take a loan; please see "Loans" later in this Prospectus for more information.
Any account value taken out of a Segment before the Segment Maturity Date will
generate an Early Distribution Adjustment. Please note that while a Segment is
in effect, before the Segment Maturity Date, the amount available for
withdrawals from the Unloaned GIO will be limited to avoid reducing the
Unloaned GIO below the Charge Reserve Amount. Thus, if there is any policy
account value in a Segment, the amount which would otherwise be available to
you for a partial withdrawal of net cash surrender value will be reduced, by
the amount (if any) by which the sum of your Segment Distribution Values and
the Charge Reserve Amount exceeds the policy surrender charge.
If the policy owner does not indicate or if we cannot allocate the withdrawal
as requested due to insufficient funds, we will allocate the withdrawal
proportionately from your values in the Unloaned GIO (excluding the Charge
Reserve Amount) and your values in the variable investment options including
the MSO Holding Account.
CASH SURRENDER VALUE, NET CASH SURRENDER VALUE AND LOAN VALUE
If you have amounts allocated to MSO Segments, the Segment Distribution Values
will be used in place of the Segment Account Values in calculating the amount
of any cash surrender value, net cash surrender value and maximum amount
available for loans (please refer to your base variable life insurance policy
prospectus for a further explanation of these latter terms). This means an EDA
would apply to those amounts. Please see Appendix II for more information.
GUIDELINE PREMIUM FORCE-OUTS
For policies that use the Guideline Premium Test, a new Segment will not be
established or created if we determine, when we process your election, that a
distribution from the policy will be required to maintain its qualification as
life insurance under federal tax law at any time during the Segment Term.
However, during a Segment Term if a distribution becomes necessary under the
force-out rules of Section 7702 of the Internal Revenue Code, it will be
deducted proportionately from the values in the Unloaned GIO (excluding the
Charge Reserve Amount) and in any variable investment option, including any
value in the MSO Holding Account but excluding any Segment Account Values.
If the Unloaned GIO (excluding the Charge Reserve Amount) and variable
investment options, including any value in the MSO Holding Account, are
insufficient to cover the force-out in its entirety, any
15
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
remaining amount required to be forced out will be taken from the individual
Segments proportionately, based on the current Segment Distribution Values.
ANY PORTION OF A FORCE-OUT DISTRIBUTION TAKEN FROM AN INDIVIDUAL SEGMENT WILL
GENERATE A CORRESPONDING EARLY DISTRIBUTION ADJUSTMENT OF THE SEGMENT ACCOUNT
VALUE.
If the Unloaned GIO (excluding the remaining Charge Reserve Amount), together
with the variable investment options including any value in the MSO Holding
Account, and the Segment Distribution Values, is still insufficient to cover
the force-out in its entirety, the remaining amount of the force-out will be
allocated to the Unloaned GIO and reduce or eliminate any remaining Charge
Reserve Amount under the Unloaned GIO.
LOANS
Please refer to the appropriate variable life insurance policy prospectus for
information regarding policy loan provisions.
You may specify how your loan is to be allocated among the MSO, the variable
investment options and the Unloaned GIO. Any portion of a requested loan
allocated to the MSO will be redeemed from the individual Segments and the MSO
Holding Account proportionately, based on the value of the MSO Holding Account
and the current Segment Distribution Values of each Segment. Any portion
allocated to an individual Segment will generate a corresponding Early
Distribution Adjustment of the Segment Account Value and be subject to a higher
guaranteed maximum loan spread (2% for policies with a contract state of Oregon
and 5% for all other policies).
If you do not specify or if we cannot allocate the loan according to your
specifications, we will allocate the loan proportionately from your values in
the Unloaned GIO (excluding the Charge Reserve Amount) and your values in the
variable investment options including the MSO Holding Account.
If the Unloaned GIO (excluding the remaining amount of the Charge Reserve
Amount), together with the variable investment options including any value in
the MSO Holding Account, are insufficient to cover the loan in its entirety,
the remaining amount of the loan will be allocated to the individual Segments
proportionately, based on current Segment Distribution Values.
ANY PORTION OF A LOAN ALLOCATED TO AN INDIVIDUAL SEGMENT WILL GENERATE A
CORRESPONDING EARLY DISTRIBUTION ADJUSTMENT OF THE SEGMENT ACCOUNT VALUE AND BE
SUBJECT TO A HIGHER GUARANTEED MAXIMUM LOAN SPREAD.
If the Unloaned GIO (excluding the remaining amount of the Charge Reserve
Amount), together with the variable investment options including any value in
the MSO Holding Account and the Segment Distribution Values, are still
insufficient to cover the loan in its entirety, the remaining amount of the
loan will be allocated to the Unloaned GIO and will reduce or eliminate the
remaining Charge Reserve Amount.
Loan interest is due on each policy anniversary. If the interest is not paid
when due, it will be added to your outstanding loan and allocated on the same
basis as monthly deductions. See "How we deduct policy monthly charges during a
Segment Term."
Whether or not any Segment is in effect and has not yet reached its Segment
Maturity Date, loan repayments will first reduce any loaned amounts that are
subject to the higher maximum loan interest spread. Loan repayments will first
be used to restore any amounts that, before being designated as loan
collateral, had been in the Unloaned GIO. Any portion of an additional loan
repayment allocated to the MSO at the policy owner's direction (or according to
premium allocation percentages) will be transferred to the MSO Holding Account
to await the next available Segment Start Date and will be subject to the same
conditions described earlier in this Prospectus.
PAID UP DEATH BENEFIT GUARANTEE
Please note that the MSO is not available while the Paid Up Death Benefit
Guarantee is in effect. The Paid Up Death Benefit Guarantee provides an
opportunity to lock in all or a portion of your policy's death benefit,
provided certain conditions are met. Please see the appropriate variable life
insurance policy prospectus for more information.
EXTENDED NO LAPSE GUARANTEE RIDER
Please note that the MSO is not available while the Extended No Lapse Guarantee
Rider is in effect. You must terminate the Extended No Lapse Guarantee Rider
before electing MSO. The Extended No Lapse Guarantee guarantees that your
policy will not terminate for a certain number of years, provided certain
conditions are met. Please see your Incentive Life Legacy(R) II prospectus for
more information.
LOAN EXTENSION ENDORSEMENT
We will include all Segment Values in determining whether the policy will go on
to Loan Extension. If the Loan Extension goes into effect, all Segments will be
terminated and, you will forfeit any positive index performance and be subject
to an Early Distribution Adjustment with respect to these amounts. In addition,
MSO will no longer be available once you go on Loan Extension. Please see the
appropriate variable life insurance policy prospectus for more information.
LONG-TERM CARE SERVICES/SM/ RIDER
If you elect the Long-Term Care Services/SM/ Rider, after a period of coverage
ends before coverage is continued as a Nonforfeiture Benefit, if any MSO
Segments are in effect, they will be terminated with corresponding early
distribution adjustments, and the MSO Segment values will be reallocated to the
variable investment options and your GIO based on your premium allocations then
in effect.
LIVING BENEFITS RIDER
If a Living Benefits Rider or an accelerated death benefit rider (which may be
referred to as a "total and permanent disability accelerated death benefit
rider" or a "limited life expectancy accelerated death benefit rider") is
included with your policy, the portion of the cash surrender value that is on
lien and is allocated to your values in the variable investment options under
your policy and investment in the MSO will be transferred to and maintained as
part of the Unloaned GIO. You may tell us how much of the accelerated payment
is to be transferred from your value in each variable investment option and
your value in the MSO. Units will be redeemed from each variable investment
option sufficient to cover the amount of the accelerated payment that is
allocated to it and transferred to the Unloaned GIO. Any portion of the payment
allocated to the MSO based on your instructions will be deducted from any value
in the MSO Holding Account and the individual Segments on a pro-rata basis,
based on any value in the MSO Holding Account and the current Segment
Distribution Value of each Segment, and transferred to the Unloaned GIO. Any
portion of the payment allocated to an individual Segment
16
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
will cause a corresponding Early Distribution Adjustment of the Segment Account
Value. If you do not tell us how to allocate the payment, or if we cannot
allocate it based on your directions, we will allocated it based on our rules
then in effect. Allocation rules will be provided upon request. Such transfers
will occur as of the date we approve an accelerated death benefit payment.
There will be no charge for such transfers. Please see the appropriate variable
life insurance policy prospectus for more information.
ASSET REBALANCING SERVICE
If you are invested in MSO, you may also elect the Asset Rebalancing Service.
However, any amounts allocated to the MSO will not be included in the rebalance
transactions. The investment options available to your Asset Rebalancing
Service do not include the MSO Holding Account or Segments. Please see the
appropriate variable life insurance policy prospectus for more information.
REQUESTED FACE AMOUNT INCREASES
Please refer to the appropriate variable life insurance policy prospectus for
conditions that will apply for a requested face amount increase.
If you wish to make a face amount increase during a Segment Term, the MSO
requires that a minimum amount of policy account value be available to be
transferred into the Unloaned GIO (if not already present in the Unloaned GIO),
and that the balance after deduction of monthly charges remain there during the
longest remaining Segment Term subject to any loans as described above. This
minimum amount will be any amount necessary to supplement the existing Charge
Reserve Amount so as to be projected to be sufficient to cover all monthly
deductions during the longest remaining Segment Term. Such amount will be
determined assuming at the time such calculation is made that no interest or
investment performance is credited to or charged against the policy account
value, and that no further policy changes or additional premium payments are
made.
Any necessary transfers to supplement the amount already present in the
Unloaned GIO in order to meet this minimum requirement will take effect on the
effective date of the face amount increase. There will be no charge for this
transfer. Any transfer from the variable investment options including the MSO
Holding Account will be made in accordance with your directions. Your transfer
instructions will be requested as part of the process for requesting the face
amount increase. If the requested allocation is not possible due to
insufficient funds, the required amount will be transferred proportionately
from the variable investment options, as well as the MSO Holding Account. If
such transfers are not possible due to insufficient funds, your requested face
amount increase will be declined.
YOUR RIGHT TO CANCEL WITHIN A CERTAIN NUMBER OF DAYS
Please refer to the appropriate variable insurance policy prospectus for more
information regarding your right to cancel your policy within a certain number
of days and the Investment Start Date, which is the business day your
investment first begins to earn a return for you. However, the policy
prospectus provisions that address when amounts will be allocated to the
investment options do not apply to amounts allocated to the MSO.
In those states that require us to return your premium without adjustment for
investment performance within a certain number of days, we will initially put
all amounts which you have allocated to the MSO into our EQ/Money Market
investment option. If we have received all necessary requirements for your
policy as of the day your policy is issued, on the first business day following
the later of the twentieth day after your policy is issued or the Investment
Start Date (30th day in most states if your policy is issued as the result of a
replacement), we will re-allocate those amounts to the MSO Holding Account
where they will remain until the next available Segment Start Date, at which
time such amounts will be transferred to a new Segment of the MSO subject to
meeting the conditions described in this Prospectus. However, if we have not
received all necessary requirements for your policy as of the day your policy
is issued, we will re-allocate those amounts to the MSO Holding Account on the
20th day (longer if your policy is issued as the result of a replacement)
following the date we receive all necessary requirements to put your policy in
force at our Administrative Office. Your financial professional can provide
further information on what requirements may apply to your policy.
In all other states, any amounts allocated to the MSO will first be allocated
to the MSO Holding Account where they will remain for 20 days (unless the
policy is issued as the result of a replacement, in which case amounts in the
MSO Holding Account will remain there for 30 days (45 days in Pennsylvania)).
Thereafter, such amounts will be transferred to a new Segment of the MSO on the
next available Segment Start Date, subject to meeting the conditions described
in this Prospectus.
SEGMENT MATURITY GIO LIMITATION
Upon advance notification, we reserve the right to limit the amount of your
Segment Maturity Value that may be allocated to the guaranteed interest option.
However, that limitation will never be less than 5% of your Segment Maturity
Value. We will transfer any portion of your Segment Maturity Value that is
allocated to the guaranteed interest option in excess of the Segment Maturity
GIO Limitation to the EQ/Money Market variable investment option unless we
receive your instructions prior to the Segment Maturity Date that the Segment
Maturity Value should be allocated to the MSO Holding Account or to any other
available variable investment option.
As of November 18, 2013, MONY America will not exercise its right to limit the
amounts that may be allocated and or transferred to the guaranteed interest
option ("policy guaranteed interest option limitation"). All references to the
policy guaranteed interest option limitation in your prospectus, and/or in your
policy and/or in the endorsements to your policy, are not applicable. See
"Appendix I -- Policy/rider variations" for more information.
RIGHT TO DISCONTINUE AND LIMIT AMOUNTS ALLOCATED TO THE MSO
We reserve the right to restrict or terminate future allocations to the MSO at
any time. If this right were ever to be exercised by us, all Segments
outstanding as of the effective date of the restriction would be guaranteed to
continue uninterrupted until the Segment Maturity Date. As each such Segment
matured, the balance would be reallocated to the Unloaned GIO and/or variable
investment options per your instructions, or to the EQ/Money Market investment
option if no instructions are received. We may also temporarily suspend
offering Segments at any time and for any reason including emergency conditions
as determined by the Securities and Exchange Commission. We also reserve the
right to establish a maximum amount for any single policy that can be allocated
to the MSO.
17
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
ABOUT SEPARATE ACCOUNT LIO
Amounts allocated to the MSO are held in a "non-unitized" separate account we
have established under the Commissioner of Insurance in the State of Arizona.
We own the assets of the separate account, as well as any favorable investment
performance on those assets. You do not participate in the performance of the
assets held in this separate account. We may, subject to state law that
applies, transfer all assets allocated to the separate account to our general
account. These assets are also available to the insurer's general creditors and
an owner should look to the financial strength of MONY America for its
claims-paying ability. We guarantee all benefits relating to your value in the
MSO, regardless of whether assets supporting the MSO are held in a separate
account or our general account.
Our current plans are to invest separate account assets in fixed-income
obligations, including corporate bonds, mortgage-backed and asset-backed
securities, and government and agency issues. Futures, options and interest
rate swaps may be used for hedging purposes.
Although the above generally describes our plans for investing the assets
supporting our obligations under MSO, we are not obligated to invest those
assets according to any particular plan except as we may be required to by
state insurance laws.
18
DESCRIPTION OF THE MARKET STABILIZER OPTION(R)
5. Distribution of the policies
--------------------------------------------------------------------------------
The MSO is only available only under certain variable life insurance policies
issued by MONY America. Extensive information about the arrangements for
distributing the variable life insurance policies, including sales
compensation, is included under "Distribution of the Policies" in the
appropriate variable life insurance policy prospectus and in the statement of
additional information that relates to that prospectus. All of that information
applies regardless of whether you choose to use the MSO, and there is no
additional plan of distribution or sales compensation with respect to the MSO.
There is also no change to the information regarding the fact that the
principal underwriter(s) is an affiliate of MONY America or an indirect wholly
owned subsidiary of AXA Equitable.
19
DISTRIBUTION OF THE POLICIES
6. Additional Information
--------------------------------------------------------------------------------
Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), exempts an insurance company from filing reports under the Exchange Act
when the insurance company issues certain types of insurance products that are
registered under the Securities Act of 1933 and such products are regulated
under state law. The units of the Market Stabilizer Option(R) described in this
Prospectus fall within the exemption provided under rule 12h-7. The Company
relies on the exemption provided under rule 12h-7, and does not file reports
under the Exchange Act.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of MONY America at December 31, 2016 and 2015 and for
each of the three years in the period ended December 31, 2016 are incorporated
by reference herein in reliance on the reports of PricewaterhouseCoopers LLP,
an independent registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP provides independent audit services and certain
other non-audit services to MONY America as permitted by the applicable SEC
independence rules. PricewaterhouseCoopers LLP's address is 300 Madison Avenue,
New York, New York 10017.
20
ADDITIONAL INFORMATION
Appendix I: Policy/rider variations
--------------------------------------------------------------------------------
This Appendix reflects policy/rider variations that differ from what is
described in this rider or in your prospectus but may have been in effect at
the time your policy/rider was issued. If you purchased your policy/rider
during the "Approximate Time Period" below, the noted variation may apply to
you. Your policy/rider may have been available in your state past the
approximate end date indicated below. For more information about your
particular features, charges and options available under your policy/rider
based upon when you purchased it, please contact your financial professional
and/or refer to your policy/rider.
-----------------------------------------------------------------------------
APPROXIMATE TIME PERIOD FEATURE/BENEFIT VARIATION
-----------------------------------------------------------------------------
November 18, 2013 to Guaranteed interest MONY America will not
present option ("GIO") limitation exercise its right to
limit the amounts that
may be allocated and or
transferred to the
guaranteed interest
option ("policy
guaranteed interest
option limitation"). All
references to the policy
guaranteed interest
option limitation in
your prospectus, and/or
in your policy and/or in
the endorsements to your
policy, are not
applicable.
-----------------------------------------------------------------------------
September 19, 2009 - Guaranteed interest Any reference to the
November 18, 2013 option ("GIO") limitation policy guaranteed
interest option
limitation is
inapplicable.
-----------------------------------------------------------------------------
I-1
APPENDIX I: POLICY/RIDER VARIATIONS
Appendix II: Early Distribution Adjustment Examples
--------------------------------------------------------------------------------
HYPOTHETICAL EARLY DISTRIBUTION ADJUSTMENT EXAMPLES
A. EXAMPLES OF EARLY DISTRIBUTION ADJUSTMENT TO DETERMINE SEGMENT DISTRIBUTION
VALUE
The following examples represent a policy owner who has invested in both
Segments 1 and 2. They are meant to show how much value is available to a
policy owner when there is a full surrender of the policy by the policy owner
or other full distribution from these Segments as well as the impact of Early
Distribution Adjustments on these Segments. The date of such hypothetical
surrender or distribution is the Valuation Date specified below and, on that
date, the examples assume 9 months remain until Segment 1's maturity date and 3
months remain until Segment 2's maturity date.
Explanation of formulas and derivation of Put Option Factors is provided in
notes (1)-(3) below.
------------------------------------------------------------------------------------------------------------------
DIVISION OF MSO INTO SEGMENT 1 SEGMENT 2
SEGMENTS (DISTRIBUTION AFTER 3 MONTHS) (DISTRIBUTION AFTER 9 MONTHS) TOTAL
------------------------------------------------------------------------------------------------------------------
Start Date 3rd Friday of July, Calendar Year Y 3rd Friday of January, Calendar Year Y
------------------------------------------------------------------------------------------------------------------
Maturity Date 3rd Friday of July, Calendar Year Y+1 3rd Friday of January, Calendar Year Y+1
------------------------------------------------------------------------------------------------------------------
Segment Term 1 year 1 year
------------------------------------------------------------------------------------------------------------------
Valuation Date 3rd Friday of October, Calendar Year Y 3rd Friday of October, Calendar Year Y
------------------------------------------------------------------------------------------------------------------
INITIAL SEGMENT ACCOUNT 1,000 1,000 2,000
------------------------------------------------------------------------------------------------------------------
Variable Index Benefit
Charge 0.75% 0.75%
------------------------------------------------------------------------------------------------------------------
Remaining Segment Term 9 months / 12 months = 9/12 = 0.75 3 months / 12 months = 3/12 = 0.25
------------------------------------------------------------------------------------------------------------------
EXAMPLE I - THE INDEX IS DOWN 10% AT THE TIME OF THE EARLY DISTRIBUTION
ADJUSTMENT
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN INDEX VALUE -10% -10% TOTAL
-------------------------------------------------------------------------------------------------------------------------------
Put Option Factor 0.020673 0.003425
-------------------------------------------------------------------------------------------------------------------------------
Put Option Component: Put Option Component:
1000 * 0.020673 = 20.67 1000 * 0.003425 = 3.43
Charge Refund Component: Charge Refund Component:
1000 * 0.75 * (0.0075 / (1 - 0.0075)) = 5.67 1000 * 0.25 * (0.0075 / (1 - 0.0075)) = 1.89
Early Distribution Total EDA: Total EDA:
Adjustment 20.67 - 5.67 = 15.00 3.43 - 1.89 = 1.54 16.54
-------------------------------------------------------------------------------------------------------------------------------
SEGMENT DISTRIBUTION
VALUE 1000 - 15.00 = 985.00 1000 - 1.54 = 998.46 1,983.46
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Put Option
Component -2.067% -0.343%
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Charge Refund
Component 0.567% 0.189%
-------------------------------------------------------------------------------------------------------------------------------
Total % change in
Segment Account Value
due to the EDA -1.50% -0.15%
-------------------------------------------------------------------------------------------------------------------------------
II-1
APPENDIX II: EARLY DISTRIBUTION ADJUSTMENT EXAMPLES
EXAMPLE II - THE INDEX IS UP 10% AT THE TIME OF THE EARLY DISTRIBUTION
ADJUSTMENT
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN INDEX VALUE 10% 10% TOTAL
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Put Option Factor 0.003229 0.000037
-------------------------------------------------------------------------------------------------------------------------------
Put Option Component: Put Option Component:
1000 * 0.003229 = 3.23 1000 * 0.000037 = 0.04
Charge Refund Component: Charge Refund Component:
1000 * 0.75 * (0.0075 / (1 - 0.0075)) = 5.67 1000 * 0.25 * (0.0075 / (1 - 0.0075)) = 1.89
Total EDA: Total EDA:
3.23 - 5.67 = -2.44 0.04 - 1.89 = -1.85
Early Distribution
Adjustment -4.29
-------------------------------------------------------------------------------------------------------------------------------
SEGMENT DISTRIBUTION
VALUE 1000 - (-2.44) = 1002.44 1000 - (-1.85) = 1001.85 2,004.29
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Put Option
Component -0.323% -.004%
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Charge Refund
Component 0.567% 0.189%
-------------------------------------------------------------------------------------------------------------------------------
Total % change in
Segment Account Value
due to the EDA 0.244% 0.185%
-------------------------------------------------------------------------------------------------------------------------------
EXAMPLE III - THE INDEX IS DOWN 40% AT THE TIME OF THE EARLY DISTRIBUTION
ADJUSTMENT
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN INDEX VALUE -40% -40% TOTAL
-------------------------------------------------------------------------------------------------------------------------------
Put Option Factor 0.163397 0.152132
-------------------------------------------------------------------------------------------------------------------------------
Put Option Component: Put Option Component:
1000 * 0.163397 = 163.40 1000 * 0.152132 = 152.13
Charge Refund Component: Charge Refund Component:
1000 * 0.75 * (0.0075 / (1 - 0.0075)) = 5.67 1000 * 0.25 * (0.0075 / (1 - 0.0075)) = 1.89
Early Distribution Total EDA: Total EDA:
Adjustment 163.40 - 5.67 = 157.73 152.13 - 1.89 = 150.24 307.97
-------------------------------------------------------------------------------------------------------------------------------
SEGMENT DISTRIBUTION VALUE 1000 - 157.73 = 842.27 1000 - 150.24 = 849.76 1,692.03
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Put Option
Component -16.34% -15.213%
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Charge Refund
Component 0.567% 0.189%
-------------------------------------------------------------------------------------------------------------------------------
Total % change in
Segment Account Value
due to the EDA -15.773% -15.024%
-------------------------------------------------------------------------------------------------------------------------------
EXAMPLE IV - THE INDEX IS UP 40% AT THE TIME OF THE EARLY DISTRIBUTION
ADJUSTMENT
-------------------------------------------------------------------------------------------------------------------------------
CHANGE IN INDEX VALUE 40% 40% TOTAL
-------------------------------------------------------------------------------------------------------------------------------
Put Option Factor 0.000140 0.000000
-------------------------------------------------------------------------------------------------------------------------------
Put Option Component: Put Option Component:
1000 * 0.000140 = 0.14 1000 * .000000 = 0.00
Charge Refund Component: Charge Refund Component:
1000 * 0.75 * (0.0075 / (1 - 0.0075)) = 5.67 1000 * 0.25 * (0.0075 / (1 - 0.0075)) = 1.89
Early Distribution Total EDA: Total EDA:
Adjustment 0.14 - 5.67 = -5.53 0.00 - 1.89 = -1.89 -7.42
-------------------------------------------------------------------------------------------------------------------------------
SEGMENT DISTRIBUTION
VALUE 1000 - (-5.53) = 1005.53 1000 - (-1.89) = 1001.89 2,007.42
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Put Option
Component -0.014% 0%
-------------------------------------------------------------------------------------------------------------------------------
% change in principal
due to the Charge Refund
Component 0.567% 0.189%
-------------------------------------------------------------------------------------------------------------------------------
Total % change in
Segment Account Value
due to the EDA 0.553% 0.189%
-------------------------------------------------------------------------------------------------------------------------------
(1)Early Distribution Adjustment = (Segment Account Value) x [ (Put Option
Factor) - (Number of days between Valuation Date and Maturity Date) /(
Number of days between Start Date and Maturity Date) x ( 0.0075 / (1 -
0.0075) )]. The denominator of the charge refund component of this formula,
I.E., "(1 - 0.0075)," is an adjustment that is necessary in order for the
pro rata refund of the Variable Index Benefit Charge to be based on the
gross amount on which that charge was paid by the policy owner on the
Segment Start Date.
II-2
APPENDIX II: EARLY DISTRIBUTION ADJUSTMENT EXAMPLES
(2)Segment Distribution Value = (Segment Account Value) - (Early Distribution
Adjustment).
(3)Derivation of Put Option Factor: In practice, the Put Option Factor will be
calculated based on a Black Scholes model, with input values which are
consistent with current market prices. We will utilize implied volatility
quotes - the standard measure used by the market to quote option prices - as
an input to a Black Scholes model in order to derive the estimated market
prices. The input values to the Black Scholes model that have been utilized
to generate the hypothetical examples above are as follows: (1) Implied
volatility - 25%; (2) Libor rate corresponding to remainder of segment term
- 1.09% annually; (3) Index dividend yield - 2% annually.
B.EXAMPLE OF AN EARLY DISTRIBUTION ADJUSTMENT CORRESPONDING TO A LOAN ALLOCATED
TO SEGMENTS, FOR THE SEGMENT DISTRIBUTION VALUES AND SEGMENT ACCOUNT VALUES
LISTED ABOVE FOR A CHANGE IN INDEX VALUE OF -40%
This example is meant to show the effect on a policy if, rather than a full
distribution, you took a loan in the circumstances outlined in Example III
above when the Index is down 40%. Thus the policy owner is assumed to have an
initial Segment Account Value of 1,000 in each of Segment 1 and Segment 2. It
is also assumed that 9 months remain until Segment 1's maturity date and 3
months remain until Segment 2's maturity date.
Loan Amount: 750
Loan Date: 3rd Friday of October, Calendar Year Y
Explanation of formulas is provided in notes (a)-(d) below.
THE INDEX IS DOWN 40% AT THE TIME OF THE EARLY DISTRIBUTION ADJUSTMENT
-------------------------------------------------------------------------------
CHANGE IN INDEX VALUE -40% -40% TOTAL
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Segment Account Value before Loan 1,000.00 1,000.00 2,000.00
-------------------------------------------------------------------------------
Loan Allocation/(a)/ 373.34 376.66 750.00
-------------------------------------------------------------------------------
Early Distribution Adjustment/(b)/ 69.91 66.59 136.55
-------------------------------------------------------------------------------
Segment Account Value after Loan/(c)/ 556.73 556.72 1,113.45
-------------------------------------------------------------------------------
Segment Distribution Value after Loan/(d)/ 468.93 473.10 942.03
-------------------------------------------------------------------------------
(a)When more than one Segment is being used, we would allocate the loan between
the Segments proportionately to the Segment Distribution Value in each. We
take the Segment Distribution Value of each Segment (shown in Example III
above) and divide it by the total Segment Distribution Values for Segments 1
and 2. This gives us the proportionate amount of the loan that should be
allocated to each Segment. For example, for Segment 1, that would be 750 x
(842.27/1,692.03) = 373.34
(b)This is the Early Distribution Adjustment that would be deducted from each
Segment, as a result of the loan, based on the amount of the loan that is
allocated to that Segment. It is equal to a percentage of the Early
Distribution Adjustment that would apply if a full distribution from the
Segment were being made, rather than only a partial distribution. This
percentage would be 44.32545% for Segment 1 in this example: i.e., 373.34
(the amount of reduction in Segment Distribution Value as a result of the
loan) divided by 842.27 (the Segment Distribution Value before the loan).
Thus, the Early Distribution Adjustment that is deducted for Segment 1 due
to the loan in this example would be 69.91 (i.e., 44.32545% of the 157.73
Early Distribution adjustment shown in Example III above that would apply if
a full rather than only a partial distribution from the Segment were being
made). Of this 69.91, 72.43 would be attributable to the Put Option
Component and -2.51 would be attributable to the Charge Refund Component
(which are calculated by applying 44.32545% to the 163.40 Put Option
Component and the 5.67 Charge Refund Component shown in Example III).
Similarly, the Early Distribution Adjustment deducted as a result of the
loan from Segment 2 would be 66.59, of which 67.43 would be attributable to
the Put Option Component and -0.84 would be attributable to the Charge
Refund Component.
(c)The Segment Account Value after Loan represents the Segment Account Value
before Loan minus the Loan Allocation and the Early Distribution Adjustment.
For example, for Segment 1, that would be 1,000 - 373.34 - 69.93 = 556.73.
(d)Segment Distribution Value after Loan represents the amount a policy owner
would receive from a Segment if they decided to surrender their policy
immediately after this loan transaction. We would take the pre-loan Segment
Distribution Value (shown in Example III above) and subtract the Loan
Allocation. For example, for Segment 1, that would be 842.27 - 373.34 =
468.93.
II-3
APPENDIX II: EARLY DISTRIBUTION ADJUSTMENT EXAMPLES
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Table of Contents: Page
Risk Factors........................................................................... F-1
Description of Business................................................................ F-11
Description of Property................................................................ F-21
Legal Proceedings...................................................................... F-22
Financial Statements and Notes to Financial Statements................................. F-23
Selected Financial Data................................................................ F-57
Management's Discussion and Analysis of Financial Condition and Results of Operations.. F-59
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... F-81
Quantitative and Qualitative Disclosures About Market Risk............................. F-82
Directors, Executive Officers, Promoters and Control Persons........................... F-84
Executive Compensation................................................................. F-89
Security Ownership of Certain Beneficial Owners and Management......................... F-122
Transactions with Related Persons, Promoters and Certain Control Persons............... F-124
RISK FACTORS
IN THE COURSE OF CONDUCTING OUR BUSINESS OPERATIONS, WE COULD BE EXPOSED TO A
VARIETY OF RISKS. THIS "RISK FACTORS" SECTION PROVIDES A SUMMARY OF SOME OF THE
SIGNIFICANT RISKS THAT HAVE AFFECTED AND COULD AFFECT OUR BUSINESS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION. IN THIS SECTION, THE TERMS "WE," "US" AND
"OUR" REFER TO MONY LIFE INSURANCE COMPANY OF AMERICA. UNLESS OTHERWISE DEFINED
HEREIN, CAPITALIZED TERMS USED IN THE "RISK FACTORS" ARE DEFINED IN THE
"DESCRIPTION OF BUSINESS" THAT IMMEDIATELY FOLLOWS THIS SECTION.
RISKS RELATING TO CONDITIONS IN THE CAPITAL MARKETS AND ECONOMY
CONDITIONS IN THE GLOBAL CAPITAL MARKETS AND THE ECONOMY COULD ADVERSELY AFFECT
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our business, results of operations and financial condition are materially
affected by conditions in the global capital markets and the economy generally.
While financial markets in the U.S. generally performed well in 2016, a wide
variety of factors continue to impact economic conditions and consumer
confidence. These factors include, among others, concerns over the pace of
economic growth in the U.S., continued low interest rates, the U.S. Federal
Reserve's plans to further raise short-term interest rates, the strength of the
U.S. Dollar, the uncertainty created by what actions the Trump administration
may pursue, global economic factors including quantitative easing or similar
programs by the European Central Bank, the United Kingdom's vote to exit from
the European Union and geopolitical issues. Given our interest rate and equity
market exposure, certain of these factors could have an adverse effect on us.
Our revenues may decline, our profit margins could erode and we could incur
significant losses.
Factors such as consumer spending, business investment, government spending,
the volatility and strength of the equity markets, interest rates, deflation
and inflation all affect the business and economic environment and, ultimately,
the amount and profitability of our business. In an economic downturn
characterized by higher unemployment, lower family income, lower corporate
earnings, lower business investment and lower consumer spending, the demand for
insurance products and our investment returns could be adversely affected. In
addition, the levels of surrenders and withdrawals of our variable life
contracts we face may be adversely impacted. Our policyholders may choose to
defer paying insurance premiums or stop paying insurance premiums altogether.
Adverse changes in the economy could affect our earnings negatively and could
have a material adverse effect on our business, results of operations and
financial condition. See "Description of Business -- Products" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
INTEREST RATE FLUCTUATIONS AND/OR PROLONGED PERIODS OF LOW OR NEGATIVE INTEREST
RATES MAY NEGATIVELY IMPACT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.
Some of our life insurance products and our investment returns are sensitive to
interest rate fluctuations, and changes in interest rates may adversely affect
our investment returns and results of operations, including in the following
respects:
. changes in interest rates may reduce the spread on some of our products
between the amounts that we are required to pay under the contracts and
the rate of return we are able to earn on our general account
investments supporting the contracts. When interest rates decline, we
have to reinvest the cash income from our investments in lower yielding
instruments, potentially reducing net investment income. Since many of
our policies have guaranteed minimum interest or crediting rates or
limit the resetting of interest rates, the spreads could decrease and
potentially become negative. When interest rates rise, we may not be
able to replace the assets in our general account as quickly with the
higher yielding assets needed to fund the higher crediting rates
necessary to keep these products and contracts competitive, which may
result in higher lapse rates;
. when interest rates rise rapidly, policy loans and surrenders and
withdrawals of life insurance policies may increase as policyholders
seek to buy products with perceived higher returns, requiring us to sell
investment assets potentially resulting in realized investment losses,
or requiring us to accelerate the amortization of deferred acquisition
costs ("DAC") or value of business acquired ("VOBA");
. a decline in interest rates accompanied by unexpected prepayments of
certain investments may result in reduced investment income and a
decline in our profitability. An increase in interest rates accompanied
by unexpected extensions of certain lower yielding investments may
result in a decline in our profitability;
. changes in the relationship between long-term and short-term interest
rates may adversely affect the profitability of some of our products;
. changes in interest rates may adversely impact our liquidity and
increase our costs of financing;
. our mitigation efforts with respect to interest rate risk are primarily
focused on maintaining an investment portfolio with diversified
maturities that has a weighted average duration that is approximately
equal to the duration of our estimated liability cash flow profile.
F-1
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
However, our estimate of the liability cash flow profile may turn out to
be inaccurate. In addition, there are practical and capital market
limitations on our ability to accomplish this matching. Due to these and
other factors we may need to liquidate investments prior to maturity at
a loss in order to satisfy liabilities or be forced to reinvest funds in
a lower rate environment;
. although we take measures, including hedging strategies utilizing
derivative instruments, to manage the economic risks of investing in a
changing interest rate environment, we may not be able to effectively
mitigate, and we may sometimes choose based on economic considerations
and other factors not to fully mitigate or to increase the interest rate
risk of our assets relative to our liabilities; and
. for certain of our products, a delay between the time we make changes in
interest rate and other assumptions used for product pricing and the
time we are able to reflect these assumptions in products available for
sale may negatively impact the long-term profitability of products sold
during the intervening period.
Recent periods have been characterized by low interest rates. A prolonged
period during which interest rates remain at levels lower than those
anticipated may result in greater costs associated with certain of our product
features; higher costs for derivative instruments used to hedge certain of our
product risks; or shortfalls in investment income on assets supporting policy
obligations as our portfolio earnings decline over time, each of which may
require us to record charges to increase reserves. In addition to compressing
spreads and reducing net investment income, such an environment may cause
policies to remain in force for longer periods than we anticipated in our
pricing, potentially resulting in greater claims costs than we expected and
resulting in lower overall returns on business in force.
EQUITY MARKET DECLINES AND VOLATILITY MAY ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Declines or volatility in the equity markets can negatively impact our
investment returns as well as our business and profitability. For example,
equity market declines and/or volatility may, among other things:
. decrease the account values of our variable life contracts which, in
turn, reduces the amount of revenue we derive from fees charged on those
account and asset values;
. influence policyholder behavior, which may adversely impact the levels
of surrenders, withdrawals and amounts of withdrawals of our variable
life contracts or cause policyholders to reallocate a portion of their
account balances to more conservative investment options (which may have
lower fees), which could negatively impact our future profitability
and/or increase our benefit obligations particularly if they were to
remain in such options during an equity market increase;
. negatively impact the value of equity securities we hold for investment,
including our investment in units of AllianceBernstein L.P., a Delaware
limited partnership ("AB"), thereby reducing our statutory capital;
. reduce demand for variable products relative to fixed products; and
. lead to changes in estimates underlying our calculations of DAC that, in
turn, could accelerate our DAC and VOBA amortization and reduce our
current earnings.
RISKS RELATING TO OUR REINSURANCE AND HEDGING PROGRAMS
OUR REINSURANCE AND HEDGING PROGRAMS MAY BE INADEQUATE TO PROTECT US AGAINST
THE FULL EXTENT OF THE EXPOSURE OR LOSSES WE SEEK TO MITIGATE.
Certain of our products contain minimum crediting rates. Downturns in equity
markets, increased equity volatility, and/or reduced interest rates could
result in an increase in the valuation of liabilities associated with such
products, resulting in increases in reserves and reductions in net earnings. In
the normal course of business, we seek to mitigate some of these risks to which
our business is subject through our reinsurance and hedging programs. However,
these programs cannot eliminate all of the risks and no assurance can be given
as to the extent to which such programs will be effective in reducing such
risks.
Reinsurance. We utilize reinsurance to mitigate a portion of the risks that we
face, principally in certain of our in-force life insurance products with
regard to mortality. Under our reinsurance arrangements, other insurers assume
a portion of the obligation to pay claims and related expenses to which we are
subject. However, we remain liable as the direct insurer on all risks we
reinsure and, therefore, are subject to the risk that our reinsurer is unable
or unwilling to pay or reimburse claims at the time demand is made. For
example, a material amount of liabilities were reinsured to Protective Life
Insurance Company ("Protective Life") in October 2013. Given our significant
concentration of reinsurance with Protective Life, if Protective Life fails to
perform its obligations under the reinsurance treaty, such a failure could have
a material adverse impact on our results of operations and financial condition.
See "Description of Business -- Reinsurance and Hedging" and Note 6 of Notes to
Financial Statements. Although we evaluate periodically the financial condition
(including the applicable capital requirements) of our reinsurers, the
inability or unwillingness of a reinsurer to meet its obligations to us (or the
inability to collect under our reinsurance treaties for any other reason) could
have a material adverse impact on our results of operations and financial
condition. See "Description of Business -- Reinsurance and Hedging" and Notes 6
and 7 of Notes to Financial Statements.
F-2
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
We are continuing to utilize reinsurance to mitigate a portion of our risk on
certain new life insurance sales. Prolonged or severe adverse mortality
experience could result in increased reinsurance costs, and ultimately, may
reduce the availability of reinsurance for future life insurance sales. If, for
new sales, we are unable to maintain our current level of reinsurance or
purchase new reinsurance protection in amounts that we consider sufficient, we
would either have to be willing to accept an increase in our net exposures,
revise our pricing to reflect higher reinsurance premiums or limit the amount
of new business written on any individual life. If this were to occur, we may
be exposed to reduced profitability and cash flow strain or we may not be able
to price new business at competitive rates.
Hedging Programs. We hedge crediting rates to mitigate certain risks associated
with our Market Stabilizer Option(R) and our indexed universal life insurance
products. These products permit the contract owner to participate in the
performance of an index, ETF or a commodity price movement up to a cap for a
set period of time. They also contain a protection feature, in which we will
absorb up to a certain percentage loss of value in an index, ETF or commodity
price, which varies by product segment. In order to support the returns
associated with these features, we enter into derivative contracts whose
payouts, in combination with fixed income investments, emulate those of the
index, ETF or commodity price, subject to caps and buffers. In certain cases,
however, we may not be able to apply these techniques to effectively hedge
these risks because the derivative market(s) in question may not be of
sufficient size or liquidity or there could be an operational error in the
application of our hedging strategy or for other reasons. The operation of our
hedging programs is based on models involving numerous estimates and
assumptions, including, among others, mortality, lapse, surrender and
withdrawal rates and amounts of withdrawals, election rates, fund performance,
market volatility, interest rates and correlation among various market
movements. There can be no assurance that ultimate actual experience will not
differ materially from our assumptions, particularly (but not only) during
periods of high market volatility, which could adversely impact results of
operations and financial condition. If we are unable to effectively hedge these
risks, we could experience economic losses which could have a material adverse
impact on our results of operations and financial condition.
OUR REINSURANCE ARRANGEMENTS WITH AXA RE ARIZONA COMPANY MAY BE ADVERSELY
IMPACTED BY CHANGES IN REGULATORY REQUIREMENTS REGARDING THE USE OF CAPTIVES.
We have ceded to our affiliate, AXA RE Arizona Company, a captive reinsurance
company established by AXA Financial in 2003 ("AXA Arizona"), the no lapse
guarantee riders contained in certain variable and interest sensitive life
policies.
Recently, the National Association of Insurance Commissioners (the "NAIC") and
certain state regulators have been scrutinizing and further regulating
insurance companies' use of affiliated captive reinsurers or off-shore
entities. For example, the NAIC adopted a new actuarial guideline, known as "AG
48" that governs the reinsurance of term and universal life insurance business
to captives by prescribing requirements for the types of assets that may be
held by captives to support the reserves. The requirements in AG 48 became
effective on January 1, 2015, and apply in respect of term and universal life
insurance policies written from and after January 1, 2015, or written prior to
January 1, 2015, but not included in a captive reinsurer financing arrangement
as of December 31, 2014. In addition, a number of lawsuits have been filed
against insurance companies, including an affiliate of ours, over the use of
captive reinsurers. For additional information, see "Business -- Regulation --
Insurance Regulation." If the Arizona Department of Insurance or other state
insurance regulators were to restrict the use of such captive reinsurers or if
we otherwise are unable to continue to use a captive reinsurer, the capital
management benefits we receive under the AXA Arizona reinsurance arrangement
could be adversely. This could cause us to recapture the business reinsured to
AXA Arizona and adjust the design of our risk mitigation and hedging programs,
which could adversely affect our competitive position, capital, liquidity and
financial condition and results of operations.
RISKS RELATING TO THE NATURE OF OUR BUSINESS, THE PRODUCTS WE OFFER, OUR
STRUCTURE AND PRODUCT DISTRIBUTION
OUR PRODUCTS CONTAIN NUMEROUS FEATURES AND ARE SUBJECT TO EXTENSIVE REGULATION
AND FAILURE TO ADMINISTER OR MEET ANY OF THE COMPLEX PRODUCT REQUIREMENTS MAY
REDUCE PROFITABILITY.
Our products are subject to a complex and extensive array of state and federal
tax, securities, insurance and employee benefit plan laws and regulations,
which are administered and enforced by a number of different governmental and
self-regulatory authorities, including, among others, state insurance
regulators, state securities administrators, state banking authorities, the
Securities and Exchange Commission (the "SEC"), the Financial Industry
Regulatory Authority, Inc. ("FINRA"), the U.S. Department of Labor (the "DOL")
and the Internal Revenue Service (the "IRS"). See "Business -- Regulation --
Insurance Regulation."
For example, U.S. federal income tax law imposes requirements relating to
insurance product design, administration and investments that are conditions
for beneficial tax treatment of such products under the Internal Revenue Code.
Additionally, state and federal securities and insurance laws impose
requirements relating to insurance product design, offering and distribution
and administration. Failure to administer product features in accordance with
contract provisions or applicable law, or to meet any of these complex tax,
securities, or insurance requirements could subject us to administrative
penalties imposed by a particular governmental or self-regulatory authority,
unanticipated costs associated with remedying such failure or other claims,
litigation, harm to our reputation or interruption of our operations, If this
were to occur, it could adversely impact our profitability, results of
operations and financial condition.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
THE AMOUNT OF STATUTORY CAPITAL THAT WE HAVE AND THE AMOUNT OF STATUTORY
CAPITAL WE MUST HOLD TO MEET OUR STATUTORY CAPITAL REQUIREMENTS AND OUR
FINANCIAL STRENGTH AND CREDIT RATINGS CAN VARY SIGNIFICANTLY FROM TIME TO TIME.
Statutory accounting standards and capital and reserve requirements for MLOA
are prescribed by the applicable state insurance regulators and the NAIC. State
insurance regulators have established regulations that govern reserving
requirements and provide minimum capitalization requirements based on
risk-based capital ("RBC") ratios for life insurance companies. This RBC
formula establishes capital requirements relating to insurance, business, asset
and interest rate risks. In any particular year, statutory surplus amounts and
RBC ratios may increase or decrease depending on a variety of factors,
including but not limited to the amount of statutory income or losses we
generate (which itself is sensitive to equity market and credit market
conditions), changes in reserves, the amount of additional capital we must hold
to support business growth, changes in equity market levels, the value of
certain fixed-income and equity securities in our investment portfolio
(including the value of AB units), changes in interest rates, as well as
changes to existing RBC formulas. Additionally, state insurance regulators have
significant leeway in how to interpret existing regulations, which could
further impact the amount of statutory capital or reserves that we must
maintain. Our financial strength and credit ratings are significantly
influenced by our statutory surplus amount and our RBC ratio. Moreover, rating
agencies may implement changes to their internal models that have the effect of
increasing or decreasing the amount of capital we must hold in order to
maintain our current ratings. To the extent that our statutory capital
resources are deemed to be insufficient to maintain a particular rating by one
or more rating agencies, our financial strength and credit ratings might be
downgraded by one or more rating agencies. There can be no assurance that we
will be able to maintain our current RBC ratio in the future or that our RBC
ratio will not fall to a level that could have a material adverse effect on our
business, results of operations or financial condition.
CHANGES IN STATUTORY RESERVE OR OTHER REQUIREMENTS AND/OR THE IMPACT OF ADVERSE
MARKET CONDITIONS COULD RESULT IN CHANGES TO OUR PRODUCT OFFERINGS THAT COULD
NEGATIVELY IMPACT OUR BUSINESS.
Changes in statutory reserve or other requirements, increased costs of hedging,
other risk mitigation techniques and financing and other adverse market
conditions could result in certain products becoming less profitable or
unprofitable. These circumstances may cause us to modify and/or eliminate
certain features of various products, including our universal life products
among others, and could cause the suspension or cessation of sales of certain
products in the future. Any modifications to products that we may make could
result in certain of our products being less attractive and/or competitive.
This could adversely impact sales which could negatively impact AXA Advisors'
ability to retain its sales personnel and our ability to maintain our
distribution relationships. This, in turn, may negatively impact our business
and results of operations and financial condition.
A DOWNGRADE IN OUR FINANCIAL STRENGTH AND CLAIMS-PAYING RATINGS COULD ADVERSELY
AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Claims paying and financial strength ratings are important factors in
establishing the competitive position of insurance companies. A downgrade of
our ratings or those of AXA and/or AXA Financial could adversely affect our
business and results of operations by, among other things, reducing new sales
of our products, increasing surrenders and withdrawals from our existing
contracts, possibly requiring us to reduce prices or take other actions for
many of our products and services to remain competitive, or adversely affecting
our ability to obtain reinsurance or obtain reasonable pricing on reinsurance.
A downgrade in our ratings may also adversely affect our cost of raising
capital or limit our access to sources of capital.
AXA FINANCIAL COULD SELL INSURANCE PRODUCTS THROUGH ANOTHER ONE OF ITS
INSURANCE SUBSIDIARIES WHICH WOULD RESULT IN REDUCED SALES OF OUR PRODUCTS AND
TOTAL REVENUES.
We are a wholly owned subsidiary of AXA Financial, a diversified financial
services organization offering a broad spectrum of financial advisory,
insurance and investment management products and services. As part of AXA
Financial's ongoing efforts to efficiently manage capital amongst its insurance
subsidiaries, improve the quality of the product line-up of its insurance
subsidiaries and enhance the overall profitability of AXA Financial Group, AXA
Financial could sell insurance products through another one of its insurance
subsidiaries instead of us, which would result in reduced sales of our products
and total revenues. This in turn would negatively impact our business, results
of operations and financial condition.
WE FACE COMPETITION FROM OTHER INSURANCE COMPANIES, BANKS AND OTHER FINANCIAL
INSTITUTIONS, WHICH MAY ADVERSELY IMPACT OUR MARKET SHARE AND PROFITABILITY.
There is strong competition among insurers, banks, brokerage firms and other
financial institutions and providers seeking clients for the types of products
and services we provide. Competition is intense among a broad range of
financial institutions and other financial service providers for retirement and
other savings dollars. This competition makes it especially difficult to
provide unique insurance products since, once such products are made available
to the public, they often are reproduced and offered by our competitors. Also,
this competition may adversely impact our market share and profitability.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Our ability to compete is dependent on numerous factors including, among
others, the successful implementation of our strategy; our financial strength
as evidenced, in part, by our financial and claims-paying ratings; new
regulations and/or different interpretations of existing regulations; our
access to diversified sources of distribution; our size and scale; our product
quality, range, features/functionality and price; our ability to bring
customized products to the market quickly; our technological capabilities; our
ability to explain complicated products and features to our distribution
channels and customers; crediting rates on our fixed products; the visibility,
recognition and understanding of our brands in the marketplace; our reputation
and quality of service; the tax-favored status certain of our products receive
under current federal and state laws; and, with respect to variable insurance
products, investment options, flexibility and investment management
performance. See "Description of Business -- Competition."
THE ABILITY OF FINANCIAL PROFESSIONALS ASSOCIATED WITH AXA ADVISORS AND AXA
NETWORK TO SELL OUR COMPETITORS' PRODUCTS COULD RESULT IN REDUCED SALES OF OUR
PRODUCTS AND REVENUES.
Most of the financial professionals associated with AXA Advisors and AXA
Network can sell products from competing unaffiliated insurance companies. To
the extent the financial professionals sell our competitors' products rather
than our products, we will experience reduced sales and revenues.
THE INABILITY OF AXA ADVISORS AND AXA NETWORK TO RECRUIT, MOTIVATE AND RETAIN
EXPERIENCED AND PRODUCTIVE FINANCIAL PROFESSIONALS MAY ADVERSELY AFFECT OUR
BUSINESS.
Financial professionals associated with AXA Advisors and AXA Network are key
factors driving our sales. Intense competition exists among insurers and other
financial services companies for financial professionals. Companies compete for
financial professionals principally with respect to compensation policies,
products and sales support. Competition is particularly intense in the hiring
and retention of experienced financial professionals. Although we believe that
AXA Advisors and AXA Network offer financial professionals a strong value
proposition, we cannot provide assurances that AXA Advisors and AXA Network
will be successful in their efforts to recruit, motivate and retain top
financial professionals.
CONSOLIDATION OF DISTRIBUTORS OF INSURANCE PRODUCTS MAY ADVERSELY AFFECT THE
INSURANCE INDUSTRY AND THE PROFITABILITY OF OUR BUSINESS.
The insurance industry distributes many of its products through other financial
institutions such as banks and broker-dealers. An increase in the consolidation
activity of bank and other financial services companies may create firms with
even stronger competitive positions, negatively impact the industry's sales,
increase competition for access to distributors, result in greater distribution
expenses and impair our ability to market insurance products to our current
customer base or expand our customer base. Consolidation of distributors and/or
other industry changes may also increase the likelihood that distributors will
try to renegotiate the terms of any existing selling agreements to terms less
favorable to us.
RISKS RELATING TO ESTIMATES, ASSUMPTIONS AND VALUATIONS
OUR RESERVES COULD BE INADEQUATE DUE TO DIFFERENCES BETWEEN OUR ACTUAL
EXPERIENCE AND MANAGEMENT'S ESTIMATES AND ASSUMPTIONS.
We establish and carry reserves to pay future policyholder benefits and claims.
Our reserve requirements for our direct and reinsurance assumed business are
calculated based on a number of estimates and assumptions, including estimates
and assumptions related to future mortality, interest rates, future equity
performance, reinvestment rates, persistency, claims experience, and
policyholder elections (i.e., the exercise or non-exercise of rights by
policyholders under the contracts). Examples of policyholder elections include,
but are not limited to, lapses and surrenders, withdrawals and amounts of
withdrawals, and contributions and the allocation thereof. The assumptions and
estimates used in connection with the reserve estimation process are inherently
uncertain and involve the exercise of significant judgment. We review the
appropriateness of reserves and the underlying assumptions on a quarterly basis
and make adjustments when appropriate. We cannot, however, determine with
precision the amounts that we will pay for, or the timing of payment of, actual
benefits and claims or whether the assets supporting the policy liabilities
will grow to the level assumed prior to payment of benefits or claims. Our
claim costs could increase significantly and our reserves could be inadequate
if actual results differ significantly from our estimates and assumptions. If
so, we will be required to increase reserves or reduce DAC, which could
adversely impact our earnings and/or capital. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Critical
Accounting Estimates."
OUR PROFITABILITY MAY DECLINE IF MORTALITY RATES OR PERSISTENCY RATES DIFFER
SIGNIFICANTLY FROM OUR PRICING EXPECTATIONS.
We set prices for our insurance products based upon expected claims and payment
patterns, using assumptions for mortality rates of our policyholders. In
addition to the potential effect of natural or man-made disasters, significant
changes in mortality could emerge gradually over
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
time, due to changes in the natural environment, the health habits of the
insured population, the economic environment, or other factors. Pricing of our
insurance products are also based in part upon expected persistency of these
products, which is the probability that a policy will remain in force from one
period to the next. Persistency within our life products may be significantly
impacted by, among other things, conditions in the capital markets, the
changing needs of our policyholders, the manner in which a product is marketed
or illustrated, and competition, including the availability of new products.
The development of a secondary market for life insurance, including life
settlements or "viaticals" and investor owned life insurance, and to a lesser
extent third party investor strategies in the annuities market, could adversely
affect the profitability of existing business and our pricing assumptions for
new business. Significant deviations in actual experience from our pricing
assumptions could have an adverse effect on the profitability of our products.
Although some of our products permit us to increase premiums or adjust other
charges and credits during the life of the policy, the adjustments permitted
under the terms of the policies may not be sufficient to maintain
profitability. Many of our products do not permit us to increase premiums or
adjust other charges and credits or limit those adjustments during the life of
the policy.
OUR EARNINGS ARE IMPACTED BY DAC AND VOBA ESTIMATES THAT ARE SUBJECT TO CHANGE.
Our earnings for any period depend in part on the amount of our life insurance
product acquisition costs (including commissions, underwriting, agency and
policy issue expenses) that can be deferred and amortized rather than expensed
immediately. They also depend in part on the pattern of DAC and VOBA
amortization and the recoverability of DAC and VOBA which are both based on
models involving numerous estimates and subjective judgments, including those
regarding investment results including, hedging costs, Separate Account
performance, Separate Account fees, mortality and expense margins, expected
market rates of return, lapse rates and anticipated surrender charges. These
estimates and judgments are required to be revised periodically and adjusted as
appropriate. Revisions to our estimates may result in a change in DAC and VOBA
amortization, which could negatively impact our earnings.
WE USE FINANCIAL MODELS THAT RELY ON A NUMBER OF ESTIMATES, ASSUMPTIONS AND
PROJECTIONS THAT ARE INHERENTLY UNCERTAIN AND WHICH MAY CONTAIN ERRORS.
We use models in our hedging programs and many other aspects of our operations,
including but not limited to product development and pricing, capital
management, the estimation of actuarial reserves, the amortization of DAC and
the value of business acquired and the valuation of certain other assets and
liabilities. These models rely on estimates, assumptions and projections that
are inherently uncertain and involve the exercise of significant judgment. Due
to the complexity of such models, it is possible that errors in the models
could exist and our controls could fail to detect such errors. Failure to
detect such errors could result in a negative impact to our results of
operations and financial position.
THE DETERMINATION OF THE AMOUNT OF ALLOWANCES AND IMPAIRMENTS TAKEN ON OUR
INVESTMENTS IS SUBJECTIVE AND COULD MATERIALLY IMPACT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
The determination of the amount of allowances and impairments vary by
investment type and is based upon our evaluation and assessment of known and
inherent risks associated with the respective asset class. Such evaluations and
assessments are revised as conditions change and new information becomes
available. Management updates its evaluations regularly and reflects changes in
allowances and impairments in operations as such evaluations are revised. There
can be no assurance that management's judgments, as reflected in our financial
statements, will ultimately prove to be an accurate estimate of the actual and
eventual diminution in realized value. Furthermore, additional impairments may
need to be taken or allowances provided for in the future.
CREDIT, COUNTERPARTY AND INVESTMENTS RELATED RISKS
OUR REQUIREMENTS TO PLEDGE COLLATERAL OR MAKE PAYMENTS RELATED TO DECLINES IN
ESTIMATED FAIR VALUE OF SPECIFIED ASSETS MAY ADVERSELY AFFECT OUR LIQUIDITY AND
EXPOSE US TO COUNTERPARTY CREDIT RISK.
Some of our transactions with financial and other institutions specify the
circumstances under which the parties are required to pledge collateral related
to any decline in the market value of the specified assets. In addition, under
the terms of some of our transactions, we may be required to make payments to
our counterparties related to any decline in the market value of the specified
assets. The amount of collateral we may be required to pledge and the payments
we may be required to make under these agreements may increase under certain
circumstances, which could adversely affect our liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
IF THE COUNTERPARTIES TO THE DERIVATIVE INSTRUMENTS WE USE TO HEDGE THE RISKS
ON CERTAIN OF OUR PRODUCTS DEFAULT OR FAIL TO PERFORM, WE MAY BE EXPOSED TO
RISKS WE HAD SOUGHT TO MITIGATE, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We hedge crediting rates to mitigate certain risks associated with our Market
Stabilizer Option(R) and our indexed universal life insurance products. See
"Description of Business -- Products -- Reinsurance and Hedging" and
"Management's Discussion and Analysis of Financial
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Condition and Results of Operations -- Derivatives." If our counterparties fail
or refuse to honor their obligations under these derivative instruments, we
could face significant losses to the extent collateral agreements do not fully
offset our exposures. This is a more pronounced risk to us in view of the
stresses suffered by financial institutions over the past several years. Such
failure could have a material adverse effect on our financial condition and
results of operations.
LOSSES DUE TO DEFAULTS, ERRORS OR OMISSIONS BY THIRD PARTIES, INCLUDING
OUTSOURCING RELATIONSHIPS, COULD MATERIALLY ADVERSELY IMPACT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We depend on third parties and affiliates that owe us money, securities or
other assets to pay or perform under their obligations. These parties include
the issuers whose securities we hold in our investment portfolios, borrowers
under the mortgage loans we make, customers, trading counterparties,
counterparties under swap and other derivative contracts, clearing agents,
exchanges, clearing houses and other financial intermediaries. These parties
may default on their obligations to us due to bankruptcy, lack of liquidity,
downturns in the economy or real estate values, operational failure or other
reasons.
We also depend on third parties and affiliates in other contexts. For example,
in establishing the amount of the liabilities and reserves associated with the
risks assumed in connection with reinsurance pools and arrangements, we rely on
the accuracy and timely delivery of data and other information from ceding
companies.
We also rely on third parties and affiliates to whom we outsource certain
technology platforms, information systems and administrative functions,
including records retention. For example, we rely on Protective Life to provide
all administrative services and other related services with respect to business
reinsured with Protective Life. See "Description of Business -- Reinsurance and
Hedging." and Note 6 of Notes to Financial Statements. If we do not effectively
implement and manage our outsourcing strategy, third party vendor providers do
not perform as anticipated, such vendors' internal controls fail or are
inadequate, or we experience technological or other problems associated with
outsourcing transitions, we may not realize anticipated productivity
improvements or cost efficiencies and may experience operational difficulties,
increased costs and reputational damage.
Losses associated with defaults or other failures by these third parties and
outsourcing partners upon whom we rely could materially adversely impact our
business, results of operations and financial condition.
SOME OF OUR INVESTMENTS ARE RELATIVELY ILLIQUID AND MAY BE DIFFICULT TO SELL,
OR TO SELL IN SIGNIFICANT AMOUNTS AT ACCEPTABLE PRICES, TO GENERATE CASH TO
MEET OUR NEEDS.
We hold certain investments that may lack liquidity, such as privately placed
fixed maturity securities, mortgage loans, commercial mortgage backed
securities and limited partnership interests. These asset classes represented
approximately 16.2% of the carrying value of our total cash and invested assets
as of December 31, 2016. Although we seek to adjust our cash and short-term
investment positions to minimize the likelihood that we would need to sell
illiquid investments, if we were required to liquidate these investments on
short notice, we may have difficulty doing so and be forced to sell them for
less than we otherwise would have been able to realize. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General Accounts Investment Portfolio."
GROSS UNREALIZED LOSSES ON FIXED MATURITY AND EQUITY SECURITIES MAY BE REALIZED
OR RESULT IN FUTURE IMPAIRMENTS, RESULTING IN A REDUCTION IN OUR NET EARNINGS.
Fixed maturity and equity securities classified as available-for-sale are
reported at fair value. Unrealized gains or losses on available-for-sale
securities are recognized as a component of other comprehensive income (loss)
and are, therefore, excluded from net earnings. Our gross unrealized losses on
fixed maturity and equity securities at December 31, 2016 were approximately
$18 million. The accumulated change in estimated fair value of these
available-for-sale securities is recognized in net earnings when the gain or
loss is realized upon the sale of the security or in the event that the decline
in estimated fair value is determined to be other-than-temporary and an
impairment charge to earnings is taken. Realized losses or impairments may have
a material adverse effect on our net earnings in a particular quarterly or
annual period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General Accounts Investment Portfolio."
LEGAL AND REGULATORY RISKS
WE ARE HEAVILY REGULATED, AND CHANGES IN REGULATION MAY REDUCE OUR
PROFITABILITY AND LIMIT OUR GROWTH.
INSURANCE REGULATION: We are subject to a wide variety of insurance and other
laws and regulations. See "Description of Business - Regulation." State
insurance laws regulate most aspects of our insurance business. We are
domiciled in Arizona and are primarily regulated by the Director of Insurance
of the Arizona Department of Insurance and by the states in which we are
licensed.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Our products are highly regulated and approved by the individual state
regulators where such products are sold. State insurance regulators and the
NAIC regularly reexamine existing laws and regulations applicable to insurance
companies and their products. Changes in these laws and regulations, or in
interpretations thereof, including, potentially rescinding prior product
approvals, are often made for the benefit of the consumer at the expense of the
insurer and, thus, could have a material adverse effect on our financial
condition and results of operations. See "Description of Business -- Regulation
-- Insurance Regulation" and "Description of Business -- Regulation -- NAIC."
U.S. FEDERAL REGULATION AFFECTING INSURANCE: Currently, the U.S. federal
government does not directly regulate the business of insurance. While the
Dodd-Frank Wall Street and Consumer Protection Act (the "Dodd Frank Act") does
not remove primary responsibility for the supervision and regulation of
insurance from the states, Title V of the Dodd Frank Act establishes a Federal
Reserve Insurance Office (the "FIO") within the U.S. Treasury Department and
reforms the regulation of the non-admitted property and casualty insurance
market and the reinsurance market. Federal legislation and administrative
policies can significantly and adversely affect insurance companies, including
policies regarding financial services regulation, securities regulation,
derivatives regulation, pension regulation, health care regulation, privacy,
tort reform legislation and taxation. In addition, various forms of direct and
indirect federal regulation of insurance have been proposed from time to time,
including proposals for the establishment of an optional federal charter for
insurance companies. Other aspects of our insurance operations could also be
affected by the Dodd-Frank Act. For example, the Dodd-Frank Act includes a new
framework of regulation of the over-the-counter ("OTC") derivatives markets.
See "Description of Business -- Regulation -- Dodd-Frank Wall Street Reform and
Consumer Protection Act."
INTERNATIONAL REGULATION: In addition, regulators and lawmakers in non-U.S.
jurisdictions are engaged in addressing the causes of the financial crisis and
means of avoiding such crises in the future. For example, the Financial
Stability Board (the "FSB") has identified nine global systemically important
insurers ("G-SIIs"), which includes the AXA Group. While the precise
implications of being designated a G-SII are still developing, it could have
far reaching regulatory and competitive implications for the AXA Group and
adversely impact AXA's capital requirements, profitability, the fungibility of
AXA's capital and ability to provide capital/financial support for AXA Group
companies, including potentially MLOA, AXA's ability to grow through future
acquisitions, internal governance and could change the way AXA conducts its
business and adversely impact AXA's overall competitive position versus
insurance groups that are not designated G-SIIs. The multiplicity of different
regulatory regimes, capital standards and reporting requirements could increase
AXA's operational complexity and costs. All of these possibilities, if they
occurred, could affect the way we conduct our business (including, for example,
which products we offer) and manage capital, and may require us to satisfy
increased capital requirements, all of which in turn could materially affect
our competitive position, results of operations, financial condition and
liquidity. See "Description of Business -- Regulation -- International
Regulation."
GENERAL: From time to time, regulators raise issues during examinations or
audits of us and regulated subsidiaries that could, if determined adversely,
have a material impact on us. In addition, the interpretations of regulations
by regulators may change and statutes may be enacted with retroactive impact,
particularly in areas such as accounting or statutory reserve requirements. We
are also subject to other regulations and may in the future become subject to
additional regulations. See "Description of Business -- Regulation." Compliance
with applicable laws and regulations is time consuming and personnel-intensive,
and changes in these laws and regulations may materially increase our direct
and indirect compliance and other expenses of doing business, thus having a
material adverse effect on our results of operations and financial condition.
THE RESULTS OF THE 2016 UNITED STATES PRESIDENTIAL AND CONGRESSIONAL ELECTIONS
HAVE CREATED REGULATORY UNCERTAINTY FOR THE FINANCIAL SERVICES INDUSTRY.
During the 2016 U.S. Presidential election campaign and following his
inauguration, President Trump has consistently argued that the U.S. is
over-regulated and requested review of wide range of government laws and
regulations. While we cannot ascertain what actions the Trump administration
may ultimately pursue and what actions will have the support of the U.S.
Congress, some of the items being discussed could negatively impact our
business, consolidated results of operations and financial condition.
CHANGES IN U.S. TAX LAWS AND REGULATIONS OR INTERPRETATIONS THEREOF COULD
REDUCE OUR EARNINGS AND NEGATIVELY IMPACT OUR BUSINESS.
Currently, we derive federal and state corporate income tax benefits from
certain items, including but not limited to, the dividends received deduction
("DRD"), various tax credits and insurance reserve and interest expense
deductions. There is a risk that, in the context of deficit reduction or
overall tax reform, federal and/or state tax legislation could modify or
eliminate these or other items from which we derive tax benefits. Such
modifications or eliminations could reduce our earnings by increasing our
actual tax rate and adversely affect our financial condition, results of
operations and liquidity. The modification or elimination of interest expense
deductions could also impact our investments and investment strategies.
Moreover, many of the products that we sell benefit from one or more forms of
tax-favored status under current federal and state income tax regimes. For
example, life insurance and annuity contracts currently allow policyholders to
defer the recognition of taxable income earned within the contract. The
modification or elimination of this tax-favored status could reduce demand for
our products.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Finally, a decrease in individual income tax rates could also affect the demand
for our products. See "Description of Business -- Regulation -- Federal Tax
Legislation."
CHANGES IN ACCOUNTING STANDARDS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
RESULTS OF OPERATIONS AND/OR FINANCIAL CONDITION.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America that are revised from time
to time. Accordingly, from time to time we are required to adopt new or revised
accounting standards issued by recognized authoritative bodies, including the
Financial Accounting Standards Board ("FASB"). In the future, new accounting
pronouncements, as well as new interpretations of existing accounting
pronouncements, may have material adverse effects on our results of operations
and/or financial condition. See Note 2 of Notes to Financial Statements. In
addition AXA, our ultimate parent company, prepares consolidated financial
statements in accordance with International Financial Reporting Standards
("IFRS"). From time to time AXA may be required to adopt new or revised
accounting standards issued by recognized authoritative bodies, including the
International Accounting Standards Board ("IASB"). In the future, new
accounting pronouncements, as well as new interpretations of existing
accounting pronouncements, may have material adverse effects on AXA's
consolidated results of operations and/or financial condition which could
impact the way we conduct our business (including, for example, which products
we offer), our competitive position and the way we manage capital.
LEGAL AND REGULATORY ACTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, REPUTATION AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
A number of lawsuits, claims, assessments and regulatory inquiries have been
filed or commenced against life insurers in the jurisdictions in which we do
business. These actions and proceedings involve, among other things, insurers'
sales practices, alleged agent misconduct, alleged failure to properly
supervise agents, contract administration, product design, features and
accompanying disclosure, cost of insurance increases, the use of captive
reinsurers, payment of death benefits and the reporting and escheatment of
unclaimed property alleged breach of fiduciary duties, alleged mismanagement of
client funds and other general business related matters. Some of these matters
have resulted in the award of substantial fines and judgments against other
insurers, including material amounts of punitive damages, or in substantial
settlements. In some states, juries have substantial discretion in awarding
punitive damages.
From time to time, we are involved in such actions and proceedings and our
results of operations and financial position could be affected by defense and
settlement costs and any unexpected material adverse outcomes in such matters
as well as in other material actions and proceedings pending against us. The
frequency of large damage awards, including large punitive damage awards and
regulatory fines that bear little or no relation to actual economic damages
incurred, continues to create the potential for an unpredictable judgment in
any given matter.
In addition, examinations by Federal and state regulators and other
governmental and self-regulatory agencies including, among others, the SEC,
state attorneys general, insurance and securities regulators and FINRA could
result in adverse publicity, sanctions, fines and other costs. We have provided
and, in certain cases, continue to provide information and documents to the
SEC, FINRA, state attorneys general, Arizona Department of Insurance and other
state insurance departments and other regulators on a wide range of issues. At
this time, management cannot predict what actions the SEC, FINRA and/or other
regulators may take or what the impact of such actions might be. See
"Description of Business -- Regulation" and Note 11 of Notes to Financial
Statements.
OPERATIONAL AND OTHER RISKS
THE COMPUTER SYSTEMS WE RELY ON MAY FAIL OR THEIR SECURITY MAY BE COMPROMISED,
WHICH COULD ADVERSELY IMPACT OUR BUSINESS AND CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Our business is highly dependent upon the effective operation of AXA
Equitable's computer systems. We also have arrangements in place with outside
vendors and other third-party service providers through which we share and
receive information. We rely on these systems throughout our business for a
variety of functions, including processing claims and applications, providing
information to customers and distributors, performing actuarial analyses and
modelling, hedging and maintaining financial records. Despite the
implementation of security and back-up measures, these computer systems and
those of our outside vendors and third-party service providers may be
vulnerable to physical or cyber-attacks, computer viruses or other computer
related attacks, programming errors and similar disruptive problems. The
failure of these systems for any reason could cause significant interruptions
to our operations, which could result in a material adverse effect on our
business, financial condition or results of operations.
Our confidential information is retained on AXA Equitable's computer systems.
AXA Equitable relies on commercial technologies to maintain the security of
those systems. Anyone who is able to circumvent these security measures and
penetrate these computer systems could access,
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
view, misappropriate, alter or delete any information in the systems, including
personally identifiable customer information and proprietary business
information. AXA Equitable's employees, our distribution partners and other
vendors may use portable computers or mobile devices which may contain similar
information to that in computer systems, and these devices have been and can be
lost, stolen or damaged. In addition, an increasing number of states require
that customers be notified if a security breach results in the inappropriate
disclosure of personally identifiable customer information. Any compromise of
the security of these computer systems through cyber-attacks or for any other
reason that results in inappropriate disclosure of personally identifiable
customer information could damage our reputation in the marketplace, deter
people from purchasing our products, subject us to significant civil and
criminal liability and require us to incur significant technical, legal and
other expenses.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE OCCURRENCE OF A CATASTROPHE,
INCLUDING NATURAL OR MAN-MADE DISASTERS.
Any catastrophic event, such as pandemic diseases, terrorist attacks, floods,
severe storms or hurricanes or computer cyber-terrorism, could have an adverse
effect on our business in several respects:
. we could experience long-term interruptions in our service and the
services provided by our significant vendors due to the effects of
catastrophic events. Some of our operational systems are not fully
redundant, and our disaster recovery and business continuity planning
cannot account for all eventualities. Additionally, unanticipated
problems with our disaster recovery systems could further impede our
ability to conduct business, particularly if those problems affect our
computer-based data processing, transmission, storage and retrieval
systems and destroy valuable data;
. the occurrence of a pandemic disease could have a material adverse
effect on our liquidity and operating results due to increased mortality
and, in certain cases, morbidity rates;
. the occurrence of any pandemic disease, natural disaster, terrorist
attacks or any other catastrophic event that results in our workforce
being unable to be physically located at one of our facilities could
result in lengthy interruptions in our service; and
. another terrorist attack in the United States could have long-term
economic impacts that may have severe negative effects on our investment
portfolio and disrupt our business operations. Any continuous and
heightened threat of terrorist attacks could also result in increased
costs of reinsurance.
OUR RISK MANAGEMENT POLICIES AND PROCEDURES MAY NOT BE ADEQUATE TO IDENTIFY,
MONITOR AND MANAGE RISKS, WHICH MAY LEAVE US EXPOSED TO UNIDENTIFIED OR
UNANTICIPATED RISKS, WHICH COULD NEGATIVELY AFFECT OUR BUSINESSES OR RESULT IN
LOSSES.
Our policies and procedures to identify, monitor and manage risks may not be
adequate or fully effective. Many of our methods of managing risk and exposures
are based upon our use of historical market behavior or statistics based on
historical models. As a result, these methods may not predict future exposures,
which could be significantly greater than the historical measures indicate,
such as the risk of pandemics causing a large number of deaths or terrorism.
Other risk management methods depend upon the evaluation of information
regarding markets, clients, catastrophe occurrence or other matters that is
publicly available or otherwise accessible to us, which may not always be
accurate, complete, up-to-date or properly evaluated.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND MAY BE SUBJECT TO
INFRINGEMENT CLAIMS BY A THIRD PARTY.
We rely on a combination of contractual rights, copyright, trademark, and trade
secret laws to establish and protect our intellectual property. Although we use
a broad range of measures to protect our intellectual property rights, third
parties may infringe or misappropriate our intellectual property. The loss of
intellectual property protection or the inability to secure or enforce the
protection of our intellectual property assets could have a material adverse
effect on our business and our ability to compete.
Third parties may have, or may eventually be issued, patents or other
protections that could be infringed by our products, methods, processes or
services or could limit our ability to offer certain product features. In
recent years, there has been increasing intellectual property litigation in the
financial services industry challenging, among other things, product designs
and business processes. If a third party were to successfully assert an
intellectual property infringement claim against us, or if we were otherwise
precluded from offering certain features or designs, or utilizing certain
processes, it could have a material adverse effect on our business, results of
operations and financial condition. See "Description of Business --
Intellectual Property."
F-10
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DESCRIPTION OF BUSINESS/1/
OVERVIEW
MLOA, established in the state of Arizona in 1969, is an indirect, wholly-owned
subsidiary of AXA Financial. Our primary business is to provide life insurance
and employee benefit products to individuals and small and medium-size
businesses. We are licensed to sell our products in 49 states (not including
New York), the District of Columbia and Puerto Rico.
AXA Financial is an indirect, wholly-owned subsidiary of AXA, a French holding
company for the AXA Group, a worldwide leader in financial protection. For
additional information regarding AXA, see "Description of Business -- Parent
Company."
PRODUCTS
As part of AXA Financial's ongoing efforts to efficiently manage capital
amongst its insurance subsidiaries, improve the quality of the product line-up
of its insurance subsidiaries and enhance the overall profitability of AXA
Financial Group, most sales of indexed universal life insurance to
policyholders located outside of New York are being issued through MLOA. We
expect that AXA Financial will continue to issue newly developed life and
employee benefit insurance products to policyholders located outside of New
York through MLOA. Since future decisions regarding product development and
availability depend on factors and considerations not yet known, management is
unable to predict the extent to which we will offer other products in the
future. See "Risk Factors."
LIFE INSURANCE. Our primary life insurance product offerings include:
TERM. Term life is a simple form of life insurance. Term life products provide
a guaranteed benefit upon the death of the insured for a specific time period
(the term) in return for the periodic payment of premiums. Sales of term life
products were not significant in 2016.
UNIVERSAL LIFE. Universal life is a form of permanent life insurance that
provides protection in case of death, as well as a savings or cash value
component. The cash value of a universal life policy is based on the amount of
premiums paid, the declared interest crediting rate and the policy charges.
Unlike term life insurance, flexible premium universal life policies permit
flexibility in the amount and timing of premium payments (within limits) and
they generally offer the policyholder the ability to choose one of two death
benefit options: a level benefit equal to the policy's original face amount or
a variable benefit equal to the original face amount plus any existing policy
account value.
We also offer an indexed universal life product. Indexed universal life
insurance combines life insurance with equity-linked accumulation potential.
The equity linked option(s) provide upside potential for cash value
accumulation up to certain growth cap rates and downside protection through a
floor for certain investment periods. This floor will limit the impact of
decreases over the investment period in the values of the indices selected.
VARIABLE UNIVERSAL LIFE. Variable universal life is a form of permanent life
insurance that combines the premium and death benefit flexibility of universal
life insurance with investment opportunity. A policyholder can invest premiums
in one or more underlying portfolios offering different levels of risk and
growth potential. The investment portfolios provide long-term growth potential,
tax deferred earnings and the ability to make tax free transfers among the
investment portfolios. A policyholder can choose one of two death benefit
options: level benefit equal to the policy's original face amount or a variable
benefit equal to the original face amount plus any existing policy account
value. Variable universal life insurance products offered by us include
single-life products, second-to-die policies (which pay death benefits
following the death of both insureds) and products for the corporate-owned life
insurance ("COLI") market.
We offer an investment option, on our variable universal life product that
offers a policyholder growth potential (up to a cap) and downside protection
through a buffer. Through the use of the upside caps and a downside buffer,
this investment option helps a policyholder manage volatility in his/her
variable universal life policy, which may reduce or potentially eliminate
losses.
-----------
/1/ As used herein, the terms "MLOA", "we", "our" and/or "us" refers to MONY
Life Insurance Company of America, an Arizona stock life insurance
corporation, "AXA Financial" refers to AXA Financial, Inc., a Delaware
corporation, "AXA Financial Group" refers to AXA Financial and its
consolidated subsidiaries, including AXA Equitable Life Insurance Company
("AXA Equitable"), a New York life insurance corporation. The term
"Separate Accounts" refers to the separate account investment assets of
MLOA excluding the assets held in those separate accounts on which MLOA
bears the investment risk. Unless otherwise defined herein, capitalized
terms used in the "Description of Business" are defined in the "Risk
Factors" that immediately precede this section.
F-11
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Universal Life and Variable Universal Life insurance products accounted for
74.4% and 22.5% of our total first year premiums and deposits in 2016,
respectively. For additional information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Premiums and
Deposits."
EMPLOYEE BENEFIT PRODUCTS. We recently entered the group employee benefits
business. We currently offer a suite of insurance products to small and
medium-size businesses. Our primary employee benefit product offerings include:
DENTAL. We have partnered with a leading national PPO network to provide
flexible, comprehensive dental coverage, as well as access to an extensive
network with approximately 200,000 dental access points and over 80,000 unique
dental providers. Our plans cover routine cleanings, fillings and major dental
procedures, as well as optional orthodontia and teeth whitening benefits.
VISION. We have partnered with a leading vision network with over 71,000 access
points and nearly 4,500 participating retail chain locations. Our plans cover
eye exams, glasses, and contact lenses as well as discounts on laser vision
correction surgery.
LIFE INSURANCE. Life insurance can provide security and help offset financial
burdens in the event of death. Additional benefits options can include
supplemental life, voluntary life, or family protection.
SHORT- AND LONG-TERM DISABILITY. Disability insurance provides partial
replacement of lost earnings for insured employees who become disabled, as
defined by their plan provisions. Our products include both short- and
long-term disability coverage options.
DEDUCTIBLE INSURANCE. Deductible insurance provides employees with access to
additional coverage that can relieve the expenses of high out-of-pocket medical
costs and help cover deductibles, coinsurance and copays.
HOSPITAL-PLUS. Hospital Plus (aka Hospital Indemnity) provides employees with
coverage for a variety of expenses, including hospital stays, emergency room
visits, rehabilitation and even childcare during hospitalization.
CRITICAL ILLNESS. Critical illness coverage protects employees from expenses
that can arise from a serious illness, such as a heart attack, stroke, or
cancer. Payments are made directly to employees and can be used for items not
covered by their medical plans, such as paying for childcare or making
necessary modifications to their home.
Employee benefit products accounted for 0.6% of total first year premiums and
deposits in 2016.
SEPARATE ACCOUNT ASSETS
Variable life products offer purchasers the opportunity to direct the
investment of their account values into various Separate Account investment
options. The investment options available to MLOA's variable life policyholders
are comprised of the proprietary fund families of EQ Advisors Trust ("EQAT"),
AXA Premier VIP Trust ("VIP Trust"), each of which are mutual funds for which
our affiliate, AXA Equitable Funds Management Group, LLC, serves as the
investment manager and administrator, and various non-proprietary fund families
for which third parties serve as investment manager. Depending on the
investment options available under the specific contract, variable
policyholders may allocate their funds among a wide variety of these investment
options.
EQAT is a mutual fund offering variable life policyholders a choice of single
or multi-advised equity, bond and money market investment portfolios that
employ either passively managed or actively managed strategies, "hybrid"
portfolios that employ both passively managed and actively managed strategies
and whose assets are allocated among multiple sub-advisers, and thirteen asset
allocation portfolios that invest in other portfolios of EQAT and other
unaffiliated mutual funds or exchange traded funds. VIP Trust is a mutual fund
offering variable life policyholders a choice of twenty-three asset allocation
portfolios that invest in other portfolios of EQAT and other unaffiliated
mutual funds or exchange traded funds. Certain of the EQAT equity portfolios
employ a managed volatility strategy that seeks to reduce equity exposure
during periods in which market volatility has increased to levels that are
meaningfully higher than long-term historic averages.
MARKETS
We primarily target affluent and emerging affluent individuals and families and
small business owners, as well as existing clients. Variable and universal life
insurance is targeted at individuals for protection and estate planning
purposes, and at business owners to assist in, among other things, business
continuation planning and funding for executive benefits. Our employee benefit
products are targeted to small and medium-size businesses seeking to streamline
employee benefits management.
F-12
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DISTRIBUTION
We distribute our products through Retail and Wholesale distribution channels.
RETAIL DISTRIBUTION. Our products are offered on a retail basis by financial
professionals associated with AXA Advisors, LLC ("AXA Advisors"), an affiliated
broker-dealer, and AXA Network, LLC ("AXA Network"), an affiliated general
insurance agency. These financial professionals also have access to and can
offer a broad array of annuity, life insurance, employee benefit products and
investment products and services from unaffiliated insurers and other financial
service providers.
WHOLESALE DISTRIBUTION. We also distribute our products on a wholesale basis
through AXA Distributors, LLC ("AXA Distributors"), an affiliated wholesale
distribution company, to third-party broker-dealers and insurance brokerage
general agencies.
For our employee benefits business we have developed targeted partnerships with
influential regional, national and local brokers and general agents across the
country. We have also developed strategic partnerships with other types of
employee benefits distributors in the market -- including private exchanges,
health plans, and professional employer organizations.
We have entered into agreements pursuant to which we compensate AXA Advisors,
AXA Network and AXA Distributors for distributing and servicing our products.
The agreements provide that compensation will not exceed any limitations
imposed by applicable law.
For additional information on premiums and deposits by the retail and wholesale
channels, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Premium and Deposits."
REINSURANCE AND HEDGING
We have in place reinsurance and hedging programs to reduce our exposure to
mortality, equity market fluctuations, interest rate fluctuations and certain
other product features.
REINSURANCE. We utilize reinsurance to mitigate a portion of the risks that we
face from our in-force life insurance products. Under our reinsurance
arrangements, other insurers assume a portion of the obligation to pay claims
and related expenses to which we are subject. However, we remain liable as the
direct insurer on all risks we reinsure and, therefore, are subject to the risk
that our reinsurer is unable or unwilling to pay or reimburse claims at the
time demand is made. We evaluate the financial condition of our reinsurers in
an effort to minimize our exposure to significant losses from reinsurer
insolvencies.
In October 2013, we entered into a reinsurance agreement (the "Reinsurance
Agreement") with Protective Life Insurance Company ("Protective Life") pursuant
to which Protective Life is reinsuring on a 100% indemnity reinsurance basis an
in-force book of life insurance and annuity policies written by MLOA primarily
prior to 2004. Under the terms of the Reinsurance Agreement, we transferred and
ceded assets equal to approximately $1,308 million, net of ceding commission of
approximately $370 million, in consideration of the transfer of liabilities
amounting to approximately $1,374 million. In addition to the Reinsurance
Agreement, we entered into a long-term administrative services agreement with
Protective Life whereby Protective Life will provide all administrative and
other services with respect to the reinsured business. For additional
information regarding the Reinsurance Agreement, see Notes 6 and 7 of Notes to
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
For business not reinsured with Protective Life, we generally reinsure our
variable life, interest-sensitive life and term life insurance policies on an
excess of retention basis. In 2016, we generally retained up to a maximum of
$4 million of mortality risk on single-life policies and up to a maximum of
$6 million of mortality risk on second-to-die policies. For amounts applied for
in excess of those limits, reinsurance is ceded to AXA Equitable up to a
combined maximum of $20 million of risk on single-life policies and up to a
maximum of $25 million of risk on second-to-die policies. For amounts issued in
excess of those limits we typically obtained reinsurance from unaffiliated
third parties. The reinsurance arrangements obligate the reinsurer to pay a
portion of any death claim in excess of the amount we retain in exchange for an
agreed-upon premium.
In addition to non-affiliated reinsurance, we have ceded to our affiliate, AXA
Arizona, a captive reinsurance company established by AXA Financial, the no
lapse guarantee riders contained in certain variable and interest sensitive
life insurance policies. For additional information, see "Risk Factors" and
Note 7 of Notes to Financial Statements.
REINSURANCE ASSUMED. We do not assume reinsurance from any non-affiliated
insurance company. For additional information about reinsurance strategies
implemented and affiliate reinsurance assumed, see Notes 6 and 7 of Notes to
Financial Statements.
F-13
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
HEDGING. We hedge crediting rates to mitigate certain risks associated with
certain of our products and investment options that permit the contract owner
to participate in the performance of an index, ETF or a commodity price
movement up to a cap for a set period of time while we absorb, up to a certain
percentage, the loss of value in an index, ETF or commodity price, which varies
by product segment. In order to support the returns associated with these
products and features, we enter into derivative contracts whose payouts, in
combination with fixed income investments, emulate those of the index, ETF or
commodity price, subject to caps and buffers.
For additional information about reinsurance and hedging strategies, see "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Notes 6 and 7 of Notes to Financial Statements.
POLICYHOLDER LIABILITIES AND RESERVES
We establish, and carry as liabilities, actuarially determined amounts that are
calculated to meet our policy obligations when a policy matures or is
surrendered, an insured dies or becomes disabled or upon the occurrence of
other covered events. Our reserve requirements are calculated based on a number
of estimates and assumptions, including estimates and assumptions related to
future mortality, interest rates, future equity performance, reinvestment
rates, persistency, claims experience and policyholder elections (i.e., lapses
and surrenders, withdrawals and amounts of withdrawals, contributions and the
allocation thereof, etc.), which we modify to reflect our actual experience
and/or refined assumptions when appropriate.
Pursuant to state insurance laws, we establish statutory reserves, reported as
liabilities, to meet our obligations on our policies. These statutory reserves
are established in amounts sufficient to meet policy obligations, when taken
together with expected future premiums and interest at assumed rates. Statutory
reserves generally differ from actuarial liabilities for future policy benefits
determined using U.S. GAAP.
State insurance laws and regulations require that we submit to state insurance
departments, with each annual report, an opinion and memorandum of a "qualified
actuary" that the statutory reserves and related actuarial amounts recorded in
support of specified policies, and the assets supporting such statutory
reserves and related actuarial amounts, make adequate provision for its
statutory liabilities with respect to these obligations.
For additional information on Policyholder Liabilities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Critical Accounting Policies and Estimates", "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations" and "Risk Factors."
UNDERWRITING AND PRICING
UNDERWRITING. We employ detailed underwriting policies, guidelines and
procedures designed to align mortality results with the assumptions used in
product pricing while providing for competitive risk selection. The risk
selection process is carried out by underwriters who evaluate policy
applications based on information provided by the applicant and other sources.
Specific tests, such as blood analysis, are used to evaluate policy
applications based on the size of the policy, the age of the applicant and
other factors. The purpose of this process is to determine the type and amount
of risk that we are willing to accept. In addition, we continue to utilize and
further develop alternative underwriting methods that rely on predictive
modeling.
For our group employee benefit products that do not require submission of
medical evidence, risk is assessed at the group level. We will set appropriate
plans for the group based on demographic information and, on larger groups,
will also evaluate the experience of the group. For group employee benefit
products that require submission of medical evidence, risk is assessed at the
individual level. For individual employee benefit products, guarantee issue is
offered based on plan design and/or achievement of minimum participation
requirements.
We have senior level oversight of the underwriting process in order to
facilitate quality sales and serve the needs of our customers, while supporting
our financial strength and business objectives. The application of our
underwriting guidelines is continuously monitored through internal underwriting
audits in order to achieve high standards of underwriting and consistency.
PRICING. Pricing for our products is designed to allow us to make an
appropriate profit after paying benefits to customers, and taking account of
all the risks we assume. Product pricing is calculated through the use of
estimates and assumptions for mortality, morbidity, withdrawal rates and
amounts, expenses, persistency, policyholder elections and investment returns,
as well as certain macroeconomic factors. Assumptions used are determined in
light of our underwriting standards and practices. Investment-oriented products
are priced based on various factors, which may include investment return,
expenses, persistency and optionality.
Our life insurance and employee benefit products are highly regulated by the
individual state regulators where these products are sold. From time to time,
we reevaluate the type and level of features currently being offered and may
change the nature and/or pricing of such features for new sales.
F-14
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
We continually review our underwriting and pricing guidelines with a view to
maintaining competitive offerings that are consistent with maintaining our
financial strength and meeting profitability goals.
COMPETITION
There is strong competition among insurers, banks, brokerage firms and other
financial institutions and providers seeking clients for the types of products
we provide. Competition is intense among a broad range of financial
institutions and other financial service providers for retirement and other
savings dollars. For additional information regarding competition, see "Risk
Factors."
The principal competitive factors affecting our business are our financial
strength as evidenced, in part, by our financial and claims-paying ratings;
access to capital; access to diversified sources of distribution; size and
scale; product quality, range, features/functionality and price; our ability to
bring customized products to the market quickly; technological capabilities;
our ability to explain complicated products and features to our distribution
channels and customers; crediting rates on fixed products; visibility,
recognition and understanding of our brand in the marketplace; reputation and
quality of service; the tax-favored status certain of our products receive
under current federal and state laws and, with respect to variable insurance,
investment options, flexibility and investment management performance.
We and our affiliated distributors must attract and retain productive sales
representatives to sell our products. Strong competition continues among
financial institutions for sales representatives with demonstrated ability. We
and our affiliated distribution companies compete with other financial
institutions for sales representatives primarily on the basis of financial
position, product breadth and features, support services and compensation
policies. For additional information, see "Risk Factors."
Legislative and other changes affecting the regulatory environment can affect
our competitive position within the life insurance industry and within the
broader financial services industry. For additional information, see
"Description of Business -- Regulation" and "Risk Factors."
REGULATION
INSURANCE REGULATION
We are licensed to transact insurance business in all states other than New
York and are subject to extensive regulation and supervision by insurance
regulators in these states and the District of Columbia and Puerto Rico. We are
domiciled in Arizona and are primarily regulated by the Director of Insurance
of the Arizona Department of Insurance. The extent of regulation by
jurisdiction varies, but most jurisdictions have laws and regulations governing
the financial aspects and business conduct of insurers. State laws in the U.S.
grant insurance regulatory authorities broad administrative powers with respect
to, among other things, sales practices, establishing statutory capital and
reserve requirements and solvency standards, reinsurance and hedging,
protecting privacy, regulating advertising, restricting the payment of
dividends and other transactions between affiliates, permitted types and
concentrations of investments, and business conduct to be maintained by
insurance companies as well as agent licensing, approval of policy forms and,
for certain lines of insurance, approval or filing of rates. Insurance
regulators have the discretionary authority to limit or prohibit new issuances
of business to policyholders within their jurisdictions when, in their
judgment, such regulators determine that the issuing company is not maintaining
adequate statutory surplus or capital. For additional information on Insurance
Supervision, see "Risk Factors."
We are required to file detailed annual financial statements, prepared on a
statutory accounting basis, with supervisory agencies in each of the
jurisdictions in which we do business. Such agencies may conduct regular or
targeted examinations of our operations and accounts, and make requests for
particular information from us. In addition to oversight by state insurance
regulators, in recent years, the insurance industry has seen an increase in
inquiries from state attorneys general and other state officials regarding
compliance with certain state insurance, securities and other applicable laws.
We have received and responded to such inquiries from time to time.
HOLDING COMPANY AND SHAREHOLDER DIVIDEND REGULATION. Most states, including
Arizona, regulate transactions between an insurer and its affiliates under
insurance holding company acts. The insurance holding company laws and
regulations vary from jurisdiction to jurisdiction, but generally require a
controlled insurance company (insurers that are subsidiaries of insurance
holding companies) to register with state regulatory authorities and to file
with those authorities certain reports, including information concerning its
capital structure, ownership, financial condition, certain intercompany
transactions and general business operations.
State insurance statutes also typically place restrictions and limitations on
the amount of dividends or other distributions payable by insurance company
subsidiaries to their parent companies, as well as on transactions between an
insurer and its affiliates.
For additional information on shareholder dividends, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
F-15
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
NAIC. The mandate of the NAIC is to benefit state insurance regulatory
authorities and consumers by promulgating model insurance laws and regulations
for adoption by the states. The NAIC provides standardized insurance industry
accounting and reporting guidance through its Accounting Practices and
Procedures Manual (the "Manual"). However, statutory accounting principles
continue to be established by individual state laws, regulations and permitted
practices. Changes to the Manual or modifications by the various state
insurance departments may impact the statutory capital and surplus of our U.S.
insurance companies.
In September 2012, the NAIC adopted the Risk Management and Own Risk and
Solvency Assessment Model Act ("ORSA"), which has been enacted by Arizona. ORSA
requires that insurers maintain a risk management framework and conduct an
internal risk and solvency assessment of the insurer's material risks in normal
and stressed environments. The assessment is documented in a confidential
annual summary report, a copy of which must be made available to regulators as
required or upon request.
In December 2012, the NAIC approved a new valuation manual containing a
principles-based approach to life insurance company reserves. Principles-based
reserving is designed to better address reserving for products, including the
current generation of products for which the current formulaic basis for
reserve determination does not work effectively. The principles-based reserving
approach became effective for new business as of January 1, 2017 in Arizona,
with a three-year phase-in period.
CAPTIVE REINSURER REGULATION. As described above, we utilize a captive
reinsurer as part of our capital management strategy. During the last few
years, the NAIC and certain state regulators have been scrutinizing insurance
companies' use of affiliated captive reinsurers or off-shore entities.
In December 2014, the NAIC adopted a new actuarial guideline, known as "AG 48"
that governs the reinsurance of term and universal life insurance business to
captives by prescribing requirements for the types of assets that may be held
by captives to support the reserves. The requirements in AG 48 became effective
on January 1, 2015, and apply in respect of term and universal life insurance
policies written from and after January 1, 2015, or written prior to January 1,
2015, but not included in a captive reinsurer financing arrangement as of
December 31, 2014. The NAIC and state regulators also continue to consider
additional changes relating to the use of captive reinsurers.
We cannot predict what, if any, changes may result from these reviews, further
regulation and/or pending lawsuits regarding the use of captive reinsurers. If
the Arizona Department of Insurance or other state insurance regulators were to
restrict the use of such captive reinsurers or if we otherwise are unable to
continue to use our captive reinsurer, the capital management benefits we
receive under this reinsurance arrangement could be adversely affected. This
could cause us to recapture the business reinsured to AXA Arizona and adjust
the design of our risk mitigation programs. For additional information on our
use of a captive reinsurance company, see "Description of Business --
Reinsurance and Hedging", "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SURPLUS AND CAPITAL; RISK BASED CAPITAL ("RBC"). Insurers are required to
maintain their capital and surplus at or above minimum levels. Regulators have
discretionary authority, in connection with the licensing of insurance
companies, to limit or prohibit an insurer's sales to policyholders if, in
their judgment, the regulators determine that such insurer has not maintained
the minimum surplus or capital or that the further transaction of business will
be hazardous to policyholders. We report our RBC based on a formula calculated
by applying factors to various asset, premium and statutory reserve items, as
well as taking into account the risk characteristics of the insurer. The major
categories of risk involved are asset risk, insurance risk, interest rate risk,
market risk and business risk. The formula is used as a regulatory tool to
identify possible inadequately capitalized insurers for purposes of initiating
regulatory action, and not as a means to rank insurers generally. State
insurance laws provide insurance regulators the authority to require various
actions by, or take various actions against, insurers whose RBC ratio does not
meet or exceed certain RBC levels. As of the date of the most recent annual
statutory financial statements filed with insurance regulators, our RBC was in
excess of each of those RBC levels. For additional information on RBC, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS. Each of the states in which we
are admitted to transact business require life insurers doing business within
the jurisdiction to participate in guaranty associations, which are organized
to pay certain contractual insurance benefits owed pursuant to insurance
policies issued by impaired, insolvent or failed insurers. These associations
levy assessments, up to prescribed limits, on all member insurers in a
particular state on the basis of the proportionate share of the premiums
written by member insurers in the lines of business in which the impaired,
insolvent or failed insurer is engaged. Some states permit member insurers to
recover assessments paid through full or partial premium tax offsets.
During each of the past five years, the assessments levied against us have not
been material.
SECURITIES LAWS
We and certain policies offered by us are subject to regulation under the
Federal securities laws administered by the SEC and under certain state
securities laws. The SEC conducts regular examinations of our operations, and
from time to time makes requests for particular
F-16
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
information from us. The SEC and other governmental regulatory authorities,
including state securities administrators, may institute administrative or
judicial proceedings that may result in censure, fines, issuance of
cease-and-desist orders or other sanctions. Sales of variable insurance
products are regulated by the SEC and FINRA. Certain of our Separate Accounts
are registered as investment companies under the Investment Company Act of
1940, as amended. Separate Account interests under certain insurance policies
issued by us are also registered under the Securities Act of 1933, as amended.
We have provided, and in certain cases continue to provide, information and
documents to, among others, the SEC, FINRA, state attorneys general, state
insurance regulators and other regulators regarding our compliance with
insurance, securities and other laws and regulations regarding the conduct of
our business. For additional information, see Note 11 to Notes to Financial
Statements.
DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
Currently, the U.S. federal government does not directly regulate the business
of insurance. While the Dodd-Frank Act does not remove primary responsibility
for the supervision and regulation of insurance from the states, Title V of the
Dodd-Frank Act establishes the FIO within the U.S. Treasury Department and
reforms the regulation of the non-admitted property and casualty insurance
market and the reinsurance market. The FIO has authority that extends to all
lines of insurance except health insurance, crop insurance and (unless included
with life or annuity components) long-term care insurance. Under the Dodd-Frank
Act, the FIO is charged with monitoring all aspects of the insurance industry
(including identifying gaps in regulation that could contribute to a systemic
crisis), recommending to the Financial Stability Oversight Council ("FSOC") the
designation of any insurer and its affiliates (potentially including AXA and
its affiliates) as a non-bank financial company subject to oversight by the
Board of Governors of the Federal Reserve System (including the administration
of stress testing on capital), assisting the Treasury Secretary in negotiating
"covered agreements" with non-U.S. governments or regulatory authorities, and,
with respect to state insurance laws and regulation, determining whether such
state insurance measures are pre-empted by such covered agreements. In
addition, the FIO is empowered to request and collect data (including financial
data) on and from the insurance industry and insurers (including reinsurers)
and their affiliates. In such capacity, the FIO may require an insurer or an
affiliate of an insurer to submit such data or information as the FIO may
reasonably require. In addition, the FIO's approval will be required to subject
an insurer or a company whose largest U.S. subsidiary is an insurer to the
special orderly liquidation process outside the federal bankruptcy code,
administered by the Federal Deposit Insurance Corporation pursuant to the
Dodd-Frank Act. The Dodd-Frank Act also reforms the regulation of the
non-admitted property/casualty insurance market (commonly referred to as excess
and surplus lines) and the reinsurance markets, including the ability of
non-domiciliary state insurance regulators to deny credit for reinsurance when
recognized by the ceding insurer's domiciliary state regulator.
Other aspects of our operations could also be affected by the Dodd-Frank Act.
These include:
HEIGHTENED STANDARDS AND SAFEGUARDS. The FSOC may recommend that state
insurance regulators or other regulators apply new or heightened standards and
safeguards for activities or practices we and other insurers or other financial
services companies engage in if the FSOC determines that those activities or
practices could create or increase the risk that significant liquidity, credit
or other problems spread among financial companies. We cannot predict whether
any such recommendations will be made or their effect on our business, results
of operations or financial condition.
OVER-THE-COUNTER DERIVATIVES REGULATION. The Dodd-Frank Act includes a
framework of regulation of the OTC derivatives markets. Regulations approved to
date require clearing of previously uncleared transactions and will require
clearing of additional OTC transactions in the future. In addition, recently
approved regulations impose margin requirements on OTC transactions not
required to be cleared. As a result of these regulations, our costs of risk
mitigation have and may continue to increase under the Dodd-Frank Act. For
example, margin requirements, including the requirement to pledge initial
margin for OTC cleared transactions entered into after June 10, 2013 and for
OTC uncleared transactions entered into after the phase-in period, which would
be applicable to us in 2019, have increased. In addition, restrictions on
securities that will qualify as eligible collateral will require increased
holdings of cash and highly liquid securities with lower yields causing a
reduction in income. Centralized clearing of certain OTC derivatives exposes us
to the risk of a default by a clearing member or clearinghouse with respect to
our cleared derivative transactions. We use derivatives to mitigate certain
risks associated with our products. We have always been subject to the risk
that our hedging and other management procedures might prove ineffective in
reducing the risks to which insurance policies expose us or that unanticipated
policyholder behavior or mortality, combined with adverse market events, could
produce economic losses beyond the scope of the risk management techniques
employed. Any such losses could be increased by higher costs of writing
derivatives (including customized derivatives) and the reduced availability of
customized derivatives that might result from the enactment and implementation
of the Dodd-Frank Act.
Although many of the regulations implementing portions of the Dodd-Frank Act
have been promulgated, we are still unable to predict how this legislation may
be interpreted and enforced or the full extent to which implementing
regulations and policies may affect us. Also, the Trump administration and
Congressional majority have indicated that the Dodd-Frank Act will be under
further scrutiny and some of the provisions of the Dodd-Frank Act may be
revised, repealed or amended. There is considerable uncertainty with respect to
the impact the Trump administration and Congressional majority may have, if
any, and any changes likely will take time to unfold. We cannot predict the
ultimate content, timing or effect of any reform legislation or the impact of
potential legislation on us.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
INTERNATIONAL REGULATION
Regulators and lawmakers in non-U.S. jurisdictions are engaged in addressing
the causes of the financial crisis and means of avoiding such crises in the
future. On July 18, 2013, the International Association of Insurance
Supervisors ("IAIS") published an initial assessment methodology for
designating global systemically important insurers ("GSIIs"), as part of the
global initiative launched by the G20 with the assistance of the Financial
Stability Board (the "FSB") to identify those insurers whose distress or
disorderly failure, because of their size, complexity and interconnectedness,
would cause significant disruption to the global financial system and economic
activity On the same date, the FSB published its initial list of nine GSIIs,
which included the AXA Group. The GSII list is updated annually following
consultation with the IAIS and respective national supervisory authorities. The
AXA Group remained on the list as updated in November 2014, 2015 and 2016.
On July 18, 2013, the FSB published its initial list of nine GSIIs, which
included the AXA Group. The GSII list is updated annually following
consultation with the IAIS and respective national supervisory authorities. The
AXA Group remained on the list as updated in November 2014, 2015 and 2016. The
policy measures for GSIIs, published by the IAIS in July 2013, include (1) the
introduction of new capital requirements; a "basic" capital requirement ("BCR")
applicable to all GSII activities which serves as a basis for an additional
level of capital called "Higher Loss Absorbency" ("HLA") required from GSIIs in
relation to their systemic activities, (2) greater regulatory oversight over
holding companies, (3) various measures to promote the structural and financial
"self-sufficiency" of group companies and reduce group interdependencies
including restrictions on intra-group financing and other arrangements, and
(4) in general, a greater level of regulatory scrutiny for GSIIs (including a
requirement to establish a Systemic Risk Management Plan ("SRMP"), a Liquidity
Risk Management Plan ("LRMP") and a Recovery and Resolution Plan ("RRP")) which
have entailed significant new processes, reporting and compliance burdens and
costs. The contemplated policy measures include the constitution of a Crisis
Management Group ("CMG") by the group-wide supervisor, the preparation of the
above-mentioned documents (SRMP, LRMP and RRP) and the development and
implementation of the BCR in 2014, while other measures are to be phased in
more gradually, such as the HLA (the first version of which was endorsed by the
FSB in October 2015 but which is expected to be revised before its
implementation in 2019).
On June 16, 2016, the IAIS published an updated assessment methodology,
applicable to the 2016 designation process, which is yet to be endorsed by the
FSB. To support some adjustments proposed by the revised assessment
methodology, the IAIS also published a paper on June 16, 2016, describing the
"Systemic Features Framework" that the IAIS intends to employ in assessing
whether certain contractual features and other factors are likely to expose an
insurer to a greater degree of systemic risk, focusing specifically on two sets
of risks: macroeconomic exposure and substantial liquidity risk. Also, the IAIS
stated that the 2016 assessment methodology, along with the Systemic Features
Framework, will lead to a change in HLA design and calibration.
As part of its efforts to create a common framework for the supervision of
internationally active insurance groups ("IAIGs"), the IAIS has also been
developing a comprehensive, group-wide international insurance capital standard
(the "ICS") to be applied to both GSIIs and IAIGs, although it is not expected
to be finalized until at least 2019. Although the BCR and HLA are more
developed than the ICS at present, the IAIS has stated that it intends to
revisit both standards following development and refinement of the ICS, and
that the BCR will eventually be replaced by the ICS.
These measures could have far reaching regulatory and competitive implications
for the AXA Group, which in turn could materially affect our competitive
position, results of operations, financial condition, liquidity and how we
operate our business. For additional information, see "Risk Factors."
FEDERAL TAX LEGISLATION, REGULATION, AND ADMINISTRATION
Although we cannot predict what legislative, regulatory, or administrative
changes may or may not occur with respect to the federal tax law, we
nevertheless endeavor to consider the possible ramifications of such changes on
the profitability of our business and the attractiveness of our products to
consumers. In this regard, we analyze multiple streams of information,
including those described below.
ENACTED LEGISLATION. At present, the federal tax laws generally permit certain
holders of life insurance and annuity products to defer taxation on the
build-up of value within such products (commonly referred to as "inside
build-up") until payments are made to the policyholders or other beneficiaries.
From time to time, Congress considers legislation that could enhance or reduce
(or eliminate) the benefit of tax deferral on some life insurance and annuity
products. As an example, the American Taxpayer's Relief Act increased
individual tax rates for higher-income taxpayers. Higher tax rates increase the
benefits of tax deferral on inside build-up and, correspondingly, tend to
enhance the attractiveness of life insurance and annuity products to consumers
that are subject to those higher tax rates.
TAX REFORM INITIATIVES. Tax reform initiatives have been underway in Congress
over the last several years. During that discourse, wholesale changes to
long-standing provisions governing the taxation of insurance companies have
been considered, including proposals that would modify (i) the calculation of
the DRD with respect to life insurance company separate accounts in a way that
largely would eliminate the
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
benefit that life insurance companies receive, (ii) the calculation of
insurance reserves in a manner that would decrease the federal tax deduction
available to life insurance companies for such reserves, and (iii) the rules
concerning the capitalization of certain policy acquisition expenses in a way
that would increase the amount of policy acquisition expenses that an insurance
company would be required to capitalize and amortize for federal tax purposes.
Recent proposals would limit the ability of companies, potentially including
life insurance companies, to claim deductions for interest expenses in excess
of annual interest income and would potentially impose a border adjustment on
imported services, potentially including reinsurance purchased from non-US
companies that could increase our costs of doing business. In addition, the tax
reform plan released by President Trump during the presidential campaign would
limit the tax deferral on inside build-up for high-income consumers. The
likelihood of enactment of these (or of any other) proposals, whether as part
of a comprehensive tax reform package or as discrete legislative changes, is
uncertain at this time due to the current political and economic environment as
well as the ambiguity that comes with any tax reform initiative.
PRESIDENTIAL BUDGET PROPOSALS. The President submits a budget proposal to
Congress on an annual basis. To varying degrees, these budget proposals
typically include federal tax and related proposals that, if enacted into law,
could affect our profitability and the attractiveness of our products to
consumers. For example, budget proposals from the Obama Administration included
proposals that sought to modify the calculation of the DRD with respect to life
insurance company separate accounts and impose a "financial fee" on certain
firms in the financial sector, including insurance companies. If enacted into
law, these proposals could have an adverse effect on our profitability. Budget
proposals from the Obama Administration also proposed changes to the federal
tax laws that could affect purchasers of products offered and sold through our
various business lines, including proposals that would (i) expand the pro-rata
interest expense disallowance for COLI policies, (ii) increase the top capital
gains rate, and (iii) restore and permanently extend the estate, gift, and
generation-skipping transfer tax exemptions and tax rates as they applied in
prior years. Some of these proposals, should they become law, could have the
potential to improve the attractiveness of our products to consumers and
enhance our sales, while other proposals could have the opposite effect. It
remains to be seen to what extent any of these budget proposals will be
included in tax reform initiatives or Trump administration budget proposals, To
date, indications from the Trump administration have suggested that it plans to
comprehensively modify and simplify the tax code, including the imposition of
significantly lower tax rates.
REGULATORY AND OTHER ADMINISTRATIVE GUIDANCE FROM THE TREASURY DEPARTMENT AND
THE INTERNAL REVENUE SERVICE. Regulatory and other administrative guidance from
the Treasury Department and the Internal Revenue Service also could impact the
amount of federal tax that we pay. For example, the adoption of "principles
based" approaches for calculating statutory reserves may lead the Treasury
Department and the Internal Revenue Service to issue guidance that changes the
way that deductible insurance reserves are determined, potentially reducing
future tax deductions for us.
PRIVACY OF CUSTOMER INFORMATION
We are subject to federal and state laws and regulations which require
financial institutions to protect the security and confidentiality of customer
information, and to notify customers about their policies and practices
relating to their collection and disclosure of customer information and their
practices relating to protecting the security and confidentiality of that
information. We have adopted a privacy policy outlining procedures and
practices to be followed by members of the AXA Financial Group relating to the
collection, disclosure and protection of customer information. As required by
law, a copy of the privacy policy is mailed to customers on an annual basis.
Federal and state laws generally require that we provide notice to affected
individuals, law enforcement, regulators and/or potentially others if there is
a situation in which customer information is intentionally or accidentally
disclosed to and/or acquired by unauthorized third parties. Federal regulations
require financial institutions to implement programs to detect, prevent, and
mitigate identity theft. Federal and state laws and regulations regulate the
ability of financial institutions to make telemarketing calls and to send
unsolicited e-mail or fax messages to both consumers and customers, and also
regulate the permissible uses of certain categories of customer information.
Violation of these laws and regulations may result in significant fines and
remediation costs. It may be expected that legislation considered by either the
U.S. Congress and/or state legislatures could create additional and/or more
detailed obligations relating to the use and protection of customer information.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, trademark, patent and trade secret laws
to establish and protect our intellectual property rights. AXA Financial has
entered into a licensing arrangement with AXA concerning the use by AXA
Financial Group of the "AXA" name. Since 2014, AXA Financial Group companies
have been using AXA as the single brand for AXA Financial's advice, retirement
and life insurance lines of business. As a result, we have simplified our brand
in the U.S. marketplace to "AXA." We regard our intellectual property as
valuable assets and protect them against infringement.
ENVIRONMENTAL CONSIDERATIONS
Federal, state and local environmental laws and regulations apply to our
ownership and operation of real property. Inherent in owning and operating real
property are the risk of environmental liabilities and the costs of any
required clean-up. Under the laws of certain states,
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
contamination of a property may give rise to a lien on the property to secure
recovery of the costs of clean-up, which could adversely affect our mortgage
lending business. In some states, this lien may have priority over the lien of
an existing mortgage against such property. In addition, in some states and
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, or CERCLA, we may be liable, in certain circumstances,
as an "owner" or "operator," for costs of cleaning-up releases or threatened
releases of hazardous substances at a property mortgaged to us. We also risk
environmental liability when we foreclose on a property mortgaged to us.
However, Federal legislation provides for a safe harbor from CERCLA liability
for secured lenders, provided that certain requirements are met. Application of
various other federal and state environmental laws could also result in the
imposition of liability on us for costs associated with environmental hazards.
We routinely conduct environmental assessments prior to making a mortgage loan
or taking title to real estate, whether through acquisition for investment, or
through foreclosure on real estate collateralizing mortgages. Although
unexpected environmental liabilities can always arise, we seek to minimize this
risk by undertaking these environmental assessments consistent with regulatory
guidance and complying with our internal procedures. As a result, we believe
that any costs associated with compliance with environmental laws and
regulations or any clean-up of properties would not have a material adverse
effect on our results of operations.
EMPLOYEES
We have no employees. We have service agreements with affiliates pursuant to
which we are provided the services necessary to operate our business. For
additional information, see Note 7 of Notes to Financial Statements and
"Transaction with Related Persons, Promoters and Certain Control Persons".
PARENT COMPANY
AXA, our ultimate parent company, is the holding company for the AXA Group, a
worldwide leader in financial protection. AXA operates primarily in Europe,
North America, the Asia/Pacific regions and, to a lesser extent, in other
regions including the Middle East, Africa and Latin America. AXA has five
operating business segments: Life and Savings, Property and Casualty,
International Insurance, Asset Management and Banking.
Neither AXA nor any affiliate of AXA has any obligation to provide us with
additional capital or credit support.
F-20
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DESCRIPTION OF PROPERTY
MLOA does not lease or own space for its operations. Facilities are provided
to MLOA for the conduct of its business pursuant to service agreements with
affiliated companies. For additional information, see Note 7 of Notes to
Financial Statements and "Transactions with Related Persons, Promoters and
Certain Control Persons" included elsewhere herein
F-21
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
LEGAL PROCEEDINGS
The matters set forth in Note 11 of Notes to Financial Statements for the
year ended December 31, 2016 are incorporated herein by reference.
F-22
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
MONY LIFE INSURANCE COMPANY OF AMERICA
Report of Independent Registered Public Accounting Firm......................... F-24
Financial Statements:
Balance Sheets, December 31, 2016 and December 31, 2015....................... F-25
Statements of Earnings (Loss), Years Ended December 31, 2016, 2015 and 2014... F-26
Statements of Comprehensive Income (Loss), Years Ended December 31, 2016,
2015 and 2014................................................................ F-27
Statements of Shareholder's Equity, Years Ended December 31, 2016, 2015
and 2014..................................................................... F-28
Statements of Cash Flows, Years Ended December 31, 2016, 2015 and 2014........ F-29
Notes to Financial Statements................................................. F-30
Note 1: Organization......................................................... F-30
Note 2: Significant Accounting Policies...................................... F-30
Note 3: Investments.......................................................... F-37
Note 4: Value of Business Acquired and Deferred Acquisition Cost............. F-47
Note 5: Fair Value Disclosures............................................... F-47
Note 6: Reinsurance.......................................................... F-52
Note 7: Related Party Transactions........................................... F-52
Note 8: Share-based Compensation............................................. F-53
Note 9: Income Taxes......................................................... F-53
Note 10: Accumulated Other Comprehensive Income.............................. F-54
Note 11: Litigation.......................................................... F-55
Note 12: Statutory Financial Information..................................... F-55
F-23
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
MONY Life Insurance Company of America:
In our opinion, the accompanying balance sheets and the related statements of
earnings (loss), comprehensive income (loss), shareholder's equity and cash
flows present fairly, in all material respects, the financial position of MONY
Life Insurance Company of America (the "Company") as of December 31, 2016 and
December 31, 2015, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2016 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 24, 2017
F-24
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
2016 2015
-------- --------
(IN MILLIONS)
ASSETS:
Investments:
Fixed maturities available for sale, at fair value
(amortized cost $1,099 and $898)........................... $ 1,109 $ 906
Mortgage loans on real estate............................... 17 --
Policy loans................................................ 176 159
Other invested assets....................................... 75 89
-------- --------
Total investments.......................................... 1,377 1,154
Cash and cash equivalents..................................... 138 176
Amounts due from reinsurers................................... 1,260 1,299
Deferred policy acquisition costs............................. 374 364
Value of business acquired.................................... -- 9
Deferred cost of reinsurance.................................. 57 63
Current and deferred income tax receivables................... 27 1
Other assets.................................................. 22 15
Separate Accounts' assets..................................... 1,747 1,701
-------- --------
TOTAL ASSETS.................................................. $ 5,002 $ 4,782
======== ========
LIABILITIES
Policyholders' account balances............................... $ 2,403 $ 2,158
Future policy benefits and other policyholders liabilities.... 351 389
Other liabilities............................................. 78 60
Separate Accounts' liabilities................................ 1,747 1,701
-------- --------
Total liabilities.......................................... 4,579 4,308
-------- --------
Commitments and contingent liabilities (Notes 2, 5, 7, 8,
and 11)
SHAREHOLDER'S EQUITY
Common Stock, $1.00 par value; 5.0 million shares authorized,
2.5 million issued and outstanding.......................... 2 2
Capital in excess of par value................................ 323 320
Retained earnings............................................. 91 147
Accumulated other comprehensive income (loss)................. 7 5
-------- --------
Total shareholder's equity................................. 423 474
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................... $ 5,002 $ 4,782
======== ========
See Notes to Financial Statements.
F-25
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF EARNINGS (LOSS)
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
2016 2015 2014
------ ------ ------
(IN MILLIONS)
REVENUES
Universal life and investment-type product policy fee income.......... $ 196 $ 152 $ 91
Premiums.............................................................. 4 1 1
Net investment income (loss):
Investment income (loss) from derivatives........................... 18 (9) 13
Other investment income (loss)...................................... 42 38 37
------ ------ ------
Net investment income (loss)....................................... 60 29 50
Investment gains (losses), net:
Total other-than-temporary impairment losses........................ (3) (1) (10)
Portion of loss recognized in other comprehensive income (loss)..... -- -- --
------ ------ ------
Net impairment losses recognized................................... (3) (1) (10)
Other investment gains (losses), net................................ (1) -- 4
------ ------ ------
Total investment gains (losses), net............................. (4) (1) (6)
------ ------ ------
Equity in earnings (loss) of AllianceBernstein........................ 6 5 1
Other income (loss)................................................... 8 9 8
------ ------ ------
Total revenues................................................... 270 195 145
------ ------ ------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits............................................... 34 39 31
Interest credited to policyholders' account balances.................. 69 36 39
Compensation and benefits............................................. 59 36 29
Commissions........................................................... 114 121 73
Amortization of deferred policy acquisition costs and value of
business acquired, net.............................................. (1) (73) (64)
Amortization of deferred cost of reinsurance.......................... 7 8 8
Other operating costs and expenses.................................... 77 58 39
------ ------ ------
Total benefits and other deductions.............................. 359 225 155
------ ------ ------
Earnings (loss), before income taxes.................................. (89) (30) (10)
Income tax (expense) benefit.......................................... 33 13 5
------ ------ ------
Net Earnings (Loss)................................................... $ (56) $ (17) $ (5)
====== ====== ======
See Notes to Financial Statements.
F-26
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
2016 2015 2014
------ ------ -----
(IN MILLIONS)
COMPREHENSIVE INCOME (LOSS)
Net earnings (loss)................................. $ (56) $ (17) $ (5)
------ ------ -----
Other comprehensive income (loss), net of
income taxes:
Change in unrealized gains (losses), net of
reclassification adjustment.................... 2 (12) 9
------ ------ -----
Total other comprehensive income (loss),
net of income taxes.......................... 2 (12) 9
------ ------ -----
Comprehensive Income (Loss)........................... $ (54) $ (29) $ 4
====== ====== =====
See Notes to Financial Statements.
F-27
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
2016 2015 2014
------ ------ ------
(IN MILLIONS)
SHAREHOLDER'S EQUITY
Common stock, at par value, beginning and end
of year........................................ $ 2 $ 2 $ 2
------ ------ ------
Capital in excess of par value, beginning
of year........................................ 320 317 315
Changes in capital in excess of par value....... 3 3 2
------ ------ ------
Capital in excess of par value, end of year..... 323 320 317
------ ------ ------
Retained earnings, beginning of year............ 147 164 169
Net earnings (loss)............................. (56) (17) (5)
------ ------ ------
Retained earnings, end of year.................. 91 147 164
------ ------ ------
Accumulated other comprehensive income (loss),
beginning of year.............................. 5 17 8
Other comprehensive income (loss)............... 2 (12) 9
------ ------ ------
Accumulated other comprehensive income (loss),
end of year.................................... 7 5 17
------ ------ ------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR........... $ 423 $ 474 $ 500
====== ====== ======
See Notes to Financial Statements.
F-28
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
2016 2015 2014
------- ------- -------
(IN MILLIONS)
Net earnings (loss)................................ $ (56) $ (17) $ (5)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in)
operating activities:
Interest credited to policyholders'
account balances................................ 69 36 39
Universal life and investment-type product
policy fee income............................... (196) (152) (91)
(Income) loss from derivative instruments........ (18) 9 (13)
Investment (gains) losses, net................... 4 1 6
Dividends from AB Units.......................... 5 5 5
Equity in earnings from AB....................... (6) (5) (1)
Amortization of deferred reinsurance costs....... 7 8 8
Changes in:
Deferred policy acquisition costs and value of
business acquired............................. (1) (73) (64)
Future policy benefits.......................... (4) 10 28
Current and deferred income taxes............... (26) (13) (67)
Other, net....................................... 31 -- (22)
------- ------- -------
Net cash provided by (used in)
operating activities............................. (191) (191) (177)
------- ------- -------
Cash flows from investing activities:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available for sale............ 128 105 166
Mortgage loans on real estate................... -- -- 31
Payment for the purchase/origination of:
Fixed maturities, available for sale............ (333) (153) (314)
Mortgage loans on real estate................... (17) -- --
Cash settlement related to derivative instruments.. (13) (7) 1
Change in policy loans............................. (17) (9) (9)
Other, net......................................... (3) (3) (37)
------- ------- -------
Net cash provided by (used in)
investing activities............................. (255) (67) (162)
------- ------- -------
Cash flows from financing activities:
Policyholders' account balances:
Deposits........................................ 455 445 297
Withdrawals..................................... (59) (20) (16)
Transfers (to) from Separate Accounts........... (20) (38) (41)
Change in collateralized pledged liabilities..... 32 -- 7
------- ------- -------
Net cash provided by (used in)
financing activities............................. 408 387 247
------- ------- -------
Change in cash and cash equivalents................ (38) 129 (92)
Cash and cash equivalents, beginning of year....... 176 47 139
------- ------- -------
Cash and Cash Equivalents, End of Year............. $ 138 $ 176 $ 47
======= ======= =======
Schedule of non-cash financing activities:
Non-cash asset acquisition....................... $ 7 $ -- $ --
======= ======= =======
Share-based Programs............................. $ 3 $ 3 $ 2
======= ======= =======
Income taxes (refunded) paid..................... $ (7) $ 1 $ 63
======= ======= =======
See Notes to Financial Statements.
F-29
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1) ORGANIZATION
MONY Life Insurance Company of America ("MLOA") is an Arizona stock life
insurance corporation. MLOA's primary business is providing life insurance
and employee benefit products to both individuals and businesses. MLOA is a
wholly-owned subsidiary of AXA Equitable Financial Services, LLC ("AEFS").
AEFS is a wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial"
and together with its consolidated subsidiaries "AXA Financial Group"). AXA
Financial is an indirect, wholly-owned subsidiary of AXA, a French holding
company for the AXA Group, a worldwide leader in financial protection.
2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions
(including normal, recurring accruals) that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from these estimates. The accompanying financial statements reflect
all adjustments necessary in the opinion of management for a fair
presentation of the financial position of MLOA and its results of operations
and cash flows for the periods presented.
The years "2016", "2015" and "2014" refer to the years ended December 31,
2016, 2015 and 2014, respectively. Certain reclassifications have been made
in the amounts presented for prior periods to conform those periods to the
current presentation.
Adoption of New Accounting Pronouncements
In January 2017, the Financial Accounting Standard Board ("FASB") issued new
guidance that amends the definition of a business to provide a more robust
framework for determining when a set of assets and activities is a business.
The definition primarily adds clarity for evaluating whether certain
transactions should be accounted for as acquisitions/dispositions of assets
or businesses, the latter subject to guidance on business combinations, but
also may interact with other areas of accounting where the defined term is
used, such as in the application of guidance on consolidation and goodwill
impairment. The new guidance is effective for fiscal years ending
December 31, 2018. MLOA elected to early adopt the new guidance for the year
ending December 31, 2016 to account for the purchase of certain
employer-sponsored benefits contracts from an un-affiliated entity as an
asset acquisition rather than an acquisition of a business.
In August 2014, the FASB issued new guidance which requires management to
evaluate whether there is "substantial doubt" about the reporting entity's
ability to continue as a going concern and provide related footnote
disclosures about those uncertainties, if they exist. The new guidance was
effective for annual periods, ending after December 15, 2016 and interim
periods thereafter. Implementation of this guidance did not have a material
impact on MLOA's financial statements.
Future Adoption of New Accounting Pronouncements
In August 2016, the FASB issued new guidance to simplify elements of cash
flow classification. The new guidance is intended to reduce diversity in
practice in how certain transactions are classified in the statement of cash
flows. The new guidance is effective for interim and annual periods
beginning after December 15, 2017 and should be applied using a
retrospective transition method. Management is currently evaluating the
impact that adoption of this guidance will have on the MLOA's financial
statements.
In June 2016, the FASB issued new guidance related to the accounting for
credit losses on financial instruments. The new guidance introduces an
approach based on expected losses to estimate credit losses on certain types
of financial instruments. It also modifies the impairment model for
available-for-sale debt securities and provides for a simplified accounting
model for purchased financial assets with credit deterioration since their
origination. The new guidance is effective for interim and annual periods
beginning after December 15, 2019 with early adoption permitted for annual
periods beginning after December 15, 2018. Management is currently
evaluating the impact that adoption of this guidance will have on the MLOA's
financial statements.
In March 2016, the FASB issued new guidance simplifying the transition to
the equity method of accounting. The amendment eliminates the requirement
that when an investment qualifies for use of the equity method as a result
of an increase in the level of ownership interest or
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degree of influence, an investor must adjust the investment, results of
operations and retained earnings retroactively on a step-by-step basis as if
the equity method had been in effect during all previous periods that the
investments had been held. The amendment is effective for interim and annual
periods beginning after December 15, 2016 and should be applied
prospectively upon their effective date to increases in the level of
ownership interest or degree of influence that result in the adoption of the
equity method. The amendment is not expected to have a material impact on
the MLOA's financial statements.
Investments
The carrying values of fixed maturities classified as available-for-sale
("AFS") are reported at fair value. Changes in fair value are reported in
comprehensive income. The amortized cost of fixed maturities is adjusted for
impairments in value deemed to be other than temporary which are recognized
in Investment gains (losses), net. The redeemable preferred stock
investments that are reported in fixed maturities include real estate
investment trusts ("REIT"), perpetual preferred stock and redeemable
preferred stock. These securities may not have a stated maturity, may not be
cumulative and do not provide for mandatory redemption by the issuer.
MLOA determines the fair values of fixed maturities and equity securities
based upon quoted prices in active markets, when available, or through the
use of alternative approaches when market quotes are not readily accessible
or available. These alternative approaches include matrix or model pricing
and use of independent pricing services, each supported by reference to
principal market trades or other observable market assumptions for similar
securities. More specifically, the matrix pricing approach to fair value is
a discounted cash flow methodology that incorporates market interest rates
commensurate with the credit quality and duration of the investment.
MLOA's management, with the assistance of its investment advisors, monitors
the investment performance of its portfolio and reviews AFS securities with
unrealized losses for other-than-temporary impairments ("OTTI"). Integral to
this review is an assessment made each quarter, on a security-by-security
basis, by the Investments Under Surveillance ("IUS") Committee, of various
indicators of credit deterioration to determine whether the investment
security is expected to recover. This assessment includes, but is not
limited to, consideration of the duration and severity of the unrealized
loss, failure, if any, of the issuer of the security to make scheduled
payments, actions taken by rating agencies, adverse conditions specifically
related to the security or sector, the financial strength, liquidity, and
continued viability of the issuer and, for equity securities only, the
intent and ability to hold the investment until recovery, and results in
identification of specific securities for which OTTI is recognized.
If there is no intent to sell or likely requirement to dispose of the fixed
maturity security before its recovery, only the credit loss component of any
resulting OTTI is recognized in earnings (loss) and the remainder of the
fair value loss is recognized in Other Comprehensive Income ("OCI"). The
amount of credit loss is the shortfall of the present value of the cash
flows expected to be collected as compared to the amortized cost basis of
the security. The present value is calculated by discounting management's
best estimate of projected future cash flows at the effective interest rate
implicit in the debt security prior to impairment. Projections of future
cash flows are based on assumptions regarding probability of default and
estimates regarding the amount and timing of recoveries. These assumptions
and estimates require use of management judgment and consider internal
credit analyses as well as market observable data relevant to the
collectability of the security. For mortgage- and asset-backed securities,
projected future cash flows also include assumptions regarding prepayments
and underlying collateral value.
Policy loans are stated at unpaid principal balances.
Equity securities, which include common stock and non-redeemable preferred
stock classified as AFS securities, are carried at fair value and are
included in Other invested assets with changes in fair value reported in OCI.
Units in AllianceBernstein L.P. ("AB"), a subsidiary of AXA Financial, are
carried on the equity method and reported in Other invested assets.
Short-term investments are reported at amortized cost that approximates fair
value and are included in Other invested assets.
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less. Due to the short-term nature of these investments, the
recorded value is deemed to approximate fair value.
All securities owned, including United States government and agency
securities and mortgage-backed securities, are reported in the financial
statements on a trade date basis.
Derivatives
Derivatives are financial instruments whose values are derived from interest
rates, foreign exchange rates, financial indices, values of securities or
commodities, credit spreads, market volatility, expected returns, and
liquidity. Values can also be affected by changes in
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estimates and assumptions, including those related to counterparty behavior
and non-performance risk used in valuation models. Derivative financial
instruments generally used by MLOA include equity options and may be
exchange-traded or contracted in the over-the-counter market. All derivative
positions are carried in the balance sheets at fair value, generally by
obtaining quoted market prices or through the use of valuation models.
Freestanding derivative contracts are reported in the balance sheets either
as assets within "Other invested assets" or as liabilities within "Other
liabilities." MLOA nets the fair value of all derivative financial
instruments with counterparties for which a standardized "ISDA Master
Agreement" and related Credit Support Annex ("CSA") have been executed. MLOA
uses derivatives to manage asset/liability risk but has not designated those
economic relationships under the criteria to qualify for hedge accounting
treatment. All changes in the fair value of MLOA freestanding derivative
positions, including net receipts and payments, are included in "Investment
income (loss) from derivative instruments" without considering changes in
the fair value of the economically associated assets or liabilities.
MLOA is a party to financial instruments and other contracts that contain
"embedded" derivative instruments. At inception, MLOA assesses whether the
economic characteristics of the embedded instrument are "clearly and closely
related" to the economic characteristics of the remaining component of the
"host contract" and whether a separate instrument with the same terms as the
embedded instrument would meet the definition of a derivative instrument.
When those criteria are satisfied, the resulting embedded derivative is
bifurcated from the host contract, carried in the balance sheets at fair
value, and changes in its fair value are recognized immediately and
captioned in the statements of earnings (loss) according to the nature of
the related host contract. For certain financial instruments that contain an
embedded derivative that otherwise would need to be bifurcated and reported
at fair value, the Company instead may elect to carry the entire instrument
at fair value.
Mortgage Loans on Real Estate ("mortgage loans"):
Mortgage loans are stated at unpaid principal balances, net of unamortized
discounts and valuation allowances. Valuation allowances are based on the
present value of expected future cash flows discounted at the loan's
original effective interest rate or on its collateral value if the loan is
collateral dependent. However, if foreclosure is or becomes probable, the
collateral value measurement method is used.
For commercial mortgage loans, an allowance for credit loss is typically
recommended when management believes it is probable that principal and
interest will not be collected according to the contractual terms. Factors
that influence management's judgment in determining allowance for credit
losses include the following:
. Loan-to-value ratio -- Derived from current loan balance divided by
the fair market value of the property. An allowance for credit loss
is typically recommended when the loan-to-value ratio is in excess of
100%. In the case where the loan-to-value is in excess of 100%, the
allowance for credit loss is derived by taking the difference between
the fair market value (less cost of sale) and the current loan
balance.
. Debt service coverage ratio -- Derived from actual net operating
income divided by annual debt service. If the ratio is below 1.0x,
then the income from the property does not support the debt.
. Occupancy -- Criteria varies by property type but low or below market
occupancy is an indicator of sub-par property performance.
. Lease expirations -- The percentage of leases expiring in the
upcoming 12 to 36 months are monitored as a decline in rent and/or
occupancy may negatively impact the debt service coverage ratio. In
the case of single-tenant properties or properties with large tenant
exposure, the lease expiration is a material risk factor.
. Maturity -- Mortgage loans that are not fully amortizing and have
upcoming maturities within the next 12 to 24 months are monitored in
conjunction with the capital markets to determine the borrower's
ability to refinance the debt and/or pay off the balloon balance.
. Borrower/tenant related issues -- Financial concerns, potential
bankruptcy, or words or actions that indicate imminent default or
abandonment of property.
. Payment status -- current vs. delinquent -- A history of delinquent
payments may be a cause for concern.
. Property condition -- Significant deferred maintenance observed
during lenders annual site inspections.
. Other -- Any other factors such as current economic conditions may
call into question the performance of the loan.
Net Investment Income (Loss), Investment Gains (Losses), Net and Unrealized
Investment Gains (Losses)
Realized investment gains (losses) are determined by identification with the
specific asset and are presented as a component of revenue. Changes in the
valuation allowances are included in Investment gains (losses), net.
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Unrealized investment gains (losses) on fixed maturities and equity
securities designated as AFS held by MLOA are accounted for as a separate
component of Accumulated Other Comprehensive Income ("AOCI"), net of related
deferred income taxes and amounts attributable to Deferred Acquisition Cost
("DAC") and value of business acquired ("VOBA") related to variable life and
investment-type products.
Changes in unrealized gains (losses) reflect changes in fair value of only
those fixed maturities classified as AFS and do not reflect any changes in
fair value of policyholders' account balances and future policy benefits.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. The
accounting guidance established a fair value hierarchy that requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value, and identifies three levels
of inputs that may be used to measure fair value:
Level 1 Unadjusted quoted prices for identical instruments in
active markets. Level 1 fair values generally are supported
by market transactions that occur with sufficient frequency
and volume to provide pricing information on an ongoing
basis.
Level 2 Observable inputs other than Level 1 prices, such as quoted
prices for similar instruments, quoted prices in markets
that are not active, and inputs to model-derived valuations
that are directly observable or can be corroborated by
observable market data.
Level 3 Unobservable inputs supported by little or no market
activity and often requiring significant management
judgment or estimation, such as an entity's own assumptions
about the cash flows or other significant components of
value that market participants would use in pricing the
asset or liability.
MLOA defines fair value as the unadjusted quoted market prices for those
instruments that are actively traded in financial markets. In cases where
quoted market prices are not available, fair values are measured using
present value or other valuation techniques. The fair value determinations
are made at a specific point in time, based on available market information
and judgments about the financial instrument, including estimates of the
timing and amount of expected future cash flows and the credit standing of
counterparties. Such adjustments do not reflect any premium or discount that
could result from offering for sale at one time MLOA's entire holdings of a
particular financial instrument, nor do they consider the tax impact of the
realization of unrealized gains or losses. In many cases, the fair value
cannot be substantiated by direct comparison to independent markets, nor can
the disclosed value be realized in immediate settlement of the instrument.
Management is responsible for the determination of the value of investments
carried at fair value and the supporting methodologies and assumptions.
Under the terms of various service agreements, MLOA often utilizes
independent valuation service providers to gather, analyze, and interpret
market information and derive fair values based upon relevant methodologies
and assumptions for individual securities. These independent valuation
service providers typically obtain data about market transactions and other
key valuation model inputs from multiple sources and, through the use of
widely accepted valuation models, provide a single fair value measurement
for individual securities for which a fair value has been requested. As
further described below with respect to specific asset classes, these inputs
include, but are not limited to, market prices for recent trades and
transactions in comparable securities, benchmark yields, interest rate yield
curves, credit spreads, quoted prices for similar securities, and other
market-observable information, as applicable. Specific attributes of the
security being valued also are considered, including its term, interest
rate, credit rating, industry sector, and when applicable, collateral
quality and other security- or issuer-specific information. When
insufficient market observable information is available upon which to
measure fair value, MLOA either will request brokers knowledgeable about
these securities to provide a non-binding quote or will employ widely
accepted internal valuation models. Fair values received from independent
valuation service providers and brokers and those internally modeled or
otherwise estimated are assessed for reasonableness. To validate
reasonableness, prices also are internally reviewed by those with relevant
expertise through comparison with directly observed recent market trades.
Recognition of Insurance Income and Related Expenses
Deposits related to variable life and investment-type contracts are reported
as increases to policyholders' account balances. Revenues from these
contracts consist of fees assessed during the period against policyholders'
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related
policyholders' account balances.
Premiums from non-participating traditional life and annuity policies with
life contingencies generally are recognized in income when due. Benefits and
expenses are matched with such income so as to result in the recognition of
profits over the life of the contracts. This match is accomplished by means
of the provision for liabilities for future policy benefits and the deferral
and subsequent amortization of DAC.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
For contracts with a single premium or a limited number of premium payments
due over a significantly shorter period than the total period over which
benefits are provided, premiums are recorded as revenue when due with any
excess profit deferred and recognized in income in a constant relationship
to insurance in-force or, for annuities, the amount of expected future
benefit payments.
DAC and VOBA
DAC. Acquisition costs that vary with and are primarily related to the
acquisition of new and renewal insurance business, reflecting incremental
direct costs of contract acquisition with independent third parties or
employees that are essential to the contract transaction, as well as the
portion of employee compensation, including payroll fringe benefits and
other costs directly related to underwriting, policy issuance and
processing, medical inspection, and contract selling for successfully
negotiated contracts including commissions, underwriting, agency and policy
issue expenses, are deferred. DAC is subject to recoverability testing at
the time of policy issue and loss recognition testing at the end of each
accounting period.
After the initial establishment of reserves, premium deficiency and loss
recognition tests are performed each period end using best estimate
assumptions as of the testing date without provisions for adverse deviation.
When the liabilities for future policy benefits plus the present value of
expected future gross premiums for the aggregate product group are
insufficient to provide for expected future policy benefits and expenses for
that line of business (i.e., reserves net of any DAC asset), DAC would first
be written off and thereafter, if required, a premium deficiency reserve
would be established by a charge to earnings.
VOBA. VOBA, which arose from MLOA's 2004 acquisition by AXA Financial, was
established in accordance with purchase accounting guidance for business
combinations. VOBA is the actuarially determined present value of estimated
future gross profits from insurance contracts in force at the date of the
acquisition. VOBA is amortized over the expected life of the contracts (up
to 50 years from the date of issue) according to the type of contract using
the methods described below as applicable. VOBA is subject to loss
recognition testing at the end of each accounting period.
AMORTIZATION POLICY. For universal life ("UL") and investment type products,
DAC and VOBA are amortized over the expected total life of the contract
group as a constant percentage of estimated gross profits arising
principally from investment results, Separate Account fees, mortality and
expense margins and surrender charges based on historical and anticipated
future experience, updated at the end of each accounting period. When
estimated gross profits are expected to be negative for multiple years of a
contract life, DAC and VOBA are amortized using the present value of
estimated assessments. The effect on the amortization of DAC and VOBA of
updates to estimated gross profits or assessments is reflected in earnings
in the period such estimated gross profits or assessments are updated. A
decrease in expected gross profits or assessments would accelerate DAC and
VOBA amortization. Conversely, an increase in expected gross profits or
assessments would slow DAC and VOBA amortization. The effect on the DAC and
VOBA assets that would result from realization of unrealized gains (losses)
is recognized with an offset to AOCI in shareholders' equity as of the
balance sheet date.
A significant assumption in the amortization of DAC and VOBA on variable and
interest-sensitive life insurance relates to projected future Separate
Account performance. Management sets estimated future gross profit or
assessment assumptions related to Separate Account performance using a
long-term view of expected average market returns by applying a reversion to
the mean approach, a commonly used industry practice. This future return
approach influences the projection of fees earned, as well as other sources
of estimated gross profits. Returns that are higher than expectations for a
given period produce higher than expected account balances, increase the
fees earned resulting in higher expected future gross profits and lower DAC
and VOBA amortization for the period. The opposite occurs when returns are
lower than expected.
In applying this approach to develop estimates of future returns, it is
assumed that the market will return to an average gross long-term return
estimate, developed with reference to historical long-term equity market
performance. In 2015, based upon management's current expectations of
interest rates and future fund growth, MLOA updated its reversion to the
mean ("RTM") assumption from 9.0% to 7.0%. The average gross long term
return measurement start date was also updated to December 31, 2014.
Management has set limitations as to maximum and minimum future rate of
return assumptions, as well as a limitation on the duration of use of these
maximum or minimum rates of return. At December 31, 2016, the average gross
short-term and long-term annual return estimate on variable and
interest-sensitive life insurance was 7.0% (5.63% net of product weighted
average Separate Account fees), and the gross maximum and minimum short-term
annual rate of return limitations were 15.0% (13.63% net of product weighted
average Separate Account fees) and 0.0% (1.37)% net of product weighted
average Separate Account fees), respectively. The maximum duration over
which these rate limitations may be applied is 5 years. This approach will
continue to be applied in future periods. These assumptions of long-term
growth are subject to assessment of the reasonableness of resulting
estimates of future return assumptions.
If actual market returns continue at levels that would result in assuming
future market returns of 15.0% for more than 5 years in order to reach the
average gross long-term return estimate, the application of the 5 year
maximum duration limitation would result in an acceleration of DAC and VOBA
amortization. Conversely, actual market returns resulting in assumed future
market returns of 0.0% for more than 5 years would result in a required
deceleration of DAC and VOBA amortization.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
In addition, projections of future mortality assumptions related to variable
and interest-sensitive life products are based on a long-term average of
actual experience. This assumption is updated quarterly to reflect recent
experience as it emerges. Improvement of life mortality in future periods
from that currently projected would result in future deceleration of DAC and
VOBA amortization. Conversely, deterioration of life mortality in future
periods from that currently projected would result in future acceleration of
DAC and VOBA amortization. Generally, life mortality experience has been
improving in recent years.
Other significant assumptions underlying gross profit estimates for UL and
investment-type products relate to contract persistency and General Account
investment spread.
Deferred Cost of or Gain on Reinsurance
MLOA currently cedes an in-force book of life insurance and annuity policies
written primarily prior to 2004 to Protective Life Insurance Company
("Protective Life"). As a result of the reinsurance agreement MLOA recorded
a deferred cost of reinsurance asset. The cost of or gain on reinsurance at
the inception of a coinsurance treaty, defined as the difference between the
initial coinsurance premium paid and the amount of the net liabilities
relating to the underlying reinsured policies in accordance with the
reinsurance agreement, net of the ceded commission received is deferred and
amortized over the lives of the underlying policies.
Policyholders' Account Balances and Future Policy Benefits
Policyholders' account balances for variable life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross premium payments plus credited interest
less expense and mortality charges and withdrawals.
MLOA had issued certain variable annuity products with a guaranteed minimum
death benefit ("GMDB") feature. MLOA also had issued certain variable
annuity products that contained a guaranteed minimum income benefit ("GMIB")
feature which, if elected by the policyholder after a stipulated waiting
period from contract issuance, guarantees a minimum lifetime annuity based
on predetermined annuity purchase rates that may be in excess of what the
contract account value can purchase at then-current annuity purchase rates.
This minimum lifetime annuity is based on predetermined annuity purchase
rates applied to a GMIB base. Reserves for GMDB and GMIB obligations are
calculated on the basis of actuarial assumptions related to projected
benefits and related contract charges generally over the lives of the
contracts using assumptions consistent with those used in estimating gross
profits for purposes of amortizing DAC and VOBA. The determination of this
estimated liability is based on models that involve numerous estimates and
subjective judgments, including those regarding expected market rates of
return and volatility, contract surrender and withdrawal rates, mortality
experience, and, for contracts with the GMIB feature, GMIB election rates.
Assumptions regarding Separate Account performance used for purposes of this
calculation are set using a long-term view of expected average market
returns by applying a reversion to the mean approach, consistent with that
used for DAC and VOBA amortization. There can be no assurance that actual
experience will be consistent with management's estimates. MLOA's variable
annuity contracts with GMDB and GMIB features in-force that guarantee one of
the following:
. Return of Premium: the benefit is the greater of current account
value or premiums paid (adjusted for withdrawals);
. Ratchet: the benefit is the greatest of current account value,
premiums paid (adjusted for withdrawals), or the highest account
value on any anniversary up to contractually specified ages (adjusted
for withdrawals);
. Roll-Up: the benefit is the greater of current account value or
premiums paid (adjusted for withdrawals) accumulated at contractually
specified interest rates up to specified ages; or
. Combo: the benefit is the greater of the ratchet benefit or the
roll-up benefit which may include a five-year or an annual reset.
In connection with the reinsurance agreement with Protective Life, MLOA has
reinsured 100% of the risk associated with variable annuity products with
GMDB and GMIB features.
Reinsurance recoverable balances were calculated using methodologies and
assumptions that are consistent with those used to calculate the direct
liabilities.
For non-participating traditional life insurance policies, future policy
benefit liabilities are estimated using a net level premium method on the
basis of actuarial assumptions as to mortality, persistency and interest
established at policy issue. Assumptions established at policy issue as to
mortality and persistency are based on MLOA's experience that, together with
interest and expense assumptions, includes a margin for adverse deviation.
Benefit liabilities for traditional annuities during the accumulation period
are equal to accumulated contractholders' fund balances and, after
annuitization, are equal to the present value of expected future payments.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
When the liabilities for future policy benefits plus the present value of
expected future gross premiums for a product are insufficient to provide for
expected future policy benefits and expenses for that product, DAC and VOBA
are written off and thereafter, if required, a premium deficiency reserve is
established by a charge to earnings.
Separate Accounts
Generally, Separate Accounts established under Arizona State Insurance Law
are not chargeable with liabilities that arise from any other business of
MLOA. Separate Accounts assets are subject to General Account claims only to
the extent Separate Accounts assets exceed Separate Accounts liabilities.
Assets and liabilities of the Separate Accounts represent the net deposits
and accumulated net investment earnings (loss) less fees, held primarily for
the benefit of contractholders, and for which MLOA does not bear the
investment risk. Separate Accounts' assets and liabilities are shown on
separate lines in the balance sheets. Assets held in Separate Accounts are
reported at quoted market values or, where quoted values are not readily
available or accessible for these securities, their fair value measures most
often are determined through the use of model pricing that effectively
discounts prospective cash flows to present value using appropriate
sector-adjusted credit spreads commensurate with the security's duration,
also taking into consideration issuer-specific credit quality and liquidity.
Investment performance (including investment income, net investment gains
(losses) and changes in unrealized gains (losses)) and the corresponding
amounts credited to contractholders of such Separate Accounts are offset
within the same line in the consolidated statements of earnings (loss). For
2016, 2015 and 2014, investment results of such Separate Accounts were gains
(losses) of $52 million, $(12) million and $24 million, respectively.
Deposits to Separate Accounts are reported as increases in Separate Accounts
assets and liabilities and are not reported in revenues. Mortality, policy
administration and surrender charges on all policies including those funded
by Separate Accounts are included in revenues.
MLOA reports the General Account's interests in Separate Accounts as other
invested assets in the balance sheets.
Income Taxes
AXA Financial and certain of its consolidated subsidiaries and affiliates,
including MLOA, file a consolidated Federal income tax return. MLOA provides
for Federal and state income taxes currently payable, as well as those
deferred due to temporary differences between the financial reporting and
tax bases of assets and liabilities. Current Federal income taxes are
charged or credited to operations based upon amounts estimated to be payable
or recoverable as a result of taxable operations for the current
year. Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax bases
of assets and liabilities using enacted income tax rates and laws. Valuation
allowances are established when management determines, based on available
information, that it is more likely than not that deferred tax assets will
not be realized.
Under accounting for uncertainty in income taxes guidance, MLOA determines
whether it is more likely than not that a tax position will be sustained
upon examination by the appropriate taxing authorities before any part of
the benefit can be recorded in the financial statements. Tax positions are
then measured at the largest amount of benefit that is greater than 50%
likely of being realized upon settlement.
Assumption Updates and model changes
2016 ASSUMPTION UPDATES AND MODEL CHANGE. In 2016, MLOA made several
assumption updates and model changes including the following (1) updates to
calculate the amortization of DAC for indexed universal life ("IUL")
products on a specific product specification basis rather than using one
product as the basis to calculate the amortization of DAC; (2) updated the
premium funding assumption used in setting variable life policyholder
benefit reserves, which increased interest sensitive life policyholder
benefit reserves; (3) updated its mortality assumption for certain VISL
products as a result of unfavorable mortality experience; (4) updated the
General Account spread assumption for certain VISL products to reflect lower
expected investment yields.
The net impact of these model changes and assumption updates in 2016
decreased policyholders' benefits by $10 million, increased the amortization
of DAC by $65 million and increased Universal life and investment-type
product policy fee income by $29 million, resulting in a net increase to the
2016 Loss from continuing operations before income taxes and Net Loss of
approximately $26 million and $17 million, respectively. Included in the
model changes and assumption updates mentioned above were are out-of-period
adjustments ("OOPA's") which increased Loss from operations before income
taxes by $4 million in 2016.
2015 ASSUMPTION UPDATES. In 2015, based upon management's current
expectations of interest rates and future fund growth, MLOA updated its RTM
assumption used to calculate VISL and amortization of DAC from 9.0% to
7.0%. The impact of this assumption update in 2015 was an increase in VISL
reserves of $4 million and an increase in amortization of DAC of $8 million,
resulting in a net increase to the 2015 Loss from operations before income
taxes and Net Loss of approximately $12 million and $8 million, respectively.
F-36
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Out of Period Adjustments
In 2016, MLOA recorded several out-of-period adjustments ("OOPA's") in its
financial statements primarily related to errors in the models used to
calculate the amortization of DAC and policyholders' benefit reserves for
certain VISL products. In 2016 these OOPA's decreased total revenues by
$1 million, decreased total benefits and other deductions by $6 million,
decreased Loss from operations, before income tax by $5 million and
decreased Net loss by $3 million.
In 2014, MLOA recorded an OOPA in its financial statements related to an
overstatement of shadow VOBA in shareholder's equity, which subsequently
resulted in an overstatement of the deferred cost of reinsurance asset. In
addition in 2014, MLOA recorded an OOPA related to the application of the
equity method of accounting for its investment in AB. In 2014, these OOPAs
decreased Earnings from operations before income taxes, Net earnings and
other comprehensive income by $3 million, $2 million and $8 million,
respectively.
Management has evaluated the impact of all out of period corrections both
individually and in the aggregate and concluded they are not material to any
previously reported annual financial statements, or periods in which they
were corrected.
3) INVESTMENTS
FIXED MATURITIES
The following table provides information relating to fixed maturities
classified as AFS:
AVAILABLE-FOR-SALE SECURITIES BY CLASSIFICATION
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED OTTI
COST GAINS LOSSES FAIR VALUE IN AOCI/(1)/
---------- ---------- ---------- ---------- -----------
DECEMBER 31, 2016:
------------------
Fixed Maturity Securities:
Public corporate........................... $ 819 $ 16 $ 8 $ 827 $ --
Private corporate.......................... 205 5 2 208 --
U.S. Treasury, government and agency....... 36 -- 1 35 --
States and political subdivisions.......... 6 -- -- 6 --
Commercial mortgage-backed................. 24 7 7 24 1
Redeemable preferred stock................. 9 -- -- 9 --
---------- --------- --------- --------- ---------
Total at December 31, 2016................... $ 1,099 $ 28 $ 18 $ 1,109 $ 1
========== ========= ========= ========= =========
December 31, 2015:
------------------
Fixed Maturity Securities:
Public corporate........................... $ 631 $ 16 $ 10 $ 637 $ --
Private corporate.......................... 183 4 2 185 --
U.S. Treasury, government and agency....... 29 -- -- 29 --
States and political subdivisions.......... 6 1 -- 7 --
Commercial mortgage-backed................. 32 6 7 31 1
Redeemable preferred stock................. 17 -- -- 17 --
---------- --------- --------- --------- ---------
Total at December 31, 2015................... $ 898 $ 27 $ 19 $ 906 $ 1
========== ========= ========= ========= =========
/(1)/Amounts represent OTTI losses in AOCI, which were not included in
earnings (loss) in accordance with current accounting guidance.
F-37
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The contractual maturities of AFS fixed maturities at December 31, 2016 are
shown in the table below. Bonds not due at a single maturity date have been
included in the table in the final year of maturity. Actual maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
AVAILABLE-FOR-SALE FIXED MATURITY SECURITIES
CONTRACTUAL MATURITIES AT DECEMBER 31, 2016
AMORTIZED
COST FAIR VALUE
---------- ----------
(IN MILLIONS)
Due in one year or less..................................... $ 20 $ 20
Due in years two through five............................... 179 187
Due in years six through ten................................ 845 847
Due after ten years......................................... 22 22
---------- ----------
Subtotal................................................. 1,066 1,076
Commercial mortgage-backed securities....................... 24 24
Redeemable preferred stock.................................. 9 9
---------- ----------
Total....................................................... $ 1,099 $ 1,109
========== ==========
The following table shows proceeds from sales, gross gains (losses) from
sales and OTTI for AFS fixed maturities during 2016, 2015 and 2014:
December 31,
----------------------
2016 2015 2014
------ ------ ------
(IN MILLIONS)
Proceeds from sales......................................... $ 49 $ 19 $ 39
====== ====== ======
Gross gains on sales........................................ $ 1 $ -- $ 1
====== ====== ======
Gross losses on sales....................................... $ -- $ -- $ 1
====== ====== ======
Total OTTI.................................................. $ (3) $ (1) $ (10)
Non-credit losses recognized in OCI......................... -- -- --
------ ------ ------
Credit losses recognized in earnings (loss)................. $ (3) $ (1) $ (10)
====== ====== ======
The following table sets forth the amount of credit loss impairments on
fixed maturity securities held by MLOA at the dates indicated and the
corresponding changes in such amounts.
FIXED MATURITY SECURITIES -- CREDIT LOSS IMPAIRMENTS
2016 2015
------- -------
(IN MILLIONS)
Balances at January 1,...................................... $ (42) $ (51)
Previously recognized impairments on securities that
matured, paid, prepaid or sold............................ 13 10
Recognized impairments on securities impaired to fair value
this period/(1)/.......................................... -- --
Impairments recognized this period on securities not
previously impaired....................................... (3) --
Additional impairments this period on securities
previously impaired....................................... -- (1)
Increases due to passage of time on previously recorded
credit losses............................................. -- --
Accretion of previously recognized impairments due to
increases in expected cash flows.......................... -- --
------- -------
Balances at December 31,.................................... $ (32) $ (42)
======= =======
/(1)/Represents circumstances where MLOA determined in the current period
that it intends to sell the security or it is more likely than not that
it will be required to sell the security before recovery of the
security's amortized cost.
F-38
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Net unrealized investment gains (losses) on fixed maturities and equity
securities classified as AFS are included in the balance sheets as a
component of AOCI. The table below presents these amounts as of the dates
indicated:
December 31,
-------------
2016 2015
------ ------
(IN MILLIONS)
AFS Securities:
Fixed maturity securities:
With OTTI loss............................. $ 4 $ 4
All other.................................. 6 4
------ ------
Net Unrealized (Gains) Losses................. $ 10 $ 8
====== ======
Changes in net unrealized investment gains (losses) recognized in AOCI
include reclassification adjustments to reflect amounts realized in Net
earnings (loss) for the current period that had been part of OCI in earlier
periods. The tables that follow below present a rollforward of net
unrealized investment gains (losses) recognized in AOCI, split between
amounts related to fixed maturity securities on which an OTTI loss has been
recognized, and all other:
NET UNREALIZED GAINS (LOSSES) ON FIXED MATURITY SECURITIES WITH OTTI LOSSES
AOCI GAIN
(LOSS)
NET UNREALIZED DEFERRED RELATED TO
GAINS INCOME NET UNREALIZED
(LOSSES) ON TAX ASSET INVESTMENT
INVESTMENTS (LIABILITY) GAINS (LOSSES)
-------------- -------------- ---------------
(IN MILLIONS)
BALANCE, JANUARY 1, 2016..................... $ 4 $ (2) $ 2
Net investment gains (losses) arising during
the period................................. (1) -- (1)
Reclassification adjustment for OTTI losses:
Included in Net earnings (loss)........... 1 -- 1
Impact of net unrealized investment gains
(losses) on:
Deferred income taxes..................... -- -- --
-------------- -------------- ---------------
BALANCE, DECEMBER 31, 2016................... $ 4 $ (2) $ 2
============== ============== ===============
BALANCE, JANUARY 1, 2015..................... $ (1) $ -- $ (1)
Net investment gains (losses) arising during
the period................................. 4 -- 4
Reclassification adjustment for OTTI losses:
Included in Net earnings (loss)........... 1 -- 1
Impact of net unrealized investment gains
(losses) on:
Deferred income taxes..................... -- (2) (2)
-------------- -------------- ---------------
BALANCE, DECEMBER 31, 2015................... $ 4 $ (2) $ 2
============== ============== ===============
F-39
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
ALL OTHER NET UNREALIZED INVESTMENT GAINS (LOSSES) IN AOCI
AOCI GAIN
(LOSS)
NET UNREALIZED DEFERRED RELATED TO
GAINS INCOME NET UNREALIZED
(LOSSES) ON TAX ASSET INVESTMENT
INVESTMENTS DAC AND VOBA (LIABILITY) GAINS (LOSSES)
-------------- -------------- --------------- ---------------
(IN MILLIONS)
BALANCE, JANUARY 1, 2016..................... $ 4 $ (2) $ -- $ 2
Net investment gains (losses) arising during
the period................................. (1) -- -- (1)
Reclassification adjustment for OTTI losses:
Included in Net earnings (loss)........... 3 -- -- 3
Impact of net unrealized investment gains
(losses) on:
DAC and VOBA.............................. -- 2 -- 2
Deferred income taxes..................... -- -- (1) (1)
-------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 2016................... $ 6 $ -- $ (1) $ 5
============== ============== =============== ===============
BALANCE, JANUARY 1, 2015..................... $ 29 $ (2) $ (9) $ 18
Net investment gains (losses) arising during
the period................................. (24) -- -- (24)
Reclassification adjustment for OTTI losses:
Included in Net earnings (loss)........... (1) -- -- (1)
Impact of net unrealized investment gains
(losses) on:
DAC and VOBA.............................. -- -- -- --
Deferred income taxes..................... -- -- 9 9
-------------- -------------- --------------- ---------------
BALANCE, DECEMBER 31, 2015................... $ 4 $ (2) $ -- $ 2
============== ============== =============== ===============
The following tables disclose the fair values and gross unrealized losses of
the 168 issues at December 31, 2016 and the 141 issues at December 31, 2015
of fixed maturities that are not deemed to be other-than-temporarily
impaired, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position for
the specified periods at the dates indicated:
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL
--------------------- ---------------------- ---------------------
GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED
FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES
---------- ---------- ---------- ----------- ---------- ----------
(IN MILLIONS)
DECEMBER 31, 2016
-----------------
Fixed Maturity Securities:
Public corporate........................... $ 292 $ 8 $ 12 $ -- $ 304 $ 8
Private corporate.......................... 61 2 -- -- 61 2
U.S. Treasury, government and agency....... 21 1 -- -- 21 1
Commercial mortgage-backed................. 1 -- 10 7 11 7
Redeemable preferred stock................. 9 -- -- -- 9 --
---------- ---------- ---------- ----------- ---------- ----------
Total........................................ $ 384 $ 11 $ 22 $ 7 $ 406 $ 18
========== ========== ========== =========== ========== ==========
F-40
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Less Than 12 Months 12 Months or Longer Total
--------------------- --------------------- ---------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
---------- ---------- ---------- ---------- ---------- ----------
(In Millions)
December 31, 2015
-----------------
Fixed Maturity Securities:
Public corporate........................... $ 243 $ 9 $ 11 $ 1 $ 254 $ 10
Private corporate.......................... 58 2 -- -- 58 2
U.S. Treasury, government and agency....... 16 -- -- -- 16 --
Commercial mortgage-backed................. 4 -- 13 7 17 7
Redeemable preferred stock................. -- -- 2 -- 2 --
---------- ---------- ---------- ---------- ---------- ----------
Total........................................ $ 321 $ 11 $ 26 $ 8 $ 347 $ 19
========== ========== ========== ========== ========== ==========
MLOA's investments in fixed maturity securities do not include
concentrations of credit risk of any single issuer greater than 10% of the
shareholder's equity of MLOA, other than securities of the U.S. government,
U.S. government agencies and certain securities guaranteed by the U.S.
government. MLOA maintains a diversified portfolio of corporate securities
across industries and issuers and does not have exposure to any single
issuer in excess of 1.1% of total investments. The largest exposures to a
single issuer of corporate securities held at December 31, 2016 and 2015
were $15 million and $15 million, respectively. Corporate high yield
securities, consisting primarily of public high yield bonds, are classified
as other than investment grade by the various rating agencies, i.e., a
rating below Baa3/BBB- or the National Association of Insurance
Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5 (below
investment grade) or 6 (in or near default). At December 31, 2016 and 2015,
respectively, approximately $37 million and $42 million, or 3.4% and 4.7%,
of the $1,099 million and $898 million aggregate amortized cost of fixed
maturities held by MLOA were considered to be other than investment grade.
These securities had net unrealized losses of $0 million and $1 million at
December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015,
respectively, the $7 million and $8 million of gross unrealized losses of
twelve months or more were concentrated in commercial mortgage-backed
securities. In accordance with the policy described in Note 2, MLOA
concluded that an adjustment to earnings for OTTI for these securities was
not warranted at either December 31, 2016 or 2015. At December 31, 2016,
MLOA did not intend to sell the securities nor will it likely be required to
dispose of the securities before the anticipated recovery of their remaining
amortized cost basis.
At December 31, 2016, the carrying value of fixed maturities that were
non-income producing for the twelve months preceding that date was
$1 million.
MORTGAGE LOANS
The following table provides information relating to the loan-to-value and
debt service coverage ratio for commercial mortgage loans at December 31,
2016. The values used in these ratio calculations were developed as part of
the periodic review of the commercial mortgage loan portfolio, which
includes an evaluation of the underlying collateral value.
MORTGAGE LOANS BY LOAN-TO-VALUE AND DEBT SERVICE COVERAGE RATIOS
DECEMBER 31, 2016
DEBT SERVICE COVERAGE RATIO
----------------------------------------------- -
LESS TOTAL
GREATER 1.8X TO 1.5X TO 1.2X TO 1.0X TO THAN MORTGAGE
THAN 2.0X 2.0X 1.8X 1.5X 1.2X 1.0X LOANS
LOAN-TO-VALUE RATIO:/(2)/ --------- ------- ------- ------- ------- ----- ---------
(IN MILLIONS)
COMMERCIAL MORTGAGE LOANS/(1)/
0% - 50%................................... $ 17 $ -- $ -- $ -- $ -- $ -- $ 17
50% - 70%.................................. -- -- -- -- -- -- --
70% - 90%.................................. -- -- -- -- -- -- --
90% plus................................... -- -- -- -- -- -- --
--------- ------- ------- ------- ------- ----- ---------
Total Commercial Mortgage Loans.............. $ 17 $ -- $ -- $ -- $ -- $ -- $ 17
========= ======= ======= ======= ======= ===== =========
/(1)/The debt service coverage ratio is calculated using the most recently
reported net operating income results from property operations divided
by annual debt service.
/(2)/The loan-to-value ratio is derived from current loan balance divided by
the fair market value of the property. The fair market value of the
underlying commercial properties is updated annually.
F-41
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table provides information relating to the aging analysis of
past due mortgage loans at December 31, 2016.
RECORDED
INVESTMENT
TOTAL OR (GREATER THAN) 90 DAYS
30-59 60-89 90 DAYS FINANCING AND
DAYS DAYS OR (GREATER THAN) TOTAL CURRENT RECEIVABLES ACCRUING
------ ------ -------------------- ----- -------- ----------- -------------------------
(IN MILLIONS)
DECEMBER 31, 2016:
------------------
Total Commercial Mortgage Loans......... $ -- $ -- $ -- $ -- $ 17 $ 17 $ --
====== ====== ==================== ===== ======== =========== =========================
EQUITY METHOD INVESTMENTS
The following table presents MLOA's investment in 2.6 million units of AB
(approximately 0.95% ownership) with a fair value of $61 million and
$62 million at December 31, 2016 and 2015, respectively. MLOA's investment
in AB, an affiliate, is included in Other invested assets:
2016 2015
----- -----
(IN MILLIONS)
Balance at January 1,........................ $ 63 $ 63
Equity in net earnings (loss)................ 6 5
Dividends received........................... (5) (5)
Other........................................ -- --
----- -----
Balance at December 31,...................... $ 64 $ 63
===== =====
The tables below detail the condensed balance sheets and statements of
earnings (loss) of AB and MLOA's equity investment and equity in earnings
(loss) of AB.
DECEMBER 31,
-----------------
2016 2015
-------- --------
(IN MILLIONS)
BALANCE SHEETS:
Total Assets................................. $ 8,740 $ 7,436
======== ========
Total Liabilities............................ 4,279 3,368
Redeemable non-controlling interest.......... 393 13
Total Partners' Capital...................... 4,068 4,055
-------- --------
Total Liabilities and Partners' Capital.... $ 8,740 $ 7,436
======== ========
MLOA's Equity investment in AB............... $ 64 $ 63
======== ========
2016 2015 2014
-------- -------- --------
(IN MILLIONS)
STATEMENTS OF EARNINGS (LOSS):
Total revenues............................... $ 3,029 $ 3,021 $ 3,005
-------- -------- --------
Total Expenses............................... 2,306 2,390 2,397
-------- -------- --------
Net Earnings (Loss)........................ $ 695 $ 587 $ 570
======== ======== ========
MLOA's Equity in earnings (loss) of AB....... $ 6 $ 5 $ 1
======== ======== ========
DERIVATIVES AND OFFSETTING ASSETS AND LIABILITIES
MLOA hedges crediting rates in the Market Stabilizer Option(R) ("MSO") in
the variable life insurance products and in the Indexed Universal Life
("IUL") insurance products. The MSO and IUL products permit the contract
owner to participate in the performance of an index, ETF or commodity price
movement up to a cap for a set period of time. They also contain a
protection feature, in which MLOA will absorb, up to a certain percentage
the loss of value in an index, ETF or commodity price, which varies by
product segment.
F-42
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
In order to support the returns associated with these features, MLOA enters
into derivative contracts whose payouts, in combination with fixed income
investments, emulate those of the index, ETF or commodity price, subject to
caps and buffers.
The tables below present quantitative disclosures about MLOA's derivative
instruments, including those embedded in other contracts though required to
be accounted for as derivative instruments.
DERIVATIVE INSTRUMENTS BY CATEGORY
FAIR VALUE
------------------------
GAINS (LOSSES)
NOTIONAL ASSET LIABILITY REPORTED IN
AMOUNT DERIVATIVES DERIVATIVES EARNINGS (LOSS)
-------- ------------ ----------- ---------------
(IN MILLIONS)
AT OR FOR THE YEAR ENDED, DECEMBER 31, 2016:
FREESTANDING DERIVATIVES:
Equity contracts:/(1)/
Options.................................... $ 776 $ 76 $ 20 $ 18
Collateral................................. -- -- 51 --
---------------
NET INVESTMENT INCOME (LOSS)................. 18
---------------
EMBEDDED DERIVATIVES:
MSO and IUL indexed features/(2)/............ -- -- 53 (18)
-------- ------------ ----------- ---------------
Balance, December 31, 2016................... $ 776 $ 76 $ 124 $ --
======== ============ =========== ===============
At or For the Year Ended, December 31, 2015:
Freestanding derivatives:
Equity contracts:/(1)/
Options.................................... $ 518 $ 28 $ 4 $ (9)
---------------
Net investment income (loss)................. (9)
---------------
Embedded derivatives:
MSO and IUL indexed features/(2)/............ -- -- 24 8
-------- ------------ ----------- ---------------
Balance, December 31, 2015................... $ 518 $ 28 $ 28 $ (1)
======== ============ =========== ===============
/(1)/Reported in Other invested assets in MLOA's balance sheets.
/(2)/MSO and IUL are reported in Future policyholders' benefits and other
policyholders' liabilities in the balance sheets.
CREDIT RISK
Although notional amount is the most commonly used measure of volume in the
derivatives market, it is not used as a measure of credit risk. A derivative
with positive fair value (a derivative asset) indicates existence of credit
risk because the counterparty would owe money to MLOA if the contract were
closed at the reporting date. Alternatively, a derivative contract with
negative fair value (a derivative liability) indicates MLOA would owe money
to the counterparty if the contract were closed at the reporting date. To
reduce credit exposures in OTC derivative transactions MLOA generally enters
into master agreements that provide for a netting of financial exposures
with the counterparty and allow for collateral arrangements as further
described below under "ISDA Master Agreements." MLOA further controls and
minimizes its counterparty exposure through a credit appraisal and approval
process.
ISDA MASTER AGREEMENTS
NETTING PROVISIONS. The standardized "ISDA Master Agreement" under which
MLOA conducts its OTC derivative transactions includes provisions for
payment netting. In the normal course of business activities, if there is
more than one derivative transaction with a single counterparty, MLOA will
set-off the cash flows of those derivatives into a single amount to be
exchanged in settlement of the resulting net payable or receivable with that
counterparty. In the event of default, insolvency, or other similar event
pre-defined under the ISDA Master Agreement that would result in termination
of OTC derivatives transactions before their maturity, netting procedures
would be applied to calculate a single net payable or receivable with the
counterparty.
F-43
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
COLLATERAL ARRANGEMENTS. MLOA generally has executed a CSA under the ISDA
Master Agreement it maintains with each of its OTC derivative counterparties
that requires both posting and accepting collateral either in the form of
cash or high-quality securities, such as U.S. Treasury securities or those
issued by government agencies. These CSAs are bilateral agreements that
require collateral postings by the party "out-of-the-money" or in a net
derivative liability position. Various thresholds for the amount and timing
of collateralization of net liability positions are applicable.
Consequently, the credit exposure of MLOA's OTC derivative contracts is
limited to the net positive estimated fair value of those contracts at the
reporting date after taking into consideration the existence of netting
agreements and any collateral received pursuant to CSAs. Derivatives are
recognized at fair value in the consolidated balance sheets and are reported
either as assets in Other invested assets or as liabilities in Other
liabilities, except for embedded insurance-related derivatives as described
above and derivatives transacted with a related counterparty. MLOA nets the
fair value of all derivative financial instruments with counterparties for
which an ISDA Master Agreement and related CSA have been executed.
At December 31, 2016 and 2015, respectively, MLOA held $58 million and
$27 million in cash and securities collateral delivered by trade
counterparties, representing the fair value of the related derivative
agreements. This unrestricted cash collateral is reported in Cash and cash
equivalents. The aggregate fair value of all collateralized derivative
transactions that were in a liability position at December 31, 2016 and 2015
was not material.
The following table presents information about MLOA's offsetting of
financial assets and liabilities and derivative instruments at December 31,
2016.
OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS
AT DECEMBER 31, 2016
GROSS GROSS AMOUNTS NET AMOUNTS
AMOUNTS OFFSET IN THE PRESENTED IN THE
RECOGNIZED BALANCE SHEETS BALANCE SHEETS
---------- -------------- ----------------
(IN MILLIONS)
ASSETS
DESCRIPTION
Derivatives:
Equity contracts............................. $ 76 $ 20 $ 56
Collateral................................... -- 58 (58)
---------- -------------- ----------------
Total Derivatives, subject to an ISDA
Master Agreement/(1)/..................... 76 78 (2)
Other financial instruments.................. 77 -- 77
---------- -------------- ----------------
Other invested assets...................... $ 153 $ 78 $ 75
========== ============== ================
LIABILITIES
DESCRIPTION
Derivatives:
Equity contracts............................. $ 20 $ 20 $ --
---------- -------------- ----------------
Total Derivatives, subject to an ISDA
Master Agreement/(1)/..................... 78 78 --
Other financial liabilities.................. 78 -- 78
---------- -------------- ----------------
Other liabilities.......................... $ 156 $ 78 $ 78
========== ============== ================
/(1)/All derivatives were subject to ISDA Master Agreements at December 31,
2016.
F-44
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table presents information about MLOA's gross collateral
amounts that are not offset in the balance sheets at December 31, 2016.
COLLATERAL AMOUNTS OFFSET IN THE BALANCE SHEETS
AT DECEMBER 31, 2016
COLLATERAL (RECEIVED)/HELD
-------------------------
FAIR VALUE OF FINANCIAL NET
ASSETS INSTRUMENTS CASH AMOUNTS
-------------- --------------- ---------- ----------
(IN MILLIONS)
ASSETS
Counterparty A............................... $ 4 $ -- $ (4) $ --
Counterparty V............................... 7 -- (7) --
Counterparty F............................... 7 -- (8) (1)
Counterparty G............................... 4 -- (4) --
Counterparty H............................... 25 (7) (19) (1)
Counterparty Q............................... -- -- -- --
Counterparty K............................... 9 -- (9) --
Counterparty T............................... -- -- -- --
Counterparty L............................... -- -- -- --
-------------- --------------- ---------- ----------
Total Derivatives.......................... $ 56 $ (7) $ (51) $ (2)
Other financial assets....................... 77 -- -- 77
-------------- --------------- ---------- ----------
OTHER INVESTED ASSETS...................... $ 133 $ (7) $ (51) $ 75
============== =============== ========== ==========
The following table presents information about MLOA's offsetting of
financial assets and liabilities and derivative instruments at December 31,
2015.
Offsetting of Financial Assets and Liabilities and Derivative Instruments
At December 31, 2015
Gross Gross Amounts Net Amounts
Amounts Offset in the Presented in the
Recognized Balance Sheets Balance Sheets
---------- -------------- ----------------
(In Millions)
ASSETS
Description
Derivatives:
Equity contracts............................. $ 28 $ 4 $ 24
---------- -------------- ----------------
Total Derivatives, subject to an ISDA Master
Agreement/(1)/............................. 28 4 24
Other financial instruments.................. 65 -- 65
---------- -------------- ----------------
Other invested assets...................... $ 93 $ 4 $ 89
========== ============== ================
LIABILITIES
Description
Derivatives:
Equity contracts............................. $ 4 $ 4 $ --
---------- -------------- ----------------
Total Derivatives, subject to an ISDA Master
Agreement/(1)/............................. 4 4 --
Other financial liabilities.................. 60 -- 60
---------- -------------- ----------------
Other liabilities.......................... $ 64 $ 4 $ 60
========== ============== ================
/(1)/All derivatives were subject to ISDA Master Agreements at December 31,
2015.
F-45
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table presents information about MLOA's gross collateral
amounts that are not offset in the balance sheets at December 31, 2015.
Gross Collateral Amounts Not Offset in the Balance Sheets
At December 31, 2015
Collateral (Received)/Held
---------------------------
Fair Value of Financial Net
Assets Instruments Cash Amounts
------------- ------------ ------------- ------------
(In Millions)
ASSETS
Counterparty A............................... $ 3 $ -- $ (3) $ --
Counterparty V............................... 1 -- (1) --
Counterparty F............................... 2 -- (2) --
Counterparty G............................... 2 -- (2) --
Counterparty H............................... 6 (6) -- --
Counterparty K............................... 7 -- (7) --
Counterparty L............................... 2 -- (2) --
Counterparty T............................... 1 -- (1) --
------------- ------------ ------------- ------------
Total Derivatives.......................... $ 24 $ (6) $ (18) $ --
Other financial assets....................... 65 -- -- 65
------------- ------------ ------------- ------------
Other invested assets...................... $ 89 $ (6) $ (18) $ 65
============= ============ ============= ============
Net Investment Income (Loss)
The following table breaks out Net investment income (loss) by asset
category:
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Fixed maturities............................. $ 43 $ 40 $ 36
Mortgage loans on real estate................ 1 0 2
Policy loans................................. 1 1 1
Derivative instruments....................... 18 (9) 13
----- ----- -----
Gross investment income (loss)............... 63 32 52
Investment expenses.......................... (3) (3) (2)
----- ----- -----
Net Investment Income (Loss)............... $ 60 $ 29 $ 50
===== ===== =====
For 2016, 2015 and 2014 net investment income (loss) from derivatives
included $(2) million, $6 million and $8 million of realized gains (losses)
on contracts closed during those periods and $20 million, $(15) million and
$5 million of unrealized gains (losses) on derivative positions at year end.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Investment Gains (Losses), Net
Investment gains (losses), net including changes in the valuation allowances
and OTTI are as follows:
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Fixed maturities............................. $ (4) $ (1) $ (10)
Mortgage loans on real estate................ -- -- 4
----- ----- -----
Investment Gains (Losses), Net............... $ (4) $ (1) $ (6)
===== ===== =====
4) VALUE OF BUSINESS ACQUIRED AND DEFERRED ACQUISITION COST
The following table presents MLOA's VOBA asset at December 31, 2016 and 2015:
GROSS ACCUMULATED
CARRYING AMORTIZATION
AMOUNT AND OTHER NET
-------- ------------ ----
(IN MILLIONS)
VOBA
----
DECEMBER 31, 2016............................ $ 416 $ (416)/(1)/ $ 0
======== ============ ====
December 31, 2015............................ $ 416 $ (407)/(1)/ $ 9
======== ============ ====
/(1)/Includes reactivity to unrealized investment gains (losses) and
$117 million of accelerated VOBA amortization resulting from the
reinsurance agreement with Protective Life which is included in the
deferred cost of reinsurance.
For 2016, 2015 and 2014, amortization (negative amortization) expense
related to VOBA was $9 million, $0 million and $10 million, respectively.
Changes in deferred acquisition costs at December 31, 2016 and 2015 were as
follows:
DECEMBER 31,
--------------
2016 2015
------ ------
(IN MILLIONS)
Balance, beginning of year................... $ 364 $ 292
Capitalization of commissions, sales and
issue expenses............................. 103 108
Amortization................................. (92) (35)
Change in unrealized investment gains
and losses................................. (1) (1)
------ ------
Balance, End of Year......................... $ 374 $ 364
====== ======
5) FAIR VALUE DISCLOSURES
Assets and Liabilities measured at fair value on a recurring basis are
summarized below. At December 31, 2016 and 2015, no assets were required to
be measured at fair value on a non-recurring basis. Fair value measurements
are required on a non-recurring basis for certain assets, including goodwill
and mortgage loans on real estate, only when an OTTI or other event occurs.
When such fair value measurements are recorded, they must be classified and
disclosed within the fair value hierarchy.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
FAIR VALUE MEASUREMENTS
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------- -------- -------- --------
(IN MILLIONS)
DECEMBER 31, 2016
-----------------
ASSETS:
Investments:
Fixed maturity Securities,
available-for-sale:
Public Corporate........................... $ -- $ 827 $ -- $ 827
Private Corporate.......................... -- 201 7 208
U.S. Treasury, government and agency....... -- 35 -- 35
States and political subdivisions.......... -- 6 -- 6
Commercial mortgage-backed................. -- -- 24 24
Redeemable preferred stock................. 9 -- -- 9
-------- -------- -------- --------
Subtotal................................. 9 1,069 31 1,109
-------- -------- -------- --------
Other equity investments.................... -- -- -- --
Trading securities.......................... 1 -- -- 1
Options..................................... -- 56 -- 56
Cash equivalents.............................. 109 -- -- 109
Separate Accounts' assets..................... 1,732 14 -- 1,746
-------- -------- -------- --------
Total Assets............................... $ 1,851 $ 1,139 $ 31 $ 3,021
======== ======== ======== ========
LIABILITIES:
Contingent payment arrangements............... $ -- $ -- $ 7 $ 7
MSO and IUL indexed features' liability....... -- 53 -- 53
-------- -------- -------- --------
Total Liabilities.......................... $ -- $ 53 $ 7 $ 60
======== ======== ======== ========
December 31, 2015
-----------------
Assets:
Investments:
Fixed maturity Securities,
available-for-sale:
Public Corporate........................... $ -- $ 637 $ -- $ 637
Private Corporate.......................... -- 177 8 185
U.S. Treasury, government and agency....... -- 29 -- 29
States and political subdivisions.......... -- 7 -- 7
Commercial mortgage-backed................. -- -- 31 31
Redeemable preferred stock................. 9 8 -- 17
-------- -------- -------- --------
Subtotal................................. 9 858 39 906
-------- -------- -------- --------
Other equity investments.................... 1 -- -- 1
Options..................................... -- 24 -- 24
Cash equivalents.............................. 170 -- -- 170
Separate Accounts' assets..................... 1,686 14 -- 1,700
-------- -------- -------- --------
Total Assets............................. $ 1,866 $ 896 $ 39 $ 2,801
======== ======== ======== ========
LIABILITIES:
MSO and IUL indexed features' liability....... -- 24 -- 24
-------- -------- -------- --------
Total Liabilities........................ $ -- $ 24 $ 7 $ 31
======== ======== ======== ========
At December 31, 2016 and 2015, respectively, the fair value of public fixed
maturities is approximately $888 million and $701 million or approximately
29.4% and 25.0% of MLOA's total assets measured at fair value on a recurring
basis. The fair values of MLOA's public fixed maturity securities are
generally based on prices obtained from independent valuation service
providers and for which MLOA maintains a vendor hierarchy by asset type
based on historical pricing experience and vendor expertise. Although each
security generally is priced by multiple independent valuation service
providers, MLOA ultimately uses the price received from the independent
valuation service provider highest in the vendor hierarchy based on the
respective asset type, with limited exception. To validate reasonableness,
prices also are
F-48
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
internally reviewed by those with relevant expertise through comparison with
directly observed recent market trades. Consistent with the fair value
hierarchy, public fixed maturity securities validated in this manner
generally are reflected within Level 2, as they are primarily based on
observable pricing for similar assets and/or other market observable inputs.
If the pricing information received from independent valuation service
providers is not reflective of market activity or other inputs observable in
the market, MLOA may challenge the price through a formal process in
accordance with the terms of the respective independent valuation service
provider agreement. If as a result it is determined that the independent
valuation service provider is able to reprice the security in a manner
agreed as more consistent with current market observations, the security
remains within Level 2. Alternatively, a Level 3 classification may result
if the pricing information then is sourced from another vendor, non-binding
broker quotes, or internally-developed valuations for which MLOA's own
assumptions about market-participant inputs would be used in pricing the
security.
At December 31, 2016 and 2015, respectively, the fair value of private fixed
maturities is approximately $221 million and $205 million or approximately
7.3% and 7.3% of MLOA's total assets measured at fair value on a recurring
basis. The fair values of MLOA's private fixed maturities, which primarily
are comprised of investments in private placement securities generally are
determined using a discounted cash flow model. In certain cases, these
models use observable inputs with a discount rate based upon the average of
spread surveys collected from private market intermediaries who are active
in both primary and secondary transactions, taking into account, among other
factors, the credit quality and industry sector of the issuer and the
reduced liquidity associated with private placements. Generally, these
securities have been reflected within Level 2. For certain private fixed
maturities, the discounted cash flow model may also incorporate unobservable
inputs, which reflect MLOA's own assumptions about the inputs market
participants would use in pricing the asset. To the extent management
determines that such unobservable inputs are significant to the fair value
measurement of a security, a Level 3 classification generally is made.
At December 31, 2016 and 2015, respectively, investments classified as
Level 1 comprise approximately 61.3% and 66.6% of assets measured at fair
value on a recurring basis and primarily include redeemable preferred stock,
cash equivalents and Separate Accounts assets. Fair value measurements
classified as Level 1 include exchange-traded prices of fixed maturities,
equity securities and net asset values for transacting subscriptions and
redemptions of mutual fund shares held by Separate Accounts. Cash
equivalents classified as Level 1 include money market accounts, overnight
commercial paper and highly liquid debt instruments purchased with an
original maturity of three months or less, and are carried at cost as a
proxy for fair value measurement due to their short-term nature.
At December 31, 2016 and 2015, respectively, investments classified as
Level 2 comprise approximately 37.7% and 32.0% of assets measured at fair
value on a recurring basis and primarily include U.S. government and agency
securities and certain corporate debt securities, such as public and private
fixed maturities. As market quotes generally are not readily available or
accessible for these securities, their fair value measures are determined
utilizing relevant information generated by market transactions involving
comparable securities and often are based on model pricing techniques that
effectively discount prospective cash flows to present value using
appropriate sector-adjusted credit spreads commensurate with the security's
duration, also taking into consideration issuer-specific credit quality and
liquidity.
MLOA's IUL product and in the MSO investment option available in some life
contracts offer investment options which permit the contract owner to
participate in the performance of an index, ETF or commodity price. These
investment options, which depending on the product and on the index selected
can currently have 1 or 3 year terms, provide for participation in the
performance of specified indices, ETF or commodity price movement up to a
segment-specific declared maximum rate. Under certain conditions that vary
by product, e.g. holding these segments for the full term, these segments
also shield policyholders from some or all negative investment performance
associated with these indices, ETF or commodity price. These investment
options have defined formulaic liability amounts, and the current values of
the option component of these segment reserves are accounted for as Level 2
embedded derivatives. The fair values of these embedded derivatives are
based on prices obtained from independent valuation service providers.
At December 31, 2016 and 2015, respectively, investments classified as
Level 3 comprise approximately 1.0% and 1.4% of assets measured at fair
value on a recurring basis and primarily include commercial mortgage-backed
securities ("CMBS") and corporate debt securities. Determinations to
classify fair value measures within Level 3 of the valuation hierarchy
generally are based upon the significance of the unobservable factors to the
overall fair value measurement. At December 31, 2016 and 2015, MLOA did not
hold any fixed maturities, included in the Level 3 classification, with
indicative pricing obtained from brokers that otherwise could not be
corroborated to market observable data. MLOA applies various due-diligence
procedures, as considered appropriate, to validate these non-binding broker
quotes for reasonableness, based on its understanding of the markets,
including use of internally-developed assumptions about inputs a market
participant would use to price the security. In addition, approximately
$24 million and $31 million of mortgage- and asset-backed securities,
including CMBS, are classified as Level 3 at December 31, 2016 and 2015,
respectively. MLOA utilizes prices obtained from an independent valuation
service vendor to measure fair value of CMBS securities.
MLOA's Level 3 liabilities include contingent payment arrangements
associated with a Renewal Rights Agreement (the "Agreement") that
transitions to MLOA certain group employee benefits policies beginning
January 1, 2017 from an insurer exiting such business. The fair value
F-49
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
of the contingent payments liability associated with this transaction is
measured and adjusted each reporting period through final settlement using
projected premiums from these policies, net of potential surrenders and
terminations, and applying a risk-adjusted discount factor (7% at
December 31, 2016) to the resulting cash flows.
In 2016, there were no AFS fixed maturities were transferred from Level 2
into the Level 3 classification. In 2015, AFS fixed maturities with fair
value of $1 million were transferred from Level 2 into the Level 3
classification. These transfers in the aggregate represent approximately
0.2% of total equity at December 31, 2015.
The table below presents a reconciliation for all Level 3 assets at
December 31, 2016, 2015 and 2014 respectively.
LEVEL 3 INSTRUMENTS
FAIR VALUE MEASUREMENTS
COMMERCIAL CONTINGENT
MORTGAGE- PAYMENT
CORPORATE BACKED ARRANGEMENT
----------- ---------- -----------
(IN MILLIONS)
BALANCE, JANUARY 1, 2016....................... $ 8 $ 31 $ --
Total gains (losses), realized and
unrealized included in:
Earnings (loss) as:
Investment gains (losses), net............ -- (4) --
Other comprehensive income (loss).............. -- 1 --
Purchases...................................... -- -- 7
Sales.......................................... (1) (4) --
----------- ---------- -----------
BALANCE, DECEMBER 31, 2016..................... $ 7 $ 24 $ 7
=========== ========== ===========
BALANCE, JANUARY 1, 2015....................... $ 8 $ 26 $ --
Total gains (losses), realized and
unrealized included in:
Earnings (loss) as:
Investment gains (losses), net............ -- (2) --
Other comprehensive income (loss).............. -- 8 --
Sales.......................................... (1) (1) --
Transfers into Level 3/(1)/.................... 1 -- --
----------- ---------- -----------
BALANCE, DECEMBER 31, 2015..................... $ 8 $ 31 $ --
=========== ========== ===========
BALANCE, JANUARY 1, 2014....................... $ 9 $ 24 $ --
Total gains (losses), realized and
unrealized included in:
Earnings (loss) as:
Investment gains (losses), net............ (1) (11) --
Increase (decrease) in the fair value
of reinsurance contracts................ -- -- --
Other comprehensive income (loss).............. 1 13 --
Sales.......................................... (1) -- --
----------- ---------- -----------
BALANCE, DECEMBER 31, 2014..................... $ 8 $ 26 $ --
=========== ========== ===========
/(1)/Transfers into/out of Level 3 classification are reflected at
beginning-of-period fair values.
F-50
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The table below details changes in unrealized gains (losses) for 2016 and
2015 by category for Level 3 assets still held at December 31, 2016 and
2015, respectively.
OCI
-------------
(IN MILLIONS)
LEVEL 3 INSTRUMENTS
FULL YEAR 2016
STILL HELD AT DECEMBER 31, 2016:
Change in unrealized gains (losses):
Fixed maturity securities,
available-for-sale:
Commercial mortgage-backed................ 1
------------
Total................................... $ 1
============
Level 3 Instruments
Full Year 2015
Still Held at December 31, 2015:
Change in unrealized gains (losses):
Fixed maturity securities,
available-for-sale:
Corporate................................. $ (1)
Commercial mortgage-backed................ $ 8
------------
Total................................... $ 7
============
At December 31, 2016 and 2015, MLOA had $31 million and $39 million,
respectively, of investments classified as Level 3. The underlying
quantitative inputs to measure the fair value of these investments are not
developed by MLOA and are not readily available. These investments primarily
consist of certain privately placed debt securities with limited trading
activity, including asset-backed instruments, and their fair values
generally reflect unadjusted prices obtained from independent valuation
service providers and indicative, non-binding quotes obtained from
third-party broker-dealers recognized as market participants. Significant
increases or decreases in the fair value amounts received from these pricing
sources may result in MLOA's reporting significantly higher or lower fair
value measurements for these Level 3 investments.
The carrying values and fair values at December 31, 2016 and 2015 for
financial instruments not otherwise disclosed in Note 3 are presented in the
table below. Certain financial instruments are exempt from the requirements
for fair value disclosure, such as insurance liabilities other than
financial guarantees and investment contracts and pension and other
postretirement obligations.
FAIR VALUE
CARRYING -------------------------------
VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------- ------- ------- ------- -------
(IN MILLIONS)
DECEMBER 31, 2016
-----------------
Mortgage loans on real estate................ $ 17 $ -- $ -- $ 16 $ 16
Policyholders liabilities:
Investment contracts....................... $ 168 $ -- $ -- $ 170 $ 170
Policy Loans................................. 176 -- -- 210 210
December 31, 2015
-----------------
Policyholders liabilities:
Investment contracts....................... $ 177 $ -- $ -- $ 184 $ 184
Policy Loans................................. 159 -- -- 189 189
Fair values for commercial mortgage loans on real estate are measured by
discounting future contractual cash flows to be received on the mortgage
loan using interest rates at which loans with similar characteristics and
credit quality would be made. The discount rate is derived from taking the
appropriate U.S. Treasury rate with a like term to the remaining term of the
loan and adding a spread reflective of the risk premium associated with the
specific loan. Fair values for mortgage loans anticipated to be foreclosed
and problem mortgage loans are limited to the fair value of the underlying
collateral, if lower.
The fair value of policy loans is calculated by discounting expected cash
flows based upon the U.S. treasury yield curve and historical loan repayment
patterns.
The fair values for MLOA's supplementary contracts not involving life
contingencies, single premium deferred annuities and certain annuities,
which are included in Policyholder's account balances, are estimated using
projected cash flows discounted at rates reflecting current market rates.
Significant unobservable inputs reflected in the cash flows include lapse
rates and withdrawal rates. Incremental adjustments may be made to the fair
value to reflect non-performance risk.
F-51
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
6) REINSURANCE
MLOA cedes and assumes reinsurance with other insurance companies. Since
ceded reinsurance does not relieve the originating insurer of liability,
MLOA evaluates the financial condition of its reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies.
On October 1, 2013, MLOA entered into an agreement with Protective Life to
reinsure an in-force book of life insurance and annuity policies, written
primarily prior to 2004. As of December 31, 2016 and 2015 included in MLOA's
balance sheet were Amounts due from reinsurers of $1,157 million and
$1,179 million, respectively (net of $130 million and $130 million of ceded
policy loans, respectively), including $1,092 million and $1,124 million of
Policyholder's account balances relating to the reinsurance agreement with
Protective Life. During 2016, 2015 and 2014, respectively, total premiums
ceded to Protective Life were $20 million, $21 million and $24 million and
policyholder benefits ceded were $223 million, $219 million and
$242 million. As of December 31, 2016, Protective Life is rated AA-.
Included in the reinsured business to Protective Life were policies with
GMDB and GMIB features which had a reserve balance of $6 million and
$2 million at December 31, 2016, respectively and $9 million and $1 million
at December 31, 2015, respectively. As a result of the reinsurance agreement
Protective Life will receive all the benefits from and assumes all the risks
from other reinsurance contracts to which MLOA was a party for the block of
business reinsured.
For business not reinsured with Protective Life, MLOA generally reinsures
its variable life, UL and term life insurance policies on an excess of
retention basis. MLOA generally retains up to a maximum of $4 million of
mortality risk on single-life policies and up to a maximum of $6 million of
mortality risk on second-to-die policies. For amounts applied for in excess
of those limits, reinsurance is ceded to AXA Equitable Life Insurance
Company ("AXA Equitable"), an affiliate and wholly-owned subsidiary of AXA
Financial, up to a combined maximum of $20 million of risk on single-life
policies and up to a maximum of $25 million on second-to-die policies. For
amounts issued in excess of those limits MLOA typically obtains reinsurance
from unaffiliated third parties. The reinsurance arrangements obligate the
reinsurer to pay a portion of any death claim in excess of the amount MLOA
retained in exchange for an agreed-upon premium.
At December 31, 2016 and 2015, respectively, amounts due from reinsurers
related to insurance contracts amounted to $1,260 million and
$1,299 million, of which $27 million and $33 million (not including
Protective Life) related to one specific reinsurer, which is rated AA- with
the remainder of the reinsurers rated AA- or not rated. A contingent
liability exists with respect to reinsurance should the reinsurers be unable
to meet their obligations.
For affiliated reinsurance agreements see Note 7 "Related Party
Transactions".
The following table summarizes the effect of reinsurance:
2016 2015 2014
------ ------ ------
(IN MILLIONS)
Direct premiums.............................. $ 38 $ 39 $ 46
Assumed...................................... 3 1 1
Reinsurance ceded............................ (37) (39) (46)
------ ------ ------
Premiums..................................... $ 4 $ 1 $ 1
====== ====== ======
Variable Life and Investment-type Product
Policy Fee Income Ceded.................... $ 73 $ 73 $ 48
====== ====== ======
Policyholders' Benefits Ceded................ $ 256 $ 261 $ 291
====== ====== ======
7) RELATED PARTY TRANSACTIONS
Under its service agreement with AXA Equitable, personnel services, employee
benefits, facilities, supplies and equipment are provided to MLOA to conduct
its business. The associated costs related to the service agreement are
allocated to MLOA based on methods that management believes are reasonable,
including a review of the nature of such costs and activities performed to
support MLOA. As a result of such allocations, MLOA incurred expenses of
$129 million, $88 million and $67 million for 2016, 2015 and 2014,
respectively. At December 31, 2016 and 2015, respectively, MLOA reported a
$21 million and $15 million payable to AXA Equitable in connection with its
service agreement.
Various AXA affiliates, including MLOA, cede a portion of their life, health
and catastrophe insurance business through reinsurance agreements to AXA
Global Life an affiliate. Beginning in 2008 AXA Global Life, in turn,
retrocedes a quota share portion of these risks to MLOA on a one-year term
basis. Premiums assumed from the above mentioned affiliated reinsurance
transactions during 2016, 2015 and 2014, were $2 million, $1 million and
$1 million, respectively. Claims and expenses assumed under these agreements
during 2016, 2015 and 2014 were $2 million, $1 million and $1 million,
respectively.
F-52
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MLOA cedes a portion of its life business through excess of retention
treaties to AXA Equitable on a yearly renewal term basis and reinsured the
no lapse guarantee riders through AXA RE Arizona Company, an affiliate.
Premiums earned from the above mentioned affiliated reinsurance transactions
during 2016, 2015 and 2014, were $3 million, $2 million and $2 million,
respectively. Claims and expenses assumed under these agreements during
2016, 2015 and 2014 were $0, $0 and $2 million, respectively.
In 2016, 2015 and 2014, respectively, MLOA paid AXA Distribution Holding
Corporation ("AXA Distribution") and its subsidiaries $71 million,
$64 million and $52 million of commissions and fees for sales of insurance
products.
MLOA paid $11 million, $13 million and $2 million in commissions and fees
for the sale of its insurance products to AXA Distributors, LLC ("AXA
Distributors") a broker-dealer and insurance general agency affiliate, in
2016, 2015 and 2014, respectively.
Variable life products offer purchasers the opportunity to direct the
investment of their account values into various Separate Account investment
options. The investment options available to MLOA's variable life
policyholders are comprised of the proprietary fund families of EQ Advisors
Trust ("EQAT"), AXA Premier VIP Trust ("VIP Trust"), each of which are
mutual funds for which MLOA's affiliate, AXA Equitable Funds Management
Group, LLC, serves as the investment manager and administrator.
In addition to the AXA Equitable service agreement, MLOA has various other
service and investment advisory agreements with affiliates. The amount of
expenses incurred by MLOA related to these agreements were $2 million,
$1 million and $1 million for 2016, 2015 and 2014, respectively.
8) SHARE-BASED COMPENSATION
Certain employees of AXA Equitable who perform services for MLOA participate
in various share-based payment arrangements sponsored by AXA Financial or
AXA. MLOA was allocated $3 million, $3 million and $2 million of
compensation costs, included in Compensation and benefits in the statement
of Earnings (Loss), for share-based payment arrangements during 2016, 2015
and 2014, respectively.
9) INCOME TAXES
A summary of the income tax (expense) benefit in the statements of earnings
(loss) follows:
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Income tax (expense) benefit:
Current (expense) benefit.................. $ 9 $ 5 $ (3)
Deferred (expense) benefit................. 24 8 8
----- ----- -----
Total........................................ $ 33 $ 13 $ 5
===== ===== =====
At December 31, 2016 and 2015, the company had current taxes receivable of
$1 million and current taxes payable of $2 million, respectively.
The Federal income taxes attributable to operations are different from the
amounts determined by multiplying the earnings (loss), before income taxes
by the expected Federal income tax rate of 35%. The sources of the
difference and their tax effects are as follows:
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Expected income tax (expense) benefit........ $ 31 $ 11 $ 4
Dividends received deduction................. 2 1 1
Other........................................ -- 1 --
----- ----- -----
Income Tax (Expense) Benefit................. $ 33 $ 13 $ 5
===== ===== =====
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The components of the net deferred income taxes are as follows:
DECEMBER 31, 2016 December 31, 2015
------------------- ----------------------
ASSETS LIABILITIES Assets Liabilities
------- ----------- -------- -------------
(IN MILLIONS)
Reserves and reinsurance..................... $ 112 $ -- $ 97 $ --
DAC.......................................... -- 88 -- 93
VOBA......................................... -- -- -- 3
Investments.................................. -- 11 -- 10
Other........................................ 13 -- 12 --
------- ---------- -------- -------------
Total........................................ $ 125 $ 99 $ 109 $ 106
======= ========== ======== =============
As of December 31, 2016, the Company had $1 million of AMT credits which do
not expire.
MLOA does not provide income taxes on the undistributed earnings related to
its investment in AB units except to the extent that such earnings are not
permanently invested outside the United States. As of December 31, 2016,
$6 million of accumulated undistributed earnings related to its investment
in AB units were permanently invested outside the United States. At existing
applicable income tax rates, additional taxes of approximately $2 million
would need to be provided if such earnings were remitted to the United
States.
At December 31, 2016, 2015 and 2014 of the total amount of unrecognized tax
benefits, $4 million, $7 million and $6 million, respectively, would affect
the effective tax rate.
MLOA recognizes accrued interest and penalties related to unrecognized tax
benefits in tax (expense) benefit. Interest and penalties included in the
amounts of unrecognized tax benefits at December 31, 2016, 2015 and 2014
were $0 million, $1 million and $0 million, respectively. Tax expense for
2016, 2015 and 2014 reflected a benefit of $0 million in interest expense
related to unrecognized tax benefits.
A reconciliation of unrecognized tax benefits (excluding interest and
penalties) follows:
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Balance, beginning of year................... $ 7 $ 6 $ 5
Additions for tax positions of prior years... (3) 1 1
----- ----- -----
Balance, End of Year......................... $ 4 $ 7 $ 6
===== ===== =====
It is reasonably possible that the total amounts of unrecognized tax
benefits will change within the next 12 months. The possible change in the
amount of unrecognized tax benefits cannot be estimated at this time.
During the first quarter of 2016, the Company agreed to the Internal Revenue
Service's Revenue Agent's Reports for MONY Life's consolidated amended
Federal 2004-2007 and consolidated Federal 2008 and 2009 corporate income
tax returns which included MLOA as a member of the consolidated group. The
impact on MLOA's statement of earnings (loss) is an income tax benefit of
$0.2 million. The 2010 through 2016 tax years are open to examination by the
IRS.
10)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
AOCI represents cumulative gains (losses) on investments that are not
reflected in earnings (loss). The balances for the past three years follow:
DECEMBER 31,
------------------
2016 2015 2014
----- ----- ------
(IN MILLIONS)
Unrealized gains (losses) on investments,
net of adjustments......................... $ 7 $ 5 $ 17
----- ----- ------
Total Accumulated Other Comprehensive
Income (Loss).............................. $ 7 $ 5 $ 17
===== ===== ======
F-54
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The components of OCI for the past three years follow:
DECEMBER 31,
--------------------
2016 2015 2014
----- ------ -----
(IN MILLIONS)
Change in net unrealized gains (losses) on investments:
Net unrealized gains (losses) arising during the year. $ (1) $ (13) $ 11
(Gains) losses reclassified into net earnings (loss)
during the year/(1)/................................. 3 0 7
----- ------ -----
Change in net unrealized gains (losses) on investments.. 2 (13) 18
Adjustments for DAC, VOBA and Other..................... -- 1 (9)
----- ------ -----
Other Comprehensive Income (Loss), net of adjustments
and (net of deferred income tax expense (benefit) of
$1, $(6) and $(5)..................................... $ 2 $ (12) $ 9
===== ====== =====
/(1)/See "Reclassification adjustments" in Note 3. Reclassification amounts
presented net of income tax expense (benefit) of $1 million, $0 million
and $(3) million for 2016, 2015 and 2014, respectively.
Investment gains and losses reclassified from AOCI to net earnings (loss)
primarily consist of realized gains (losses) on sales and OTTI of AFS
securities and are included in Total investment gains (losses), net on the
statements of earnings (loss). Amounts presented in the table above are net
of tax.
11)LITIGATION
A number of lawsuits, claims, assessments and regulatory inquiries have been
filed or commenced against life insurers in the jurisdictions in which MLOA
does business. These actions and proceedings involve, among other things,
insurers' sales practices, alleged agent misconduct, alleged failure to
properly supervise agents, contract administration, product design, features
and accompanying disclosure, cost of insurance increases, the use of captive
reinsurers, payments of death benefits and the reporting and escheatment of
unclaimed property, alleged breach of fiduciary duties, alleged
mismanagement of client funds and other matters. Some of the matters have
resulted in the award of substantial fines and judgments against other
insurers, including punitive damages, or in substantial settlements. Courts,
juries and regulators often have substantial discretion in awarding damage
awards and fines, including punitive damages. MLOA, from time to time, is
involved in such actions and proceedings. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of management no
such matter is likely to have a material adverse effect on MLOA's financial
position or results of operations. However, it should be noted that the
frequency of large damage awards, including large punitive damage awards and
regulatory fines that bear little or no relation to actual economic damages
incurred, continues to create the potential for an unpredictable judgment in
any given matter.
12)STATUTORY FINANCIAL INFORMATION
MLOA is restricted as to the amounts it may pay as dividends to AEFS. Under
Arizona Insurance Law, a domestic life insurer may not, without prior
approval of the Director of Insurance, pay a dividend to its shareholder
exceeding an amount calculated based on a statutory formula. This formula
would not permit MLOA to pay shareholder dividends during 2017. For 2016,
2015 and 2014, MLOA's statutory net income (loss) was $(14) million, $(4)
million and $12 million, respectively. Statutory surplus, capital stock and
Asset Valuation Reserve ("AVR") totaled $331 million and $366 million at
December 31, 2016 and 2015, respectively. There were no shareholder
dividends paid to its parent by MLOA in 2016, 2015 and 2014.
At December 31, 2016, MLOA, in accordance with various government and state
regulations, had $6 million of securities on deposit with such government or
state agencies.
At December 31, 2016 and for the year then ended, there were no differences
in net income (loss) and capital and surplus resulting from practices
prescribed and permitted by the Arizona Department of Insurance and those
prescribed by NAIC Accounting Practices and Procedures effective at
December 31, 2016.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ in certain
instances from U.S. GAAP. The differences between statutory surplus and
capital stock determined in accordance with Statutory Accounting Principles
("SAP") and total shareholder's equity under U.S. GAAP are primarily: (a)
the inclusion in SAP of an AVR intended to stabilize surplus from
fluctuations in the value of the investment portfolio; (b) future policy
benefits and policyholders' account balances under SAP
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
differ from U.S. GAAP due to differences between actuarial assumptions and
reserving methodologies; (c) certain policy acquisition costs are expensed
under SAP but deferred under U.S. GAAP and amortized over future periods to
achieve a matching of revenues and expenses; (d) under SAP, Federal income
taxes are provided on the basis of amounts currently payable with limited
recognition of deferred tax assets while under U.S. GAAP, deferred taxes are
recorded for temporary differences between the financial statements and tax
basis of assets and liabilities where the probability of realization is
reasonably assured; (e) the valuation of assets under SAP and U.S. GAAP
differ due to different investment valuation and depreciation methodologies,
as well as the deferral of interest-related realized capital gains and
losses on fixed income investments; (f) the valuation of the investment in
Alliance Units under SAP reflects a portion of the market value appreciation
rather than the equity in the underlying net assets as required under U.S.
GAAP; (g) computer software development costs are capitalized under U.S.
GAAP but expensed under SAP; (h) certain assets, primarily pre-paid assets,
are not admissible under SAP but are admissible under U.S. GAAP (i) the fair
valuing of all acquired assets and liabilities including VOBA assets
required for U.S. GAAP purchase accounting and (j) cost of reinsurance is
recognized as expense under SAP and amortized over the life of the
underlying reinsured policies under U.S. GAAP.
MLOA holds approximately $600,000 of liabilities for the estimated portion
of future assessments related to insolvent insurers, primarily Executive
Life Ins. Co. and Lincoln Memorial Life Insurance Company. These assessments
are expected to be paid over an extended period. MLOA also holds
approximately $500,000 of assets for premium tax offsets that are expected
to be realized with respect to these assessments and an additional $100,000
asset for premium tax offsets for assessments already paid. MLOA has not
received notifications in 2016 of any other new insolvency material to
MLOA's financial results of operations or financial condition.
F-56
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SELECTED FINANCIAL DATA
The following selected financial data have been derived from MLOA's audited
financial statements. The statements of earnings (loss) for the years ended
December 31, 2016, 2015 and 2014, and the balance sheet data at December 31,
2016 and 2015 have been derived from MLOA's audited financial statements
included elsewhere herein. The statements of earnings (loss) for the years
ended December 31, 2013 and 2012, and the balance sheet data at December 31,
2014, 2013 and 2012 have been derived from MLOA's previously reported
audited financial statements not included herein. This selected financial
data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements and related notes included elsewhere herein.
YEARS ENDED DECEMBER 31,
--------------------------------------
2016 2015 2014 2013 2012
------ ------ ------ ------ ------
(IN MILLIONS)
STATEMENTS OF EARNINGS (LOSS) DATA:
-----------------------------------
REVENUES:
Universal life and investment-type product
policy fee income.......................... $ 196 $ 152 $ 91 $ 131 $ 117
Premiums.................................... 4 1 1 25 32
Net investment income (loss):
Investment income (loss) from derivatives... 18 (9) 13 8 --
Other investment income (loss).............. 42 38 37 84 110
------ ------ ------ ------ ------
Net investment income (loss)............... 60 29 50 92 110
Investment gains (losses), net:
Total other-than-temporary
impairment losses........................ (3) (1) (10) (6) (7)
Portion of loss recognized in other
comprehensive income (loss).............. -- -- -- -- --
------ ------ ------ ------ ------
Net impairment losses recognized........... (3) (1) (10) (6) (7)
Other investment gains (losses), net....... (1) 0 4 74 2
------ ------ ------ ------ ------
Total investment gains (losses), net....... (4) (1) (6) 68 (5)
------ ------ ------ ------ ------
Equity in earnings (loss) of AB............. 6 5 1 5 2
Other income (loss)......................... 8 9 8 5 5
Increase (decrease) in the fair value of
the reinsurance contract asset............. -- -- 0 (7) (2)
------ ------ ------ ------ ------
Total revenues......................... 270 195 145 319 259
------ ------ ------ ------ ------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits..................... 34 39 31 78 103
Interest credited to policyholders'
account balances........................... 69 36 39 65 61
Compensation and benefits................... 59 36 29 32 25
Commissions................................. 114 121 73 80 38
Amortization of deferred policy
acquisition costs and value of business
acquired, net.............................. (1) (73) (64) (60) (58)
Amortization of deferred cost
of reinsurance............................. 7 8 8 4 --
Other operating costs and expenses.......... 77 58 39 76 46
------ ------ ------ ------ ------
Total benefits and other deductions........ 359 225 155 275 215
------ ------ ------ ------ ------
Earnings (loss), before income taxes.......... (89) (30) (10) 44 44
Income tax benefit (expense).................. 33 13 5 (16) (6)
------ ------ ------ ------ ------
Net Earnings (Loss)........................... $ (56) $ (17) $ (5) $ 28 $ 38
====== ====== ====== ====== ======
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DECEMBER 31,
--------------------------------------------
2016 2015 2014 2013 2012
-------- -------- -------- -------- --------
(IN MILLIONS)
BALANCE SHEET DATA:
-------------------
Total Investments............................ $ 1,377 $ 1,154 $ 1,119 $ 967 $ 2,279
Separate Accounts assets..................... 1,747 1,701 1,810 1,839 1,640
Total Assets................................. 5,002 4,782 4,700 4,598 4,588
Policyholders' account balances.............. 2,403 2,158 1,919 1,777 1,615
Future policy benefits and other
policyholders liabilities.................. 351 389 389 323 397
Separate Accounts liabilities................ 1,747 1,701 1,810 1,839 1,640
Total liabilities............................ 4,579 4,308 4,200 4,104 3,847
Total shareholder's equity................... $ 423 $ 474 $ 500 $ 494 $ 741
F-58
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ("MD&A") FOR MONY LIFE INSURANCE COMPANY OF AMERICA
("MLOA") SHOULD BE READ IN CONJUNCTION WITH "RISK FACTORS," "SELECTED FINANCIAL
DATA" AND THE FINANCIAL STATEMENTS AND RELATED NOTES TO FINANCIAL STATEMENTS
INCLUDED ELSEWHERE HEREIN.
FORWARD-LOOKING INFORMATION
This document contains "forward-looking statements" that anticipate results
based on our estimates, assumptions and plans that are subject to uncertainty.
These statements are made subject to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. We assume no obligation to update any
forward-looking statements as a result of new information or future events or
developments.
These forward-looking statements do not relate strictly to historical or
current facts and may be identified by their use of words like "plans,"
"seeks," "expects," "will," "should," "anticipates," "estimates," "intends,"
"believes," "likely," "targets" and other words with similar meanings. These
statements may address, among other things, our strategy for growth, product
development, investment results, regulatory approvals, market position,
expenses, financial results, litigation and reserves. We believe that these
statements are based on reasonable estimates, assumptions and plans. However,
if the estimates, assumptions or plans underlying the forward-looking
statements prove inaccurate or if other risks or uncertainties arise, actual
results could differ materially from those communicated in these
forward-looking statements.
In addition to the normal risks of business, we are subject to significant
risks and uncertainties, including those listed in the "Risk Factors" section
of this report, which apply to us. These risks constitute our cautionary
statements under the Private Securities Litigation Reform Act of 1995 and
readers should carefully review such cautionary statements as they identify
certain important factors that could cause actual results to differ materially
from those in the forward-looking statements and historical trends. These
cautionary statements are not exclusive and are in addition to other factors
discussed elsewhere in this document, in our filings with the United States
Securities and Exchange Commission ("SEC") or in materials incorporated therein
by reference.
BACKGROUND
MLOA, established in the state of Arizona in 1969, is a wholly-owned subsidiary
of AXA Equitable Financial Services LLC ("AEFS"). MLOA's primary business is to
provide life insurance and employee benefit products to both individuals and
small and medium-size businesses. MLOA is licensed to sell its products in 49
states (not including New York), the District of Columbia and Puerto Rico.
AEFS is an indirect, wholly-owned subsidiary of AXA Financial and AXA Financial
is an indirect, wholly-owned subsidiary of AXA, a French holding company for
the AXA Group, a worldwide leader in financial protection. For additional
information regarding AXA, see "Description of Business -- Parent Company."
OVERVIEW
EARNINGS. MLOA's net loss for 2016 was $56 million. MLOA's 2016 results were
primarily impacted from various one-time events which included actuarial
assumption updates, model changes and corrections of errors from prior periods.
In addition, MLOA's expenses increased as a result of start-up costs for the
employee benefit business which launched in late 2015. See "Results of
Operations" below for a discussion of MLOA's Net loss from operations.
SALES. Life insurance first year premiums and annuity deposits by MLOA
decreased by $30 million, or 9.7% from 2015, primarily due to a decrease in
sales of interest sensitive life products, primarily reflecting non-recurring
sales of a few large indexed universal life insurance ("IUL") product cases in
the wholesale channel partially offset by an increase in sales of variable
universal life insurance products in the combined retail and wholesale
channels. For additional information on sales, see "Premiums and Deposits"
below.
2016 ASSUMPTION UPDATES AND MODEL CHANGE. In 2016, MLOA made several assumption
updates and model changes including the following (1) updates to calculate the
amortization of DAC for indexed universal life ("IUL") products on a specific
product specification basis rather than using one product as the basis to
calculate the amortization of DAC; (2) updated the premium funding assumption
used in setting variable life policyholder benefit reserves, which increased
interest sensitive life policyholder benefit reserves; (3) updated its
mortality assumption for certain VISL products as a result of unfavorable
mortality experience; (4) updated the General Account spread assumption for
certain VISL products to reflect lower expected investment yields.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The net impact of these model changes and assumption updates in 2016 decreased
policyholders' benefits by $11 million, increased the amortization of DAC by
$66 million and increased Universal life and investment-type product policy fee
income by $28 million, resulting in a net increase to the 2016 Loss from
continuing operations before income taxes and Net Loss of approximately
$28 million and $18 million, respectively.
2015 ASSUMPTION UPDATES. In 2015, based upon management's current expectations
of interest rates and future fund growth, MLOA updated its RTM assumption used
to calculate VISL and amortization of DAC from 9.0% to 7.0%. The impact of this
assumption update in 2016 was an increase in VISL reserves of $4 million and an
increase in amortization of DAC of $8 million, resulting in a net increase to
the 2015 Loss from continuing operations before income taxes and Net Loss of
approximately $12 million and $8 million, respectively.
CRITICAL ACCOUNTING ESTIMATES
MLOA's MD&A is based upon its financial statements that have been prepared in
accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP"). The preparation of these financial statements
requires the application of accounting policies that often involve a
significant degree of judgment, requiring management to make estimates and
assumptions (including normal, recurring accruals) that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management, on an ongoing basis, reviews and evaluates the estimates and
assumptions used in the preparation of the financial statements, including
those related to investments, recognition of insurance income and related
expenses, DAC and VOBA and future policy benefits. MLOA bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. The results of such factors form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. If management determines that
modifications in assumptions and estimates are appropriate given current facts
and circumstances, the results of operations and financial position as reported
in the Financial Statements could change significantly.
Management believes the critical accounting policies relating to the following
areas are most dependent on the application of estimates, assumptions and
judgments:
. Revenue Recognition
. Insurance Reserves and Policyholder Benefits
. DAC and VOBA
. Benefit plan costs
. Share-based and Other Compensation Programs
. Investments -- Impairments, valuation allowance and Fair Value
Measurements
. Income Taxes
REVENUE RECOGNITION
Profits on non-participating traditional life policies and annuity contracts
with life contingencies emerged from the matching of benefits and other
expenses against the related premiums. Profits on universal life-type and
investment-type contracts emerge from the matching of benefits and other
expenses against the related contract margins after the impacts of reinsurance
ceded. This matching was accomplished by means of the provision for liabilities
for future policy benefits and the deferral, and subsequent amortization, of
policy acquisition costs. Trends in the general population and MLOA's own
mortality, morbidity, persistency and claims experience, net of reinsurance,
have a direct impact on the benefits and expenses reported in any given period.
INSURANCE RESERVES AND POLICYHOLDER BENEFITS
NON-PARTICIPATING TRADITIONAL LIFE POLICIES
The future policy benefit reserves for non-participating traditional life
insurance policies relate primarily to non-participating term life products and
are calculated using a net level premium method equal to the present value of
expected future benefits plus the present value of future maintenance expenses
less the present value of future net premiums. The expected future benefits and
expenses are determined using actuarial assumptions as to mortality,
persistency and interest established at policy issue. Reserve assumptions
established at policy issue reflect best estimate assumptions based on MLOA's
experience that, together with interest and expense assumptions, include a
margin for adverse deviation. Mortality assumptions are reviewed annually and
are generally based on MLOA's historical experience or standard industry
tables, as applicable; expense assumptions are based on current levels of
maintenance costs, adjusted for the effects of inflation; and interest rate
assumptions are based on current and expected net investment returns.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
UNIVERSAL LIFE AND INVESTMENT-TYPE CONTRACTS
Policyholders' account balances for UL and investment-type contracts represent
an accumulation of gross premium payments plus credited interest less expense
and mortality charges and withdrawals.
MLOA had issued certain variable annuity products with guaranteed minimum death
benefit ("GMDB") and guaranteed minimum income benefit ("GMIB") features. The
GMDB feature provided that in the event of an insured's death, the beneficiary
would receive the higher of the current contract account balance or another
amount defined in the contract. The GMIB feature which, if elected by the
policyholder after a stipulated waiting period from contract issuance,
guarantees a minimum lifetime annuity based on predetermined annuity purchase
rates that may be in excess of what the contract account value can purchase at
then-current annuity purchase rates applied to a guaranteed minimum income
benefit base.
Reserves for GMDB and GMIB obligations are calculated on the basis of actuarial
assumptions related to projected benefits and related contract charges
generally over the lives of the contracts. The determination of this estimated
liability is based on models that involve numerous estimates and subjective
judgments, including those regarding expected market rates of return and
volatility, contract surrender and withdrawal rates, mortality experience, and,
for contracts with the GMIB feature, GMIB election rates. Assumptions related
to contractholder behavior and mortality are updated when a material change in
behavior or mortality experience is observed in an interim period.
SENSITIVITY OF FUTURE RATE OF RETURN ASSUMPTIONS ON GMDB/GMIB RESERVES
The future rate of return assumptions used in establishing reserves for GMDB
and GMIB features regarding Separate Account performance used for purposes of
this calculation are set using a long-term view of expected average market
returns by applying a reversion to the mean approach, consistent with that used
for DAC and VOBA amortization. For additional information regarding the future
expected rate of return assumptions and the reversion to the mean approach,
see, " -- DAC and VOBA".
The GMDB/GMIB reserve balance before reinsurance ceded was $7 million ($0 net
of reinsurance) at December 31, 2016. Given that 100% of the GMDB/GMIB reserve
balance is ceded, the sensitivity risk of any increase or decrease in interest
rates is transferred to the reinsurer.
REINSURANCE
MLOA currently reinsures an in-force book of life insurance and annuity
policies written primarily prior to 2004 to Protective Life. Reinsurance
recoverable balances including those with Protective Life and other affiliated
and non affiliated reinsurers are calculated using methodologies and
assumptions that are consistent with those used to calculate the direct
liabilities.
DEFERRED COST OF OR GAIN ON REINSURANCE
The cost of or gain on reinsurance at the inception of a coinsurance treaty,
defined as the difference between the initial coinsurance premium paid and the
amount of the net liabilities relating to the underlying policies, see Note 2
of Financial Statements, net of the ceded commission received is deferred and
amortized over the lives of the underlying policies.
DAC AND VOBA
Acquisition costs that vary with and are primarily related to the acquisition
of new and renewal insurance business, reflecting incremental direct costs of
contract acquisition with independent third parties or employees that are
essential to the contract transaction, as well as the portion of employee
compensation, including payroll fringe benefits and other costs directly
related to underwriting, policy issuance and processing, medical inspection,
and contract selling for successfully negotiated contracts including
commissions, underwriting, agency and policy issue expenses, are deferred.
Depending on the type of contract, DAC is amortized over the expected total
life of the contract group, based on MLOA's estimates of the level and timing
of gross margins, gross profits or assessments, or anticipated premiums. In
calculating DAC amortization, management is required to make assumptions about
investment results including hedging costs, Separate Account performance,
Separate Account fees, mortality and expense margins, lapse rates and
anticipated surrender charges that impact the estimates of the level and timing
of estimated gross profits or assessments, margins and anticipated future
experience. VOBA, which arose from MLOA's acquisition by AXA Financial, was
established in accordance with purchase accounting guidance for business
combinations. VOBA is the actuarially determined present value of estimated
future gross profits from insurance contracts in force at the date of the
acquisition. DAC and VOBA are amortized over the expected life of the contracts
(up to 50 years from date of issue) according to the type of contract using the
methods described below as applicable. DAC and VOBA are subject to loss
recognition testing at the end of each accounting period.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
UNIVERSAL LIFE AND INVESTMENT-TYPE CONTRACTS
DAC and VOBA associated with UL and investment-type products, are amortized
over the expected total life of the contract group as a constant percentage of
estimated gross profits arising principally from investment results, Separate
Account fees, mortality and expense margins and surrender charges based on
historical and anticipated future experience, updated at the end of each
accounting period. When estimated gross profits are expected to be negative for
multiple years of a contract life, DAC and VOBA are amortized using the present
value of estimated assessments. The effect on the amortization of DAC of
revisions to estimated gross profits or assessments is reflected in earnings
(loss) in the period such estimated gross profits or assessments are revised. A
decrease in expected gross profits or assessments would accelerate DAC and VOBA
amortization. Conversely, an increase in expected gross profits or assessments
would slow DAC and VOBA amortization. The effect on the DAC and VOBA assets
that would result from realization of unrealized gains (losses) is recognized
with an offset to accumulated other comprehensive income (loss) ("AOCI") in
shareholder's equity as of the balance sheet date.
Quarterly adjustments to the DAC and VOBA balances are made for current period
experience and market performance related adjustments, and the impact of
reviews of estimated total gross profits. The quarterly adjustments for current
period experience reflect the impact of differences between actual and
previously estimated expected gross profits for a given period. Total estimated
gross profits include both actual experience and estimates of gross profits for
future periods. To the extent each period's actual experience differs from the
previous estimate for that period, the assumed level of total gross profits may
change. In these cases, cumulative adjustment to all previous periods' costs is
recognized.
During each accounting period, the DAC and VOBA balances are evaluated and
adjusted with a corresponding charge or credit to current period earnings for
the effects of MLOA's actual gross profits and changes in the assumptions
regarding estimated future gross profits. A decrease in expected gross profits
or assessments would accelerate DAC and VOBA amortization. Conversely, an
increase in expected gross profits or assessments would slow DAC and VOBA
amortization. The effect on the DAC and VOBA assets that would result from
realization of unrealized gains (losses) is recognized with an offset to AOCI
in shareholder's equity as of the balance sheet date.
For the variable and UL policies a significant portion of the gross profits is
derived from mortality margins and therefore, are significantly influenced by
the mortality assumptions used. Mortality assumptions represent the Company's
expected claims experience over the life of these policies and are based on a
long-term average of actual company experience. This assumption is updated
quarterly to reflect recent experience as it emerges. Improvement of life
mortality in future periods from that currently projected would result in
future deceleration of DAC and VOBA amortization. Conversely, deterioration of
life mortality in future periods from that currently projected would result in
future acceleration of DAC and VOBA amortization. Generally, life mortality
experience has been improving in recent years. However, changes to the
mortality assumptions in future periods could have a significant adverse or
favorable effect on the results of operations.
PREMIUM DEFICIENCY RESERVES AND LOSS RECOGNITION TESTS
After the initial establishment of reserves, premium deficiency and loss
recognition tests are performed using best estimate assumptions as of the
testing date without provisions for adverse deviation. When the liabilities for
future policy benefits plus the present value of expected future gross premiums
for the aggregate product group are insufficient to provide for expected future
policy benefits and expenses for that line of business (i.e., reserves net of
any DAC asset), DAC and VOBA would first be written off and thereafter, if
required, a premium deficiency reserve would be established by a charge to
earnings (loss).
SENSITIVITY OF DAC AND VOBA TO CHANGES IN FUTURE MORTALITY ASSUMPTIONS
The variable and UL policies DAC and VOBA balance was $374 million at
December 31, 2016. The following table demonstrates the sensitivity of the DAC
and VOBA balance relative to future mortality assumptions by quantifying the
adjustments that would be required, assuming an increase and decrease in the
future mortality rate by 1.0%. This information considers only the direct
effect of changes in the mortality assumptions on the DAC and VOBA balance and
not changes in any other assumptions used in the measurement of the DAC and
VOBA balance and does not assume changes in reserves.
DAC AND VOBA SENSITIVITY -- MORTALITY
DECEMBER 31, 2016
INCREASE/(REDUCTION) IN DAC
AND VOBA
----------------------------
(IN MILLIONS)
Decrease in future mortality by 1%................ $ (1)
Increase in future mortality by 1%................ 1
F-62
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SENSITIVITY OF DAC AND VOBA TO CHANGES IN FUTURE RATE OF RETURN ASSUMPTIONS
A significant assumption in the amortization of DAC and VOBA on variable and
interest-sensitive life insurance relates to projected future Separate Account
performance. Management sets estimated future gross profit or assessment
assumptions related to Separate Account performance using a long-term view of
expected average market returns by applying a reversion to the mean approach, a
commonly used industry practice. This future return approach influences the
projection of fees earned, as well as other sources of estimated gross profits.
Returns that are higher than expectations for a given period produce higher
than expected account balances, increase the fees earned resulting in higher
expected future gross profits and lower DAC amortization for the period. The
opposite occurs when returns are lower than expected.
In applying this approach to develop estimates of future returns, it is assumed
that the market will return to an average gross long-term return estimate,
developed with reference to historical long-term equity market performance. In
2016, based upon management's current expectations of interest rates and future
fund growth, MLOA updated its RMT assumption from 9.0% to 7.0%. The average
gross long term return measurement start date was also updated to December 31,
2014. Management has set limitations as to maximum and minimum future rate of
return assumptions, as well as a limitation on the duration of use of these
maximum or minimum rates of return. At December 31, 2016, the average gross
short-term and long-term annual return estimate on variable and
interest-sensitive life insurance was 7.0% (5.63% net of product weighted
average Separate Account fees), and the gross maximum and minimum short-term
annual rate of return limitations were 15.0% (13.63% net of product weighted
average Separate Account fees) and 0.0% (-1.37% net of product weighted average
Separate Account fees), respectively. The maximum duration over which these
rate limitations may be applied is 5 years. This approach will continue to be
applied in future periods. These assumptions of long-term growth are subject to
assessment of the reasonableness of resulting estimates of future return
assumptions.
If actual market returns continue at levels that would result in assuming
future market returns of 15.0% for more than 5 years in order to reach the
average gross long-term return estimate, the application of the 5 year maximum
duration limitation would result in an acceleration of DAC and VOBA
amortization. Conversely, actual market returns resulting in assumed future
market returns of 0.0% for more than 5 years would result in a required
deceleration of DAC and VOBA amortization. At December 31, 2016, current
projections of future average gross market returns assume a 15.0% annualized
return for the next three quarters, grading to a RTM of 7.0% in five quarters.
Other significant assumptions underlying gross profit estimates for UL and
investment-type products relate to contract persistency and General Account
investment spread.
The following table provides an example of the sensitivity of that DAC and VOBA
balance relative to future return assumptions by quantifying the adjustments to
the DAC and VOBA balance that would be required assuming both an increase and
decrease in the future rate of return by 1%. This information considers only
the effect of changes in the future Separate Account rate of return and not
changes in any other assumptions used in the measurement of the DAC and VOBA
balance.
DAC AND VOBA SENSITIVITY -- RATE OF RETURN
DECEMBER 31, 2016
INCREASE/(REDUCTION) IN DAC
AND VOBA
---------------------------
(IN MILLIONS)
Decrease in future rate of return by 1%........... $ (2)
Increase in future rate of return by 1%........... 3
BENEFIT PLAN COSTS
Although MLOA has no employees, under service agreements with affiliates, MLOA
is charged for services, including personnel services that include a component
related to employee benefits (see Note 7 of Notes to Financial Statements). Net
periodic pension cost is the aggregation of the compensation cost of benefits
promised, interest cost resulting from deferred payment of those benefits, and
investment results of assets dedicated to fund those benefits. Each component
of net periodic pension benefits cost is based on the affiliated company's best
estimate of long-term actuarial and investment return assumptions and consider,
as appropriate, an assumed discount rate, an expected rate of return on plan
assets, inflation costs, expected increases in compensation levels and trends
in health care costs. Of these assumptions, the discount rate and expected rate
of return assumptions generally have the most significant impact on the
resulting net periodic cost associated with these plans. Actual experience
different from that assumed generally is recognized prospectively over future
periods; however, significant variances could result in immediate recognition
of net periodic cost or benefit if they exceed certain prescribed thresholds or
in conjunction with a reconsideration of the related assumptions.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SHARE-BASED AND OTHER COMPENSATION PROGRAMS
Although MLOA has no employees, under service agreements with affiliates, MLOA
is charged for services, including personnel services that include a component
related to employee compensation (see Note 8 of Notes to Financial Statements).
AXA and AXA Financial Group sponsor various share-based compensation plans for
eligible employees and associates. Compensation expense related to these awards
is measured based on the estimated fair value of the equity instruments issued
or the liabilities incurred. AXA Financial Group uses the Black-Scholes option
valuation model to determine the grant-date fair values of equity share/unit
option awards and similar instruments, requiring assumptions with respect to
the expected term of the award, expected price volatility of the underlying
share/unit, and expected dividends. These assumptions are significant factors
in the resulting measure of fair value recognized over the vesting period and
require use of management judgment as to likely future conditions, including
employee exercise behavior, as well as consideration of historical and market
observable data.
INVESTMENTS -- IMPAIRMENTS AND VALUATION ALLOWANCES AND FAIR VALUE MEASUREMENTS
MLOA's investment portfolio principally consists of public and private fixed
maturities, mortgage loans, derivative financial instruments, including equity
options and Units in AB. In applying the Company's accounting policies with
respect to these investments, estimates, assumptions, and judgments are
required about matters that are inherently uncertain, particularly in the
identification and recognition of other-than-temporary impairments ("OTTI"),
determination of the valuation allowance for losses on mortgage loans and
measurements of fair value.
IMPAIRMENTS AND VALUATION ALLOWANCES
The assessment of whether OTTIs have occurred is performed quarterly by MLOA's
Investment Under Surveillance ("IUS") Committee, with the assistance of its
investment advisors, on a security-by-security basis for each
available-for-sale fixed maturity and equity security that has experienced a
decline in fair value for purpose of evaluating the underlying reasons. The
analysis begins with a review of gross unrealized losses by the following
categories of securities: (i) all investment grade and below investment grade
fixed maturities for which fair value has declined and remained below amortized
cost by 20% or more; and (ii) below-investment-grade fixed maturities for which
fair value has declined and remained below amortized cost for a period greater
than 12 months. Integral to the analysis is an assessment of various indicators
of credit deterioration to determine whether the investment security is
expected to recover, including, but not limited to, consideration of the
duration and severity of the unrealized loss, failure, if any, of the issuer of
the security to make scheduled payments, actions taken by rating agencies,
adverse conditions specifically related to the security or sector, the
financial strength, liquidity, and continued viability of the issuer and, for
equity securities only, the intent and ability to hold the investment until
recovery, resulting in identification of specific securities for which OTTI is
recognized.
If there is no intent to sell or likely requirement to dispose of the fixed
maturity security before its recovery, only the credit loss component of any
resulting OTTI is recognized in earnings and the remainder of the fair value
loss is recognized in other comprehensive income (loss) ("OCI"). The amount of
credit loss is the shortfall of the present value of the cash flows expected to
be collected as compared to the amortized cost basis of the security. The
present value is calculated by discounting management's best estimate of
projected future cash flows at the effective interest rate implicit in the debt
security prior to impairment. Projections of future cash flows are based on
assumptions regarding probability of default and estimates regarding the amount
and timing of recoveries. These assumptions and estimates require use of
management judgment and consider internal credit analyses as well as market
observable data relevant to the collectability of the security. For mortgage-
and asset-backed securities, projected future cash flows also include
assumptions regarding prepayments and underlying collateral value.
Mortgage loans also are reviewed quarterly by the IUS Committee for impairment
on a loan-by-loan basis, including an assessment of related collateral value.
Commercial mortgages 60 days or more past due and agricultural mortgages 90
days or more past due, as well as all mortgages in the process of foreclosure,
are identified as problem mortgages. Based on its monthly monitoring of
mortgages, a class of potential problem mortgages also is identified,
consisting of mortgage loans not currently classified as problems but for which
management has doubts as to the ability of the borrower to comply with the
present loan payment terms and which may result in the loan becoming a problem
or being restructured. The decision whether to classify a performing mortgage
loan as a potential problem involves significant subjective judgments by
management as to likely future industry conditions and developments with
respect to the borrower or the individual mortgaged property.
For problem mortgage loans a valuation allowance is established to provide for
the risk of credit losses inherent in the lending process. The allowance
includes loan specific reserves for loans determined to be non-performing as a
result of the loan review process. A non-performing loan is defined as a loan
for which it is probable that amounts due according to the contractual terms of
the loan agreement will not be collected. The loan specific portion of the loss
allowance is based on the Company's assessment as to ultimate collectability of
loan principal
F-64
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
and interest. Valuation allowances for a non-performing loan are recorded based
on the present value of expected future cash flows discounted at the loan's
effective interest rate or based on the fair value of the collateral if the
loan is collateral dependent. The valuation allowance for mortgage loans can
increase or decrease from period to period based on such factors.
FAIR VALUE MEASUREMENTS
Investments reported at fair value in the balance sheets of MLOA include fixed
maturity securities classified as available-for-sale ("AFS"). In addition,
exposure in certain variable life products issued by MLOA are considered
embedded derivatives and reported at fair value.
When available, the estimated fair value of securities is based on quoted
prices in active markets that are readily and regularly obtainable; these
generally are the most liquid holdings and their valuation does not involve
management judgment. When quoted prices in active markets are not available,
MLOA estimates fair value based on market standard valuation methodologies,
including discounted cash flow methodologies, matrix pricing, or other similar
techniques. For securities with reasonable price transparency, the significant
inputs to these valuation methodologies either are observable in the market or
can be derived principally from or corroborated by observable market data. When
the volume or level of activity results in little or no price transparency,
significant inputs no longer can be supported by reference to market observable
data but instead must be based on management's estimation and judgment.
As required by the accounting guidance, MLOA categorizes its assets and
liabilities measured at fair value into a three-level hierarchy, based on the
priority of the inputs to the respective valuation technique, giving the
highest priority to quoted prices in active markets for identical assets and
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
For additional information regarding the key estimates and assumptions
surrounding the determinations of fair value measurements, see Note 5 to the
Financial Statements - Fair Value Disclosures.
INCOME TAXES
Income taxes represent the net amount of income taxes that MLOA expects to pay
to or receive from various taxing jurisdictions in connection with its
operations. MLOA provides for Federal and state income taxes currently payable,
as well as those deferred due to temporary differences between the financial
reporting and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured at the balance sheet date using enacted tax rates
expected to apply to taxable income in the years the temporary differences are
expected to reverse. The realization of deferred tax assets depends upon the
existence of sufficient taxable income within the carry forward periods under
the tax law in the applicable jurisdiction. Valuation allowances are
established when management determines, based on available information, that it
is more likely than not that deferred tax assets will not be realized.
Management considers all available evidence including past operating results,
the existence of cumulative losses in the most recent years, forecasted
earnings, future taxable income and prudent and feasible tax planning
strategies. MLOA's accounting for income taxes represents management's best
estimate of the tax consequences of various events and transactions.
Significant management judgment is required in determining the provision for
income taxes and deferred tax assets and liabilities and in evaluating MLOA's
tax positions including evaluating uncertainties under the guidance for
Accounting for Uncertainty in Income taxes. Under the guidance, MLOA determines
whether it is more-likely-than-not that a tax position will be sustained upon
examination by the appropriate taxing authorities before any part of the
benefit can be recorded in the financial statements. Tax positions are then
measured at the largest amount of benefit that is greater than 50 percent
likely of being realized upon settlement.
MLOA's tax positions are reviewed quarterly and the balances are adjusted as
new information becomes available.
F-65
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
RESULTS OF OPERATIONS
The earnings narratives that follow discuss the results for 2016 compared to
2015's results, followed by the results for 2015 compared to 2014's results.
MONY LIFE INSURANCE COMPANY OF AMERICA
RESULTS OF OPERATIONS
2016 2015 2014
------- ------- ------
(IN MILLIONS)
REVENUES
Universal life and investment-type product policy
fee income...................................... $ 196 $ 152 $ 91
Premiums.......................................... 4 1 1
Net investment income (loss):
Investment income (loss) from
derivatives instruments........................ 18 (9) 13
Other investment income (loss).................. 42 38 37
------- ------- ------
Total Net investment income (loss)............. 60 29 50
Investment gains (losses), net:
Total other-than-temporary impairment losses.... (3) (1) (10)
Portion of loss recognized in other
comprehensive income (loss).................... -- -- --
------- ------- ------
Net impairment losses recognized................ (3) (1) (10)
Other investment gains (losses), net............ (1) 0 4
------- ------- ------
Total investment gains (losses), net........... (4) (1) (6)
------- ------- ------
Equity in earnings (loss) of AB................... 6 5 1
Other income (loss)............................... 8 9 8
------- ------- ------
Total revenues................................. 270 195 145
------- ------- ------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits........................... 34 39 31
Interest credited to policyholders' account
balances........................................ 69 36 39
Compensation and benefits......................... 59 36 29
Commissions....................................... 114 121 73
Amortization of deferred policy acquisition costs
and value of business acquired, net............. (1) (73) (64)
Amortization of deferred costs of reinsurance..... 7 8 8
Other operating costs and expenses................ 77 58 39
------- ------- ------
Total benefits and other deductions............ 359 225 155
------- ------- ------
Earnings (loss) before income taxes............... (89) (30) (10)
Income tax (expense) benefit...................... 33 13 5
------- ------- ------
Net Earnings (Loss)............................... $ (56) $ (17) $ (5)
======= ======= ======
YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015
Net loss was $56 million in 2016, a $39 million increase from the net loss of
$17 million in 2015 primarily due to $72 million higher amortization of DAC and
VOBA, net, $33 million higher interest credited to policyholders' account
balances, $23 million higher compensation and benefits and $19 million higher
Other operating expenses, respectively. The increases to the net loss were
partially offset by $44million higher Universal life and investment-type
product policy fee income and $27 million higher investment income from
derivative instruments.
Income tax benefit was $33 million in 2016 as compared to the income tax
benefit of $13 million in 2015. The $20 million higher income tax benefit was
primarily related to $89 million of pre-tax losses in 2016 compared to
$30 million of pre-tax losses in 2015. In 2016 and 2015, Federal income taxes
attributable to consolidated operations were different from the amounts
determined by multiplying the earnings before income taxes by the expected
Federal income tax rate of 35%. The primary difference relates to the dividends
received deduction.
Loss from operations before income taxes was $89 million in 2016 and
$30 million in 2015, respectively.
REVENUES. Total revenues in 2016 increased $75 million to $270 million from
$195 million in 2015. The increase was primarily due to $44 million higher
universal life and investment-type product policy fee income, $27 million
higher investment income from derivative
F-66
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
instruments ($18 million investment income from derivative instruments in 2016
as compared to $9 million of investment loss from derivative instruments in
2015) and $1 million higher equity in earnings from AB partially offset by
$3 million higher investment losses.
Universal life and investment-type product policy fee income increased
$44 million in 2016 to $196 million from $152 million in 2015 primarily due to
$25 million decrease in the initial fee liability in 2016 as compared to a
$1 million increase in 2015. The 2016 decrease in the initial fee liability
includes the impact from assumption updates, model changes, balance true-ups
and unlockings for certain VISL and IUL products, which decreased the initial
fee liability by $20 million. Additionally, higher policy fee income of
$20 million earned on fee based products contributed to the increase in
Universal life and investment-type product policy fee income in 2016.
Premiums increased $3 million to $4 million in 2016 from $1 million in 2015
primarily to a full year of sales of employee benefit products and higher
affiliated assumed premiums.
Net investment income increased $31 million in 2016 to $60 million from
$29 million in 2015 principally due to $27 million higher investment income
from derivative instruments ($18 million investment income from derivative
instruments in 2016 as compared to $9 million of investment loss from
derivative instruments in 2015). Other increases in net investment income were
$3 million higher investment income from fixed maturities and $1 million of
income from mortgage loans on real estate in 2016.
Investment losses, net increased $3 million to a loss of $4 million in 2016
from a loss of $1 million in 2015 primarily due to $2 million higher
impairments of fixed maturities ($3 million in 2016 compared to $1 million in
2015).
BENEFITS AND OTHER DEDUCTIONS. Total benefits and other deductions totaled
$359 million in 2016, an increase of $134 million from $225 million in 2015.
The increase primarily resulted from $72 million higher amortization of DAC and
VOBA, net, $33 million higher interest credited to policyholders' account
balances, $23 million higher compensation and benefits and $19 million higher
Other operating expenses which were partially offset by $7 million lower
commission expenses and $5 million lower policyholders' benefits.
Policyholders' benefits decreased $5 million in 2016 to $34 million from
$39 million in 2015 primarily due to $3 million lower increase in reserves and
$2 million lower benefits paid. The 2016 increase in reserves includes a
$7 million decrease in reserves resulting from assumption updates, model
updates and balance true-ups primarily on VISL and IUL products. The 2015
increase in reserves includes a $4 million increase as a result of updates in
the RTM assumption.
Compensation and benefits expense increased $23 million to $59 million in 2016
from $36 million in 2015 due to higher salary and stock option expenses
primarily due to the launch of the employee benefits business in late 2015.
Commissions decreased $7 million in 2016 to $114 million from $121 million in
2015 due to lower first year indexed universal life insurance sales.
Amortization of DAC and VOBA, net in 2016 was $(1) million reflecting
$51 million of net unfavorable assumption updates, model changes and balance
true-ups primarily for VISL and IUL products and $51 million baseline
amortization. Also included in the 2016 amortization of DAC and VOBA, net
amounts were $77 million and $26 million capitalization of commissions and
deferrable expenses, respectively. Amortization of DAC and VOBA , net in 2015
was $(73) million reflecting $37 million of baseline amortization partially
offset by $2 million of net favorable updates and balance true-ups primarily
for variable and interest sensitive life products, including updates to the RTM
assumption. Also included in the 2015 amortization of DAC and VOBA, net amounts
were $83 million and $25 million capitalization of commissions and deferrable
expenses, respectively.
Other operating costs and expenses, totaled $77 million in 2016, an increase of
$19 million from the $58 million reported in 2015. The increase is primarily
attributable to $9 million higher consulting expenses, primarily related to
consulting projects invested to launch MLOA's new employee benefits business,
$5 million higher general and administrative expenses, $2 million higher
commission expense allowance expenses and $1 million higher premium taxes and
other insurance taxes, licenses and fee expenses.
YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014
Net loss was $17 million in 2015, a $12 million increase in net loss from the
net loss of $17 million in 2014 primarily due to $48 million higher commission
expense, $19 million higher Other operating expenses and $22 million lower
investment income from derivative instruments ($9 million investment loss from
derivative instruments in 2015 as compared to $13 million of investment income
from derivative instruments in 2014). The increases to the net loss were
partially offset by $61 million higher Universal life and investment-type
product policy fee income and $9 million lower amortization of DAC and VOBA,
net.
F-67
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Income tax benefit was $13 million in 2015 as compared to the income tax
benefit of $5 million in 2014. The $8 million higher income tax benefit was
primarily related to $30 million of pre-tax losses in 2015 compared to
$10 million of pre-tax losses in 2014. In 2015 and 2014, Federal income taxes
attributable to consolidated operations were different from the amounts
determined by multiplying the earnings before income taxes by the expected
Federal income tax rate of 35%. The primary difference relates to the dividends
received deduction.
Loss from operations before income taxes was $30 million in 2015 and
$10 million in 2014, respectively.
REVENUES. Total revenues in 2015 increased $50 million to $195 million from
$145 million in 2014. The increase was primarily due to $61 million higher
universal life and investment-type product policy fee income, $5 million lower
investment losses and $4 million higher equity in earnings from AB which was
partially offset by $22 million lower investment income from derivative
instruments ($9 million investment loss from derivative instruments in 2015 as
compared to $13 million of investment income from derivative instruments in
2014).
Universal life and investment-type product policy fee income increased
$61 million in 2015 to $152 million from $91 million in 2014 primarily due to
$47 million higher fees as a result of sales of indexed universal life products
and a $14 million lower increase in the initial fee liability.
Net investment income decreased $21 million in 2015 to $29 million from
$50 million in 2014 principally due to $22 million lower investment income from
derivative instruments ($9 million investment loss from derivative instruments
in 2015 as compared to $13 million of investment income from derivative
instruments in 2014). The decrease in investment income was partially offset by
$4 million higher investment income from fixed maturities as a result of higher
average fixed maturities available for sale portfolio.
Investment losses, net decreased $5 million in 2015 to a loss of $1 million
from a loss of $6 million in 2014 primarily due to $9 million lower impairments
of fixed maturities ($1 million in 2015 compared to $10 million in 2014),
primarily CMBS securities, partially offset by the absence of a $3 million gain
on a pre-payment of mortgage loans on real estate recorded in 2014.
BENEFITS AND OTHER DEDUCTIONS. Total benefits and other deductions totaled
$225 million in 2015, an increase of $70 million from $155 million in 2014. The
increase primarily resulted from $48 million higher commission expenses,
$19 million higher other operating costs and expenses and $8 million higher
policyholders' benefits which were partially offset by , $(9) million lower
amortization of DAC and VOBA, net.
Policyholders' benefits increased $8 million in 2015 to $39 million from
$31 million in 2014 primarily due to $9 million higher death benefits. In 2015
policyholders' reserve balances increased $6 million as compared to $7 million
in 2014. The 2015 increase in reserves includes a $4 million increase as a
result of updates in the RTM assumption.
Compensation and benefits expense increased $7 million to $36 million in 2015
from $29 million in 2014 due to higher allocated salary and stock option
expenses.
Commissions increased $48 million in 2015 to $121 million from $73 million in
2014 due to $107 million higher first year indexed universal life insurance
sales.
Amortization of DAC and VOBA, net in 2015 was $(73) million reflecting
$2 million of net favorable updates and balance true-ups primarily for variable
and interest sensitive life products, including updates to the RTM assumption
and $37 million of baseline amortization. Also included in the 2015
amortization of DAC and VOBA, net amounts were $83 million and $25 million
capitalization of commissions and deferrable expenses, respectively. DAC and
VOBA amortization in 2014 was $14 million reflecting $10 million of updates
primarily relating to updating the projected cost of reinsurance for COLI and
business owned life insurance ("BOLI") lines of business based on an updated
study, and $4 million of baseline amortization. Also included in the 2014
amortization of DAC and VOBA, net amounts were $57 million and $21 million
capitalization of commissions and deferrable expenses, respectively.
DAC capitalization totaled $108 million in 2015, an increase of $30 million
from the $78 million reported in 2014. The increase was primarily due to
$26 million higher deferrable commissions and $4 million higher deferrable
expenses. The increase in deferrable commission expenses is in line with the
higher commission expense resulting from higher first year sales of indexed
universal life products.
Other operating costs and expenses, totaled $58 million in 2015, an increase of
$19 million from the $39 million reported in 2014. The increase is primarily
attributable to $10 million higher consulting expenses, primarily in consulting
projects invested to launch MLOA's new employee benefits business, $5 million
higher commission expense allowance expenses and $4 million higher premium
taxes and other insurance taxes, licenses and fee expenses.
F-68
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PREMIUMS AND DEPOSITS
As part of AXA Financial's ongoing efforts to efficiently manage capital
amongst its insurance subsidiaries, improve the quality of the product line-up
of its insurance subsidiaries and enhance the overall profitability of AXA
Financial, most sales of indexed life insurance and employee benefits to
policyholders located outside of New York are being issued through MLOA. It is
expected that AXA Financial will continue to issue newly developed life
insurance and employee benefits products which are issued to policyholders
located outside of New York through MLOA. Since future decisions regarding
product development depend on factors and considerations not yet known,
management is unable to predict the extent to which we will offer other
products in the future. Sale of employee benefit products were not significant
in 2016.
The following table lists the sales for major insurance product lines for 2016,
2015 and 2014. Premiums and deposits are presented gross of internal
conversions and are presented net of reinsurance ceded, except for the business
reinsured to Protective Life.
PREMIUMS AND DEPOSITS
2016 2015 2014
------ ------ ------
RETAIL:
Annuities
First year...................................... $ -- $ -- $ --
Renewal......................................... 30 26 29
------ ------ ------
30 26 29
Life/(1)/
First year...................................... 206 171 167
Renewal......................................... 223 203 171
------ ------ ------
429 374 338
Other/(2) (3)/
First year...................................... 7 4 7
Renewal......................................... 3 -- --
------ ------ ------
10 4 7
------ ------ ------
Total retail................................... 469 404 374
------ ------ ------
WHOLESALE:
Annuities
First year...................................... -- -- --
Renewal......................................... 1 1 0
------ ------ ------
1 1 0
Life/(1)/
First year...................................... 67 135 32
Renewal......................................... 72 58 47
------ ------ ------
139 193 79
Total wholesale................................ 140 194 79
------ ------ ------
Total Premiums and Deposits....................... $ 609 $ 598 $ 453
====== ====== ======
/(1)/Includes variable, interest-sensitive and traditional life products.
/(2)/Includes reinsurance assumed.
/(3)/Includes premiums and deposits from supplementary contracts -- A form of
settlement under a life insurance or annuity contract whereby funds are
made payable or used by the beneficiary to purchase a new insurance policy.
2016 COMPARED TO 2015. Total premiums and deposits for 2016 were $609 million,
a $11 million increase from $598 million in 2015 while total first year
premiums and deposits decreased $30 million to $280 million in 2016 from
$310 million in 2015. First year premiums and deposits for life insurance
products decreased $33 million, primarily due to a $60 million decrease in
sales of interest sensitive life products, primarily reflecting non-recurring
sales of a few large IUL cases in the wholesale channel partially offset by a
$27 million increase in sales of variable universal life insurance products in
the retail and wholesale channels combined.
2015 COMPARED TO 2014. Total premiums and deposits for life insurance products
for 2015 were $598 million, a $145 million increase from $453 million in 2014
while total first year premiums and deposits increased $104 million to
$310 million in 2015 from $206 million in 2014. First year premiums and
deposits for life insurance products increased $107 million, primarily due to
the $103 million and $4 million increase in sales of indexed and variable
universal life insurance products in the retail and wholesale channels,
reflecting continued strong sales of MLOA's BrightLife(R) universal life
product.
F-69
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SURRENDERS AND WITHDRAWALS.
The following table presents surrender and withdrawal amounts and rates for
major insurance product lines. Annuity surrenders and withdrawals are presented
net of internal replacements.
SURRENDERS AND WITHDRAWALS
RATES/(1)/
----------------
2016 2015 2014 2016 2015 2014
--------- --------- --------- ---- ---- ----
(DOLLARS IN MILLIONS)
Annuities......................................... $ 130 $ 133 $ 150 12.0% 11.6% 11.9%
Variable and interest-sensitive life.............. 124 79 71 16.7% 6.5% 5.8%
--------- --------- ---------
Total............................................. $ 254 $ 212 $ 221
========= ========= =========
/(1)/Surrender rates are based on the average surrenderable future policy
benefits and/or policyholders' account balances for the related policies
and contracts in force during each year.
2016 COMPARED TO 2015. Surrenders and withdrawals increased $42 million, from
$212 million in 2015 to $254 million for 2016. There was a $45 million increase
in variable and interest sensitive life insurance surrenders and withdrawals
partially offset by a $3 million decrease in annuity surrenders and
withdrawals. The annualized annuities surrender rate increased to 12.0% in 2016
from 11.6% in 2015. The variable and interest sensitive life products'
annualized surrender rate increased to 16.7% in 2016 from 6.5% in 2015. The
increase in the VISL surrender rate is due to one large surrender case in 2016.
2015 COMPARED TO 2014. Surrenders and withdrawals decreased $9 million, from
$221 million in 2014 to $212 million for 2015. There was a $17 million decrease
in annuity surrenders and withdrawals partially offset by an $8 million
increase in variable and interest sensitive life insurance surrenders
withdrawals. The annualized annuities surrender rate decreased to 11.56% in
2015 from 11.9% in 2014. The variable and interest sensitive life products'
annualized surrender rate increased to 6.5% in 2015 from 5.8% in 2014.
GENERAL ACCOUNT INVESTMENT PORTFOLIO
The General Account Investment Assets ("GAIA") portfolio consists of a
well-diversified portfolio of public and private fixed maturities, commercial
mortgages and other loans and other invested assets.
The General Account's portfolios and investment results support the insurance
liabilities of MLOA's business operations. The following table reconciles the
balance sheet asset amounts to GAIA.
GENERAL ACCOUNT INVESTMENT ASSETS
DECEMBER 31, 2016
BALANCE
SHEET TOTAL OTHER/(1)/ GAIA
BALANCE SHEET CAPTIONS: ----------- ---------- ----------
(IN MILLIONS)
Fixed maturities, available for sale, at
fair value...................................... $ 1,109 $ 1 $ 1,108
Mortgages on Real Estate.......................... 17 -- 17
Policy Loans...................................... 176 130 46
Other invested assets............................. 126 126 --
----------- ---------- ----------
Total investments............................... 1,428 257 1,171
Cash and cash equivalents......................... 138 27 111
----------- ---------- ----------
Total............................................. $ 1,566 $ 284 $ 1,282
=========== ========== ==========
/(1)/Assets listed in the "Other" category principally consist of MLOA's
miscellaneous assets and liabilities related to GAIA that are reclassified
from various balance sheet lines held in portfolios other than the General
Account which are not managed as part of GAIA, including related accrued
income or expense and certain reclassifications and, for fixed maturities,
the reversal of net unrealized gains (losses). The "Other" category is
deducted in arriving at GAIA. Included in other are ceded policy loans to
Protective Life, Derivatives and Alliance investments.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
INVESTMENT RESULTS OF GENERAL ACCOUNT INVESTMENT ASSETS
The following table summarizes investment results by asset category for the
periods indicated.
2016 2015 2014
------------------------ ------------------------ ------------------
YIELD AMOUNT Yield Amount Yield Amount
----------- ---------- ----------- ---------- --------- -------
(DOLLARS IN MILLIONS)
FIXED MATURITIES:
Investment grade
Income (loss).................................. 3.93% 39 4.42% 36 4.37% 32
Ending assets.................................. 1,071 863 811
Below investment grade
Income......................................... 9.82% 4 9.34% 4 6.71% 4
Ending assets.................................. 37 43 48
MORTGAGES:
Income (loss).................................. 4.13% 1 0.00% 0 5.09% 2
Ending assets.................................. 17 -- 0
POLICY LOANS:
Income......................................... 2.92% 1 3.25% 1 2.71% 0
Ending assets.................................. 46 29 20
CASH AND SHORT-TERM INVESTMENTS:
Income......................................... 0.28% -- 0.10% -- 0.07% --
Ending assets.................................. 111 172 46
OTHER INVESTED ASSETS:
Income......................................... -- -- --
Ending assets.................................. -- -- 0
TOTAL INVESTED ASSETS:
---------- ---------- -------
Income......................................... 3.83% 45 4.09% 41 4.32% 38
Ending Assets.................................. 1,282 1,107 925
TOTAL:
---------- ---------- -------
Investment income.............................. 3.83% 45 4.09% 41 4.32% 38
Less: investment fees.......................... (0.09)% (1) (0.09)% (1) 0.09% (1)
----------- ========== ----------- ========== --------- =======
Investment Income, Net......................... 3.74% 44 4.00% 40 4.23% 37
========== ========== =======
ENDING NET ASSETS................................. 1,282 1,107 925
========== ========== =======
FIXED MATURITIES
The fixed maturity portfolio consists largely of investment grade corporate
debt securities and includes significant amounts of U.S. government and agency
obligations. At December 31, 2016, 80.1% of the fixed maturity portfolio was
publicly traded. At December 31, 2016, GAIA held CMBS with an amortized cost of
$24 million. The General Account had no direct exposure to the sovereign debt
of Italy, Greece, Portugal, Spain and the Republic of Ireland. The General
Account had $87 million or 7.9% of exposure to the oil and gas industry
($64 million in the Energy sector and $23 million in the Utility sector) all of
which were above investment grade at December 31, 2016. Given recent market
conditions the Company expects some of these securities to fall below
investment grade in the future. See "Fixed Maturities by Industry" below.
The decline in the book yield for the twelve months ended December 31, 2016
when compared to the comparable 2015 period was accompanied by an increase in
the credit quality of the portfolio. See "Fixed Maturities Credit Quality"
below.
FIXED MATURITIES BY INDUSTRY
The General Accounts' fixed maturities portfolios include publicly-traded and
privately-placed corporate debt securities across an array of industry
categories.
F-71
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table sets forth these fixed maturities by industry category as
of the dates indicated along with their associated gross unrealized gains and
losses.
FIXED MATURITIES BY INDUSTRY/(1)/
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------- ---------- ---------- --------------
(IN MILLIONS)
AT DECEMBER 31, 2016:
Corporate Securities:
Finance......................................... $ 203 $ 3 $ 2 $ 204
Manufacturing................................... 311 6 2 315
Utilities....................................... 162 4 2 164
Services........................................ 163 5 1 167
Energy.......................................... 64 1 1 64
Retail and wholesale............................ 77 1 1 77
Transportation.................................. 44 1 1 44
------------- --------- --------- --------------
Total corporate securities..................... 1,024 21 10 1,035
------------- --------- --------- --------------
U.S. government................................... 36 -- 1 35
Commercial mortgage-backed........................ 24 7 7 24
Preferred stock................................... 9 -- -- 9
State & municipal................................. 6 -- -- 6
------------- --------- --------- --------------
Total............................................. $ 1,099 $ 28 $ 18 $ 1,109
============= ========= ========= ==============
At December 31, 2015:
Corporate Securities:
Finance......................................... $ 121 $ 3 $ 1 $ 123
Manufacturing................................... 260 6 2 264
Utilities....................................... 147 4 3 148
Services........................................ 134 4 1 137
Energy.......................................... 67 1 4 64
Retail and wholesale............................ 54 1 1 54
Transportation.................................. 31 1 -- 32
------------- --------- --------- --------------
Total corporate securities..................... 814 20 12 822
------------- --------- --------- --------------
U.S. government................................... 29 -- -- 29
Commercial mortgage-backed........................ 32 6 7 31
Preferred stock................................... 17 -- -- 17
State & municipal................................. 6 1 -- 7
------------- --------- --------- --------------
Total............................................. $ 898 $ 27 $ 19 $ 906
============= ========= ========= ==============
/(1)/Investment data has been classified based on standard industry
categorizations for domestic public holdings and similar classifications
by industry for all other holdings.
FIXED MATURITIES CREDIT QUALITY
The Securities Valuation Office ("SVO") of the NAIC, evaluates the investments
of insurers for regulatory reporting purposes and assigns fixed maturity
securities to one of six categories ("NAIC Designations"). NAIC designations of
"1" or "2" include fixed maturities considered investment grade, which include
securities rated Baa3 or higher by Moody's or BBB- or higher by Standard &
Poor's. NAIC Designations of "3" through "6" are referred to as below
investment grade, which include securities rated Ba1 or lower by Moody's and
BB+ or lower by Standard & Poor's. As a result of time lags between the funding
of investments, and the completion of the SVO filing process, the fixed
maturity portfolio generally includes securities that have not yet been rated
by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the
categorization of these securities by NAIC designation is based on the expected
ratings indicated by internal analysis.
The amortized cost of the General Accounts' public and private below investment
grade fixed maturities totaled $12 million, or 1.1%, of the total fixed
maturities at December 31, 2016 and $21 million, or 2.3%, of the total fixed
maturities at December 31, 2015. Gross unrealized
F-72
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
losses on public and private fixed maturities decreased from $19 million in
2015 to $18 million in 2016. Below investment grade fixed maturities
represented 16.7% and 10.5% of the gross unrealized losses at December 31, 2016
and 2015, respectively. For public, private and corporate fixed maturity
categories, gross unrealized gains and gross unrealized losses were lower in
2016 than in the prior year.
PUBLIC FIXED MATURITIES CREDIT QUALITY. The following table sets forth the
General Accounts' public fixed maturities portfolios by NAIC rating at the
dates indicated.
PUBLIC FIXED MATURITIES
GROSS GROSS
NAIC AMORTIZED UNREALIZED UNREALIZED
DESIGNATION/(1)/ RATING AGENCY EQUIVALENT COST GAINS LOSSES FAIR VALUE
--------------- ------------------------ --------- ---------- ---------- ----------
(IN MILLIONS)
AT DECEMBER 31, 2016:
1 Aaa, Aa, A.............. $ 516 $ 10 $ 7 $ 519
2 Baa..................... 362 8 3 367
-------- ------- ------- --------
Investment grade........ 878 18 10 886
-------- ------- ------- --------
3 Ba...................... 1 -- -- 1
4 B....................... -- -- -- --
5 C and lower............. -- -- -- --
6 In or near default...... 1 -- -- 1
-------- ------- ------- --------
Below investment grade.. 2 -- -- 2
-------- ------- ------- --------
Total.......................................... $ 880 $ 18 $ 10 $ 888
======== ======= ======= ========
At December 31, 2015:
1 Aaa, Aa, A.............. $ 385 $ 12 $ 3 $ 394
2 Baa..................... 304 4 7 301
-------- ------- ------- --------
Investment grade........ 689 16 10 695
-------- ------- ------- --------
3 Ba...................... 4 -- -- 4
4 B....................... 1 -- -- 1
5 C and lower............. -- -- -- --
6 In or near default...... 1 -- -- 1
-------- ------- ------- --------
Below investment grade.. 6 -- -- 6
-------- ------- ------- --------
Total.......................................... $ 695 $ 16 $ 10 $ 701
======== ======= ======= ========
/(1)/At December 31, 2016 and 2015, no securities had been categorized based on
expected NAIC designation pending receipt of SVO ratings.
F-73
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PRIVATE FIXED MATURITIES CREDIT QUALITY. The following table sets forth the
General Accounts' private fixed maturities portfolios by NAIC rating at the
dates indicated.
PRIVATE FIXED MATURITIES
GROSS GROSS
NAIC AMORTIZED UNREALIZED UNREALIZED
DESIGNATION/(1)/ RATING AGENCY EQUIVALENT COST GAINS LOSSES FAIR VALUE
--------------- ------------------------ ---------- ---------- ---------- ----------
(IN MILLIONS)
AT DECEMBER 31, 2016:
1 Aaa, Aa, A.............. $ 107 $ 7 $ 5 $ 109
2 Baa..................... 102 2 -- 104
---------- ---------- ---------- ---------
Investment grade........ 209 9 5 213
---------- ---------- ---------- ---------
3 Ba...................... -- -- -- --
4 B....................... -- -- -- --
5 C and lower............. 7 1 1 7
6 In or near default...... 3 -- 2 1
---------- ---------- ---------- ---------
Below investment grade.. 10 1 3 8
---------- ---------- ---------- ---------
Total.......................................... $ 219 $ 10 $ 8 $ 221
========== ========== ========== =========
At December 31, 2015:
1 Aaa, Aa, A.............. $ 97 $ 9 $ 5 $ 101
2 Baa..................... 91 2 2 91
---------- ---------- ---------- ---------
Investment grade........ 188 11 7 192
---------- ---------- ---------- ---------
3 Ba...................... -- -- -- --
4 B....................... 4 -- 1 3
5 C and lower............. 8 -- -- 8
6 In or near default...... 3 -- 1 2
---------- ---------- ---------- ---------
Below investment grade.. 15 -- 2 13
---------- ---------- ---------- ---------
Total.......................................... $ 203 $ 11 $ 9 $ 205
========== ========== ========== =========
/(1)/Includes, 1 security with amortized cost of $5 million (fair value, $5
million) as of December 31, 2016 and no securities were categorized based
on expected NAIC designation pending receipt of SVO ratings as of
December 31, 2015.
F-74
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
CORPORATE FIXED MATURITIES CREDIT QUALITY. The following table sets forth the
General Accounts' public and private holdings of corporate fixed maturities by
NAIC rating at the dates indicated.
CORPORATE FIXED MATURITIES
GROSS GROSS
NAIC AMORTIZED UNREALIZED UNREALIZED
DESIGNATION/(1)/ RATING AGENCY EQUIVALENT COST GAINS LOSSES FAIR VALUE
--------------- ------------------------ ----------- ---------- ----------- -----------
(IN MILLIONS)
AT DECEMBER 31, 2016:
1 Aaa, Aa, A.............. $ 560 $ 11 $ 7 $ 564
2 Baa..................... 456 10 3 463
----------- ---------- ----------- -----------
Investment grade........ 1,016 21 10 1,027
----------- ---------- ----------- -----------
3 Ba...................... 1 -- -- 1
4 B....................... -- -- -- --
5 C and lower............. 7 -- -- 7
6 In or near default...... -- -- -- --
----------- ---------- ----------- -----------
Below investment grade.. 8 -- -- 8
----------- ---------- ----------- -----------
Total.......................................... $ 1,024 $ 21 $ 10 $ 1,035
=========== ========== =========== ===========
At December 31, 2015:
1 Aaa, Aa, A.............. $ 421 $ 13 $ 3 $ 431
2 Baa..................... 382 7 9 380
----------- ---------- ----------- -----------
Investment grade........ 803 20 12 811
----------- ---------- ----------- -----------
3 Ba...................... 4 -- -- 4
4 B....................... -- -- -- --
5 C and lower............. 7 -- -- 7
6 In or near default...... -- -- -- --
----------- ---------- ----------- -----------
Below investment grade.. 11 -- -- 11
----------- ---------- ----------- -----------
Total.......................................... $ 814 $ 20 $ 12 $ 822
=========== ========== =========== ===========
/(1)/Includes, 1 security with amortized cost of $5 million (fair value, $5
million) as of December 31, 2016 and no securities were categorized based
on expected NAIC designation pending receipt of SVO ratings as of
December 31, 2015.
F-75
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
COMMERCIAL MORTGAGE-BACKED SECURITIES
The following table sets forth the amortized cost and fair value of the
Company's commercial mortgage-backed securities at the dates indicated by
credit quality and by year of issuance (vintage).
COMMERCIAL MORTGAGE-BACKED
SECURITIES
DECEMBER 31, 2016
--------------------------------
MOODY'S AGENCY RATING
-------------------------------- TOTAL TOTAL
BA AND DECEMBER 31, DECEMBER 31,
AAA AA A BAA BELOW 2016 2015
VINTAGE ------- ----- ----- ----- ------ ------------- ------------
(IN MILLIONS)
At amortized cost:
2004.............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
2005.............. -- -- -- 1 8 9 15
2006.............. -- -- -- -- 5 5 6
2007.............. -- -- -- -- 10 10 11
------- ----- ----- ----- ------ ------------- ------------
Total CMBS.......... $ -- $ -- $ -- $ 1 $ 23 $ 24 $ 32
======= ===== ===== ===== ====== ============= ============
At fair value:
2004.............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
2005.............. -- -- -- 1 9 10 14
2006.............. -- -- -- -- 1 1 3
2007.............. -- -- -- -- 13 13 14
------- ----- ----- ----- ------ ------------- ------------
Total CMBS.......... $ -- $ -- $ -- $ 1 $ 23 $ 24 $ 31
======= ===== ===== ===== ====== ============= ============
MORTGAGE LOANS
In 2016 MLOA issued $17 million of commercial mortgage loans, representing
approximately 1.3% of GAIA invested assets. These mortgage loans were issued
for apartment complex properties located in the Mid-Atlantic region. At
December 31, 2016 these mortgage loans had an outstanding value of $17 million
with a loan to value ratio between 0%-50% and a debt coverage service ratio
greater than 2.0x.
DERIVATIVES AND OFFSETTING ASSETS AND LIABILITIES
MLOA hedges crediting rates in the Market Stabilizer Option(R) ("MSO") in the
variable life insurance products and Indexed Universal Life ("IUL") insurance
products. The MSO and IUL product permit the contract owner to participate in
the performance of an index, ETF or commodity price movement up to a cap for a
set period of time. They also contain a protection feature, in which MLOA will
absorb, up to a certain percentage the loss of value in an index, ETF or
commodity price.
In order to support the returns associated with these features, MLOA enters
into derivative contracts whose payouts, in combination with fixed income
investments, emulate those of the index, ETF or commodity price, subject to
caps and buffers.
F-76
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The tables below present quantitative disclosures about MLOA's derivative
instruments, including those embedded in other contracts though required to be
accounted for as derivative instruments.
DERIVATIVE INSTRUMENTS BY CATEGORY
FAIR VALUE
-----------------------
GAINS (LOSSES)
NOTIONAL ASSET LIABILITY REPORTED IN
AMOUNT DERIVATIVES DERIVATIVES EARNINGS (LOSS)
-------- ----------- ----------- ---------------
AT OR FOR THE YEAR ENDED, DECEMBER 31, 2016: (IN MILLIONS)
FREESTANDING DERIVATIVES:
Equity contracts:/(1)/
Options......................................... $ 776 $ 76 $ 20 $ 18
Collateral...................................... -- -- 51 --
-------------
NET INVESTMENT INCOME (LOSS)...................... 18
-------------
EMBEDDED DERIVATIVES:
MSO and IUL indexed features/(2)/................. -- -- 53 (18)
-------- ----------- ----------- -------------
Balance, December 31, 2016........................ $ 776 $ 76 $ 124 $ --
======== =========== =========== =============
At or For the Year Ended, December 31, 2015:
Freestanding derivatives:
Equity contracts:/(1)/
Options......................................... $ 518 $ 28 $ 4 $ (9)
-------------
Net investment income (loss)...................... (9)
-------------
Embedded derivatives:
MSO and IUL indexed features/(2)/................. -- -- 24 8
-------- ----------- ----------- -------------
Balance, December 31, 2015........................ $ 518 $ 28 $ 28 $ (1)
======== =========== =========== =============
/(1)/Reported in Other invested assets in MLOA's balance sheets.
/(2)/MSO and IUL are reported in Future policyholders' benefits and other
policyholders' liabilities in the balance sheets.
REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) are generated from numerous sources,
including the sale of fixed maturity securities, equity securities, investments
in limited partnerships and other types of investments, as well as adjustments
to the cost basis of investments for OTTI. Realized investment gains (losses)
are also generated from prepayment premiums received on private fixed maturity
securities, recoveries of principal on previously impaired securities,
provisions for losses on commercial mortgage and other loans and fair value
changes on commercial mortgage loans carried at fair value.
The following table sets forth "Realized investment gains (losses), net," for
the years indicated:
REALIZED INVESTMENT GAINS (LOSSES), NET
2016 2015 2014
----- ----- -----
(IN MILLIONS)
Fixed maturities.................................. $ (4) $ (1) $ (10)
Other............................................. -- -- 4
----- ----- -----
Total............................................. $ (4) $ (1) $ (6)
===== ===== =====
F-77
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table further describes realized gains (losses), net for Fixed
maturities:
FIXED MATURITIES
REALIZED INVESTMENT GAINS (LOSSES), NET
2016 2015 2014
----- ----- ------
(IN MILLIONS)
Gross realized investment gains:
Gross gains on sales and maturities............. $ 1 $ 1 $ 3
----- ----- ------
Total gross realized investment gains.......... 1 1 3
----- ----- ------
Gross realized investment losses:
Other-than-temporary impairments recognized in
earnings (loss)................................ (3) (1) (10)
Gross losses on sales and maturities............ (2) (1) (3)
----- ----- ------
Total gross realized investment losses......... (5) (2) (13)
----- ----- ------
Total............................................. $ (4) $ (1) $ (10)
===== ===== ======
The following table sets forth, for the periods indicated, the composition of
other-than-temporary impairments recorded in Earnings (loss) by asset type.
OTHER-THAN-TEMPORARY IMPAIRMENTS RECORDED IN EARNINGS (LOSS)
2016 2015 2014
----- ----- ------
(IN MILLIONS)
Fixed Maturities:
Public fixed maturities......................... $ (1) $ -- $ --
Private fixed maturities........................ (2) (1) (10)
----- ----- ------
Total fixed maturities securities.............. $ (3) $ (1) $ (10)
===== ===== ======
OTTI on fixed maturities recorded in income in 2016, 2015 and 2014 were due to
credit events or adverse conditions of the respective issuer. In these
situations, management believes such circumstances have caused, or will lead
to, a deficiency in the contractual cash flows related to the investment. The
amount of the impairment recorded in earnings (loss) is the difference between
the amortized cost of the debt security and the net present value of its
projected future cash flows discounted at the effective interest rate implicit
in the debt security prior to impairment.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
MLOA's principal sources of cash flows are premiums and charges on policies and
contracts, investment income, repayments of principal and proceeds from sales
of fixed maturities and other General Account Investment Assets and capital
contributions from AEFS. Liquidity management is focused around a centralized
funds management process. This centralized process includes the monitoring and
control of cash flow associated with policyholder receipts and disbursements
and General Account portfolio principal, interest and investment activity.
Funds are managed through a banking system designed to reduce float and
maximize funds availability.
In addition to gathering and analyzing information on funding needs, the
Company has a centralized process for both investing short-term cash and
borrowing funds to meet cash needs. In general, the short-term investment
positions have a maturity profile of 1-7 days with considerable flexibility as
to availability.
MLOA's liquidity requirements principally relate to the payment of benefits
under its various life insurance and annuity products, cash payments in
connection with policy surrenders, withdrawals and loans and payment of its
operating expenses, including payments to affiliates in connection with service
agreements.
In managing the liquidity of MLOA's business, management also considers the
risk of policyholder and contractholder withdrawals of funds earlier than
assumed when selecting assets to support these contractual obligations.
Surrender charges and other contract provisions are used to mitigate the
extent, timing and profitability impact of withdrawals of funds by customers
from annuity contracts and deposit liabilities. The following table sets forth
withdrawal characteristics of MLOA's General Account annuity reserves and
deposit liabilities (based on statutory liability values) as of the dates
indicated.
F-78
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
GENERAL ACCOUNTS ANNUITY RESERVES AND DEPOSIT LIABILITIES
DECEMBER 31, 2016 December 31, 2015
------------------- ------------------
AMOUNT % OF TOTAL Amount % of Total
-------- ---------- ------- ----------
(DOLLARS IN MILLIONS)
Not subject to discretionary withdrawal provisions $ 82 6.8% $ 84 6.9%
Subject to discretionary withdrawal,
with adjustment:
With market value adjustment.................... 807 67.5 844 68.8
At contract value, less surrender charge of 5%
or more........................................ -- -- -- --
Subtotal....................................... 889 74.3 928 75.7
Subject to discretionary withdrawal at contract
value with no surrender charge or surrender
charge of less than 5%.......................... 307 25.7 298 24.3
-------- ----- ------- -----
Total Annuity Reserves And Deposit Liabilities.... $ 1,196 100.0% $ 1,226 100.0%
======== ===== ======= =====
ANALYSIS OF STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2016 AND 2015
Cash and cash equivalents were $138 million at December 31, 2016 a decrease of
$38 million from $176 million at December 31, 2015.
Net cash used in operating activities was $191 million in both 2016 and 2015.
Cash flows from operating activities include such sources as premiums,
investment income and dividends from AB offset by such uses as life insurance
benefit payments, compensation reimbursements to affiliates and other cash
expenditures.
Net cash used in investing activities was $255 million in 2016 as compared to
net cash used in investing activities of $67 million in 2015. The change was
principally due to higher net investment purchases of $333 million in 2016 as
compared to 2015.
Net cash provided by financing activities was $408 million in 2016 as compared
to $387 million in 2015. The impact of the net deposits to policyholders'
account balances was $376 million in 2016 as compared to net deposits to
policyholders' account balances of $387 million in 2015. Change collateralized
pledged liabilities were $32 million and $0 million in 2016 and 2015
respectively.
YEARS ENDED DECEMBER 31, 2015 AND 2014
Cash and cash equivalents were $176 million at December 31, 2015 an increase of
$129 million from $47 million at December 31, 2014.
Net cash used in operating activities was $191 million in 2015 as compared to
$177 million in 2014. Cash flows from operating activities include such sources
as premiums, investment income and dividends from AB offset by such uses as
life insurance benefit payments, compensation reimbursements to affiliates and
other cash expenditures.
Net cash used in investing activities was $67 million in 2015 as compared to
net cash used in investing activities of $162 million in 2014. The change was
principally due to lower net purchases of $153 million in 2015 as compared to
2014.
Net cash provided by financing activities was $387 million in 2015 as compared
to $247 million in 2014. The impact of the net deposits to policyholders'
account balances was $387 million in 2015 as compared to net deposits to
policyholders' account balances of $240 million in 2014. Change collateralized
pledged liabilities were $0 million and $7 million in 2015 and 2014
respectively.
SOURCES OF LIQUIDITY The principal sources of MLOA's cash flows are premiums,
deposits and charges on policies and contracts, investment income, repayments
of principal and sales proceeds from its fixed maturity portfolios, sales of
other General Account Investment Assets and distributions from AB.
MLOA's primary source of short-term liquidity to support its insurance
operations is a pool of highly liquid, high quality short-term instruments
structured to provide liquidity in excess of the expected cash requirements. At
December 31, 2016, this asset pool included an aggregate of $111 million in
highly liquid short-term investments, as compared to $175 million at
December 31, 2015. In addition, a substantial portfolio of public bonds
including U.S. Treasury and agency securities and other investment grade fixed
maturities is available to meet MLOA's liquidity needs.
F-79
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
OFF-BALANCE SHEET TRANSACTIONS
At December 31, 2016 and 2015, MLOA was not a party to any off-balance sheet
transactions.
STATUTORY REGULATION, CAPITAL AND DIVIDENDS
MLOA is subject to the regulatory capital requirements of Arizona, which are
designed to monitor capital adequacy. The level of an insurer's required
capital is impacted by many factors including, but not limited to, business
mix, product design, sales volume, invested assets, liabilities, reserves and
movements in the capital markets, including interest rates and equity markets.
As of December 31, 2016, the total adjusted capital of MLOA was in excess of
Arizona's regulatory capital requirements.
Management monitors its regulatory capital requirements on an ongoing basis
taking into account the prevailing conditions in the capital markets. While
future capital requirements will depend on future market conditions, management
believes that MLOA will continue to have the ability to meet the capital
requirements necessary to support its business. For additional information, see
"Risk Factors".
MLOA is restricted as to the amounts it may pay as dividends to AEFS. Under
Arizona Insurance Law, a domestic life insurer may not, without prior approval
of the Director of Insurance, pay a dividend to its shareholder exceeding an
amount calculated based on a statutory formula. This formula would not permit
MLOA to pay shareholder dividends during 2017. For 2016, 2015 and 2014, MLOA's
statutory net income (loss) was $(14) million, $(4) million and $12 million,
respectively. Statutory surplus, capital stock and Asset Valuation Reserve
("AVR") totaled $331 million and $366 million at December 31, 2016 and 2015,
respectively. There were no shareholder dividends paid by MLOA to its parent in
2016, 2015 and 2014.
SUPPLEMENTARY INFORMATION
A schedule of future payments under certain of MLOA's contractual obligations
follows:
CONTRACTUAL OBLIGATIONS -- DECEMBER 31, 2016
PAYMENTS DUE BY PERIOD
-------------------------------
LESS THAN 1 -- 3 4 -- 5 OVER
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------- --------- ------ ------ -------
(IN MILLIONS)
Contractual obligations:
Policyholders liabilities -- policyholders'
account balances, future policy benefits and
other policyholder liabilities/(1) /........... $ 2,921 $ 71 $ 117 $ 132 $ 2,601
------- --------- ------ ------ -------
Total Contractual Obligations.................. $ 2,921 $ 71 $ 117 $ 132 $ 2,601
======= ========= ====== ====== =======
/(1)/Policyholders liabilities represent estimated cash flows out of the
General Account related to the payment of death and disability claims,
policy surrenders and withdrawals, annuity payments, minimum guarantees on
Separate Account funded contracts, matured endowments, policyholder
dividends and future renewal premium-based and fund-based commissions
offset by contractual future premiums and deposits on in-force contracts.
These estimated cash flows are based on mortality, morbidity and lapse
assumptions comparable with the MLOA experience and assume market growth
and interest crediting consistent with assumptions used in amortizing DAC
and VOBA. These amounts are undiscounted and, therefore, exceed the
Policyholders' account balances and Future policy benefits and other
policyholder liabilities included in the balance sheet included elsewhere
herein. They do not reflect projected recoveries from reinsurance
agreements. Due to the use of assumptions, actual cash flows will differ
from these estimates (see "Critical Accounting Estimates -- Future Policy
Benefits"). Separate Accounts liabilities have been excluded as they are
legally insulated from General Account obligations and will be funded by
cash flows from Separate Accounts assets.
Unrecognized tax benefits of $4 million were not included in the above table
because it is not possible to make reasonably reliable estimates of the
occurrence or timing of cash settlements with the respective taxing
authorities.
In addition, MLOA has financial obligations under contingent commitments at
December 31, 2016 including guarantees or commitments to fund private fixed
maturities. Information on these contingent commitments can be found in
Notes 2, 5, 7, 8 and 11 of Notes to Financial Statements.
F-80
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
F-81
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MLOA's operations are subject to financial, market, political and economic
risks, as well as to risks inherent in its business operations. The discussion
that follows provides additional information on market risks arising from its
insurance asset/liability management activities. Primary market risk exposure
results from interest rate fluctuations and changes in credit quality.
MLOA's results of operations significantly depend on profit margins between
investment results from General Account Investment Assets and interest credited
on individual insurance products. Management believes its fixed rate
liabilities should be supported by a portfolio principally composed of fixed
rate investments that generate predictable, steady rates of return. Although
these assets are purchased for long-term investment, the portfolio management
strategy considers them available for sale in response to changes in market
interest rates, changes in prepayment risk, changes in relative values of asset
sectors and individual securities and loans, changes in credit quality outlook
and other relevant factors. See the "Investments" section of Note 2 of Notes to
Financial Statements for the accounting policies for the investment portfolios.
The objective of portfolio management is to maximize returns, taking into
account interest rate and credit risks. Insurance asset/liability management
includes strategies to minimize exposure to loss as interest rates and economic
and market conditions change. As a result, the fixed maturity portfolio has
modest exposure to call and prepayment risk and the vast majority of mortgage
holdings are fixed rate mortgages that carry yield maintenance and prepayment
provisions.
INVESTMENTS WITH INTEREST RATE RISK -- FAIR VALUE. MLOA's assets with interest
rate risk include fixed maturities that make up 86.4% of the carrying value of
General Account Investment Assets at December 31, 2016. As part of its
asset/liability management, quantitative analyses are used to model the impact
various changes in interest rates have on assets with interest rate risk. The
table that follows shows the impact an immediate 100 BP increase in interest
rates at December 31, 2016 and 2015 would have on the fair value of fixed
maturities:
DECEMBER 31, 2016 December 31, 2015
-------------------------- ------------------------
BALANCE AFTER Balance After
+100 BP +100 BP
FAIR VALUE CHANGE Fair Value Change
------------ ------------- ---------- -------------
(IN MILLIONS)
Fixed maturities.................................. $ 1,109 $ 1,048 $ 906 $ 860
------------ ------------ ---------- ----------
Total........................................... $ 1,109 $ 1,048 $ 906 $ 860
============ ============ ========== ==========
A 100 BP increase in interest rates is a hypothetical rate scenario used to
demonstrate potential risk; it does not represent management's view of future
market changes. While these fair value measurements provide a representation of
interest rate sensitivity of fixed maturities and mortgage loans, they are
based on various portfolio exposures at a particular point in time and may not
be representative of future market results. These exposures will change as a
result of ongoing portfolio activities in response to management's assessment
of changing market conditions and available investment opportunities.
LIABILITIES WITH INTEREST RATE RISK -- FAIR VALUE.
Asset/liability management is integrated into many aspects of MLOA's
operations, including investment decisions, product development and
determination of crediting rates. As part of the risk management process,
numerous economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine if existing assets would be
sufficient to meet projected liability cash flows. Key variables include
policyholder behavior, such as persistency, under differing crediting rate
strategies.
DERIVATIVES AND INTEREST RATE AND EQUITY RISKS -- FAIR VALUE. MLOA uses
derivatives for asset/liability risk management primarily to reduce exposures
to equity market fluctuations. Derivative hedging strategies are designed to
reduce these risks from an economic perspective and are all executed within the
framework of a "Derivative Use Plan" approved by the Arizona Department of
Insurance ("AID"). To minimize credit risk exposure associated with its
derivative transactions, each counterparty's credit is appraised and approved
and risk control limits and monitoring procedures are applied. Credit limits
are established and monitored on the basis of potential exposures that take
into consideration current market values and estimates of potential future
movements in market values given potential fluctuations in market interest
rates. In addition, MLOA executed various collateral arrangements with
counterparties to over-the-counter derivative transactions that require both
the pledging and accepting of collateral either in the form of cash or
high-quality Treasury or government agency securities.
Mark to market exposure is a point-in-time measure of the value of a derivative
contract in the open market. A positive value indicates existence of credit
risk for MLOA because the counterparty would owe money to MLOA if the contract
were closed. Alternatively, a negative value indicates MLOA would owe money to
the counterparty if the contract were closed. If there is more than one
derivative transaction
F-82
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
outstanding with a counterparty, a master netting arrangement exists with the
counterparty. In that case, the market risk represents the net of the positive
and negative exposures with the single counterparty. In management's view, the
net potential exposure is the better measure of credit risk.
At December 31, 2016 and 2015, the net fair values of MLOA's derivatives were
$55 million and $24 million, respectively. The table that follows shows equity
sensitivities of those derivatives, measured in terms of fair value. These
exposures will change as a result of ongoing portfolio and risk management
activities.
EQUITY SENSITIVITIES
-----------------------
BALANCE AFTER
NOTIONAL FAIR -10% EQUITY
AMOUNT VALUE PRICE SHIFT
---------- --------- -------------
(IN MILLIONS)
DECEMBER 31, 2016
Options......................................... $ 776 $ 55 $ 27
December 31, 2015
Options......................................... $ 518 $ 24 $ --
In addition to the freestanding derivatives discussed above MLOA has
liabilities associated with the MSO in MLOA's variable life insurance products
and IUL insurance products features which are considered to be derivatives for
accounting purposes and were reported at its fair value. The liability for MSO
and IUL features was $55 million and $24 million at December 31, 2016 and 2015,
respectively. The potential fair value exposure to an immediate 10% drop in
equity prices from those prevailing at December 31, 2016 and 2015, would be to
decrease the liability balance to $27 million and $10 million respectively.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
BOARD OF DIRECTORS
The Board currently consists of ten members, including our Chairman of the
Board, President and Chief Executive Officer, two senior executives of AXA and
seven independent members.
The Board holds regular quarterly meetings, generally in February, May,
September, and November of each year, and holds special meetings or takes
action by unanimous written consent as circumstances warrant. The Board has
standing Executive, Audit, Organization and Compensation, and Investment
Committees, each of which is described in further detail below. Each of the
Directors attended at least 75% of the Board and committee meetings to which he
or she was assigned during 2016, except Mr. Buberl.
The current members of our Board are as follows:
MARK PEARSON
Mr. Pearson, age 58, has been a Director of MLOA since January 2011 and
currently serves as Chairman of the Board, President and Chief Executive
Officer. From February 2011 through September 2013, he served as Chairman of
the Board and Chief Executive Officer. Mr. Pearson also serves as President and
Chief Executive Officer of AXA Financial since February 2011 and as Chairman of
the Board, President and Chief Executive Officer of AXA Equitable since
February 2011. Mr. Pearson is also a member of the AXA Group Management
Committee. Mr. Pearson joined AXA in 1995 with the acquisition of National
Mutual Holdings and was appointed Regional Chief Executive of AXA Asia Life in
2001. In 2008, he became President and Chief Executive Officer of AXA Japan
Holding Co. Ltd. ("AXA Japan") and was appointed a member of the Executive
Committee of AXA. Before joining AXA, Mr. Pearson spent approximately 20 years
in the insurance sector, assuming several senior manager positions at Hill
Samuel, Schroders National Mutual Holdings and Friends Provident. Mr. Pearson
is a Fellow of the Chartered Association of Certified Accountants and is a
member of the Board of Directors of the American Council of Life Insurers and
the Financial Services Roundtable. Mr. Pearson is also a director of AXA
Financial (since January 2011), AXA Equitable (since January 2011) and
AllianceBernstein Corporation (since February 2011).
Mr. Pearson brings to the Board diverse financial services experience developed
though his service as an executive, including as a Chief Executive Officer, to
AXA Financial, AXA Japan and other AXA affiliates.
THOMAS BUBERL
Mr. Buberl, age 43, has been a director of MLOA since May 2016. Mr. Buberl has
served as Chief Executive Officer of AXA since September 2016. From March 2016
to August 2016, Mr. Buberl served as Deputy Chief Executive Officer of AXA.
Prior thereto, Mr. Buberl served as Chief Executive Officer of AXA Konzern AG
(May 2012 to March 2016), Chief Executive Officer for the global business line
for the Health Business (March 2015 to March 2016) and Chief Executive Officer
for the global business line for the Life and Savings Business (January 2016 to
March 2016). From November 2008 to April 2012, Mr. Buberl served as Chief
Executive Officer for Switzerland of Zurich Financial Services ("Zurich").
Prior to joining Zurich, Mr. Buberl held various management positions with
Boston Consulting Group (February 2000 to October 2005) and Winterthur Group
(November 2005 to October 2008). Mr. Buberl is also a director of AXA Financial
and AXA Equitable since May 2016 and various other subsidiaries and affiliates
of the AXA Group.
Mr. Buberl brings to the Board his extensive experience and key leadership
skills developed through his service as an executive, including invaluable
perspective as the Chief Executive Officer of AXA. The Board also benefits from
his perspective as a member of the AXA Group Management Committee.
RAMON DE OLIVEIRA
Mr. de Oliveira, age 62, has been a Director of MLOA since May 2011. Mr. de
Oliveira has been a member of AXA's Board of Directors since April 2010, where
he serves on the Finance Committee (Chair) and Audit Committee, and from April
2009 to May 2010, he was a member of AXA's Supervisory Board. He is currently
the Managing Director of the consulting firm Investment Audit Practice, LLC,
based in New York, NY. From 2002 to 2006, Mr. de Oliveira was an adjunct
professor of Finance at Columbia University. Prior thereto, starting in 1977,
he spent 24 years at JP Morgan & Co. where he was Chairman and Chief Executive
Officer of JP Morgan Investment Management and was also a member of the firm's
Management Committee since its inception in 1995. Upon the merger with Chase
Manhattan Bank in 2001, Mr. de Oliveira was the only executive from JP Morgan &
Co. asked to join the Executive Committee of the new firm with operating
responsibilities. Mr. de Oliveira is currently a member of the Board of
Directors of Investment Audit Practice, LLC, Fonds de Dotation du Louvre and
JACCAR Holdings. Previously he was a Director of JP Morgan Suisse, American
Century Company, Inc., SunGard Data Systems and The Hartford Insurance Company.
Mr. de Oliveira is also a director of AXA Financial and AXA Equitable since May
2011.
Mr. de Oliveira brings to the Board extensive financial services experience,
and key leadership and analytical skills developed through his roles within the
financial services industry and academia. The Board also benefits from his
perspective as a director of AXA and as a former director of other companies.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PAUL EVANS
Mr. Evans, age 51, has been a director of MLOA since November 2016. Mr. Evans
has served as Group Chief Executive Officer of AXA Global Life, Savings and
Health and has been a member of the AXA Group Management Committee since July
2016. Prior thereto, Mr. Evans served as Group Chief Executive Officer of AXA
UK and Ireland (from 2010 to June 2016) and Chairman of AXA Corporate Solutions
(from 2015 to June 2016). From 2003 to 2010, Mr. Evans served as Chief
Executive Officer of AXA Life in the UK and between 2001 and May 2003,
Mr. Evans served as Group Finance Director of AXA UK and Ireland. Prior to
joining AXA in 2000, Mr. Evans spent thirteen years with
PricewaterhouseCoopers. From 2014 to June 2016, Mr. Evans served as Chairman of
the Association of British Insurers. Mr. Evans is also a director of AXA
Financial and AXA Equitable since November 2016 and various other subsidiaries
and affiliates of the AXA Group.
Mr. Evans brings to the Board his extensive experience and key leadership
skills developed through his service as an executive with AXA, including as
Group Chief Executive Officer of AXA Global Life, Savings and Health. The Board
also benefits from his perspective as a member of the AXA Group Management
Committee.
BARBARA FALLON-WALSH
Ms. Fallon-Walsh, age 64, has been a Director of MLOA since May 2012.
Ms. Fallon-Walsh was with The Vanguard Group, Inc. ("Vanguard") from 1995 until
her retirement in 2012, where she held several executive positions, including
Head of Institutional Retirement Plan Services from 2006 through 2011.
Ms. Fallon-Walsh started her career at Security Pacific Corporation in 1979 and
held a number of senior and executive positions with the company, which merged
with Bank of America in 1992. From 1992 until joining Vanguard in 1995,
Ms. Fallon-Walsh served as Executive Vice President, Bay Area Region and Los
Angeles Gold Coast Region for Bank of America. Ms. Fallon-Walsh is currently a
member of the Boards of Directors of AXA Investment Managers S.A. ("AXA IM"),
where she serves on the Audit and Risk Committee and the Remuneration
Committee, and of AXA IM Inc. and AXA Rosenberg Group LLC ("AXA Rosenberg").
Ms. Fallon-Walsh is also a director of AXA Financial and AXA Equitable since
May 2012.
Ms. Fallon-Walsh brings to the Board extensive financial services and general
management expertise through her executive positions at Vanguard, Bank of
America and Security Pacific National Bank and through her perspective as a
director of AXA IM, AXA IM Inc. and AXA Rosenberg. The Board also benefits from
her extensive knowledge of the retirement business.
DANIEL G. KAYE
Mr. Kaye, age 62, has been a Director of MLOA since September 2015. From
January 2013 to May 2014, Mr. Kaye served as Interim Chief Financial Officer
and Treasurer of HealthEast Care System ("HealthEast"). Prior to joining
HealthEast, Mr. Kaye spent 35 years with Ernst & Young LLP ("Ernst & Young")
from which he retired in 2012. Throughout his time at Ernst & Young, where he
was an audit partner for 25 years, Mr. Kaye enjoyed a track record of
increasing leadership and responsibilities, including serving as the New
England Managing Partner and the Midwest Managing Partner of Assurance.
Mr. Kaye was a member of the Board of Directors of Ferrellgas Partners L.P.
("Ferrellgas") from August 2012 to November 2015 where he served on the Audit
Committee and Corporate Governance and Nominating Committee (Chair). Mr. Kaye
is a Certified Public Accountant and National Association of Corporate
Directors (NACD) Board Leadership Fellow. Mr. Kaye is also a director of AXA
Financial and AXA Equitable since September 2015.
Mr. Kaye brings to the Board invaluable expertise as an audit committee
financial expert, and extensive financial services and insurance industry
experience and his general knowledge and experience in financial matters
developed through his roles at Ernst & Young and HealthEast. The Board also
benefits from his experience as a director of Ferrellgas.
KRISTI A. MATUS
Ms. Matus, age 48, has been a Director of MLOA since September 2015. From July
2014 to May 2016, Ms. Matus served as Executive Vice President and Chief
Financial & Administrative Officer of athenahealth, Inc. ("athenahealth").
Prior to joining athenahealth, Ms. Matus served as Executive Vice President and
Head of Government Services of Aetna, Inc. ("Aetna") from February 2012 to July
2013. Prior to Aetna, she held several senior leadership roles at United
Services Automobile Association ("USAA"), including Executive Vice President
and Chief Financial Officer from 2008 to 2012. She began her career at the Aid
Association for Lutherans, where she held various financial and operational
roles for over a decade. Ms. Matus is currently a member of the Board of
Directors of Tru Optik Data Corp. ("Tru Optik") and Jordan Health Services,
Inc. ("Jordan Health"). Ms. Matus is also a director of AXA Financial and AXA
Equitable since September 2015.
Ms. Matus brings to the Board extensive management expertise, finance,
corporate governance and key leadership skills developed through her roles at
athenahealth, Aetna and USAA. The Board also benefits from her experience as a
director of Tru Optik and Jordan Health.
BERTRAM L. SCOTT
Mr. Scott, age 65, has been a Director of MLOA since May 2012. Mr. Scott has
served as Senior Vice President of population health of Novant Health, Inc.
since February 2015. From November 2012 through December 2014, Mr. Scott served
as President and Chief Executive Officer of Affinity Health Plans. From June
2010 to December 2011, Mr. Scott served as President, U.S. Commercial of CIGNA
Corporation. Prior thereto,
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
he served as Executive Vice President of TIAA-CREF from 2000 to June 2010 and
as President and Chief Executive Officer of TIAA-CREF Life Insurance Company
from 2000 to 2007. Mr. Scott is currently a member of the Board of Directors of
Becton, Dickinson and Company, where he serves on the Audit Committee (Chair)
and Compensation and Benefits Committee, and Lowe's Companies, Inc., where he
serves on the Audit Committee and Governance Committee. Mr. Scott is also a
director of AXA Financial and AXA Equitable since May 2012.
Mr. Scott brings to the Board invaluable expertise as an audit committee
financial expert, and strong strategic and operational expertise acquired
through the variety of executive roles in which he has served during his
career. The Board also benefits from his perspective as a director of Becton,
Dickinson and Company and Lowe's Companies, Inc.
LORIE A. SLUTSKY
Ms. Slutsky, age 64, has been a Director of MLOA since September 2006.
Ms. Slutsky has served as President and Chief Executive Officer of The New York
Community Trust, a community foundation that manages a $2.5 billion endowment
and annually grants more than $150 million to non-profit organizations, since
January 1990. Ms. Slutsky was a board member of the Independent Sector and
co-chaired its National Panel on the Non-Profit Sector, which focused on
reducing abuse and improving governance practices at non-profits. She also
served on the Board of Directors of BoardSource from 1999 to 2008 and served as
its Chair from 2005 to 2007. She also served on the Board of Directors of the
Council on Foundations from 1989 to 1995 and as its Chair from 1992 to 1994.
Ms. Slutsky served as Trustee and Chair of the Budget Committee of Colgate
University from 1989 to 1997. Ms. Slutsky is also a director of AXA Financial
and AXA Equitable (since September 2006) and AllianceBernstein Corporation
(since July 2002).
Ms. Slutsky brings to the Board extensive corporate governance experience
through her executive and managerial roles at The New York Community Trust,
BoardSource and various other non-profit organizations.
RICHARD C. VAUGHAN
Mr. Vaughan, age 67, has been a Director of MLOA since May 2010. From 1995 to
May 2005, Mr. Vaughan served as Executive Vice President and Chief Financial
Officer of Lincoln Financial Group ("Lincoln"). Mr. Vaughan joined Lincoln in
July 1990 as Senior Vice President and Chief Financial Officer of Lincoln's
Employee Benefits Division. In June 1992, Mr. Vaughan was appointed Chief
Financial Officer of Lincoln and was promoted to Executive Vice President of
Lincoln in January 1995. Mr. Vaughan is a member of the Board of Directors of
MBIA Inc., where he serves on the Finance and Risk Committee (Chair), Audit
Committee and Executive Committee. Previously, Mr. Vaughan was also a Director
of The Bank of New York and Davita, Inc. Mr. Vaughan is also a director of AXA
Financial and AXA Equitable since May 2010.
Mr. Vaughan brings to the Board invaluable expertise as an audit committee
financial expert, and extensive financial services and insurance industry
experience and his general knowledge and experience in financial matters,
including as a Chief Financial Officer. The Board also benefits from his
perspective as a director of MBIA, Inc. and as a former director to other
public companies.
EXECUTIVE OFFICERS
The current executive officers (other than Mr. Pearson, whose biography is
included above in the Board of Directors information) are as follows:
JOSH BRAVERMAN, SENIOR EXECUTIVE VICE PRESIDENT
Mr. Braverman, age 50, joined AXA Financial Group in 2009 and currently serves
as Senior Executive Vice President of AXA Financial and MLOA and as Senior
Executive Director of AXA Equitable. Mr. Braverman is responsible for the
management of the Company's legacy book of annuities and life insurance
products. Prior to this role, Mr. Braverman most recently served as Senior
Executive Vice President, Chief Investment Officer and Treasurer. In this role,
Mr. Braverman was responsible for, among other things, the overall investment
strategy of our general account investment portfolio, managing our financing
and liquidity requirements, and developing and implementing our derivatives and
hedging strategy. Prior to joining AXA Financial Group, Mr. Braverman was the
Global Head of Derivatives at Aegon N.V. from 2003 to 2009. Previously,
Mr. Braverman worked for the U.S. Department of Treasury as a sovereign debt
advisor, Deutsche Bank as Director of mortgage derivatives trading and Goldman
Sachs as Vice President, Fixed Income Proprietary Trading.
MARINE DE BOUCAUD, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF HUMAN RESOURCES
OFFICER
Ms. de Boucaud, age 48, joined AXA Financial Group in July 2016 and currently
serves as Senior Executive Vice President and Chief Human Resources Officer of
AXA Financial and MLOA and as Senior Executive Director and Chief Human
Resources Officer of AXA Equitable. Ms. de Boucaud is responsible for
developing and executing a business-aligned human capital management strategy
focused on leadership development, talent management and total rewards. Ms. de
Boucaud also oversees internal communications and the AXA Foundation. Prior to
joining AXA Financial Group, Ms. de Boucaud served as the Head of Human
Resources of AXA France from October 2012 to June 2016. Ms. de Boucaud began
her career with AXA in 2010 as the Head of Talent Management. Prior to joining
AXA, Ms. de Boucaud was a senior consultant at Spencer Stuart from March 2008
to September 2010. Prior to joining Spencer Stuart, Ms. de Boucaud held various
roles on increasing responsibility at Korn Ferry Whitehead Mann, Jouve &
Associes and BNP Paribas.
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DAVE S. HATTEM, SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
Mr. Hattem, age 60, joined AXA Financial Group in 1994 and currently serves as
Senior Executive Vice President and General Counsel of AXA Financial and MLOA
and as Senior Executive Director and General Counsel of AXA Equitable. Prior to
his election as general counsel in 2010, Mr. Hattem served as senior vice
president and deputy general counsel, taking on this role in 2004. Mr. Hattem
is responsible for oversight of the Law Department, including the National
Compliance Office, setting the strategic direction of the Department and
ensuring the business areas are advised as to choices and opportunities
available under existing law to enable company goals. Prior to joining AXA
Financial Group, Mr. Hattem served in several senior management positions in
the Office of the United States Attorney for the Eastern District of New York.
Mr. Hattem began his professional legal career as an Associate in the
Litigation Department of Barrett Smith Schapiro Simon & Armstrong. Mr. Hattem
is a member of the Board of Directors of The Life Insurance Council of New York.
MICHAEL B. HEALY, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF INFORMATION OFFICER
Mr. Healy, age 49, joined AXA Financial Group in 2006 and currently serves as
Senior Executive Vice President and Chief Information Officer of AXA Financial
and MLOA and as Senior Executive Director and Chief Information Officer of AXA
Equitable. Mr. Healy is responsible for the information technology function,
directing all systems strategy and delivery, including infrastructure,
application development, corporate architecture and electronic commerce.
Mr. Healy is also responsible for the overall management of AXA Financial
Group's relationship with AXA Technology Services, the AXA company that
provides global technology infrastructure service and support. Prior to this
role, Mr. Healy served as chief operations officer of AXA Financial Group's
information technology organization, responsible for overseeing the day-to-day
operations of that organization. Prior to joining AXA Financial Group,
Mr. Healy served as a senior vice president at Marsh & McLennan and in
managerial roles at PricewaterhouseCoopers.
ADRIENNE JOHNSON, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF TRANSFORMATION
OFFICER
Ms. Johnson, age 47, joined AXA Financial Group in February 1999 and currently
serves as Senior Executive Vice President and Chief Information Officer of AXA
Financial and MLOA and as Senior Executive Director and Chief Transformation
Officer of AXA Equitable. Ms. Johnson is responsible for operations, corporate
sourcing and procurement, corporate real estate, data and strategic taskforces.
Ms. Johnson leads the transformation team in supporting the businesses growth
of priority segments and distribution transformation, and works closely with
AXA's customer team to shape the customer experience. Prior to this role,
Ms. Johnson most recently served as Managing Director and Chief Auditor from
April 2012 to September 2016 and led the Strategic Initiatives Group from 2007
to April 2012. Prior to joining AXA Financial Group, Ms. Johnson held positions
with Enterprise IG, a part of the WPP Group, AIG Trading Group, Morgan Stanley
and Shearson Lehman Brothers.
ANDERS MALMSTROM, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Mr. Malmstrom, age 49, joined AXA Financial Group in June 2012 and currently
serves as Senior Executive Vice President and Chief Financial Officer of AXA
Financial and MLOA and as Senior Executive Director and Chief Financial Officer
of AXA Equitable. Mr. Malmstrom is responsible for all actuarial and investment
functions, with oversight of the controller, tax, expense management and
distribution finance areas. Prior to joining AXA Financial Group, Mr. Malmstrom
was a member of the Executive Board and served as the Head of the Life Business
at AXA Winterthur. Prior to joining AXA Winterthur in January 2009,
Mr. Malmstrom was a Senior Vice President at Swiss Life, where he was also a
member of the Management Committee. Mr. Malmstrom joined Swiss Life in 1997,
and held several positions of increasing responsibility during his tenure.
BRIAN WINIKOFF, SENIOR EXECUTIVE VICE PRESIDENT AND HEAD OF U.S. LIFE,
RETIREMENT AND WEALTH MANAGEMENT
Mr. Winikoff, age 44, joined AXA Financial Group in July 2016 and currently
serves as Senior Executive Vice President and Head of U.S. Life, Retirement and
Wealth Management of AXA Financial and MLOA and as Senior Executive Director
and Head of U.S. Life, Retirement and Wealth Management of AXA Equitable.
Mr. Winikoff is responsible for all aspects of the U.S. life, retirement and
wealth management business, which includes financial protection, wealth
management, employee benefits, employee sponsored and individual annuity.
Mr. Winikoff also leads AXA Equitable Funds Management Group. Prior to joining
AXA Financial Group, Mr. Winikoff served as President and Chief Executive
Officer of Crump Life Insurance Services, Inc. ("Crump"). Prior thereto,
Mr. Winikoff served in multiple roles at Crump from 2002 to 2008, including as
Chief Financial Officer and Vice President, Investor Relations and Corporate
Finance. From 2000 to 2002, Mr. Winikoff served as Vice President of Finance,
Corporate Treasurer and Head of Investor Relations for LoudCloud Inc., an IT
outsource provider.
CORPORATE GOVERNANCE
COMMITTEES OF THE BOARD
The Executive Committee of the Board ("Executive Committee") is currently
comprised of Mr. Pearson (Chair), Mr. Buberl, Ms. Fallon-Walsh, Ms. Slutsky and
Mr. Vaughan. The function of the Executive Committee is to exercise the
authority of the Board in the management of MLOA between meetings of the Board
with the exceptions set forth in MLOA's By-Laws. The Executive Committee held
no meetings in 2016.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The Audit Committee of the Board ("Audit Committee") is currently comprised of
Mr. Vaughan (Chair), Ms. Fallon-Walsh, Mr. Kaye and Mr. Scott. The primary
purposes of the Audit Committee are to: (i) assist the Board of Directors in
its oversight of the (1) adequacy and effectiveness of the internal control and
risk management frameworks, (2) financial reporting process and the integrity
of the publicly reported results and disclosures made in the financial
statements and (3) effectiveness and performance of the internal and external
auditors and the independence of the external auditor; (ii) approve (1) the
appointment, compensation and retention of the external auditor in connection
with the annual audit and (2) the audit and non-audit services to be performed
by the external auditor and (iii) resolve any disagreements between management
and the external auditor regarding financial reporting. The Board has
determined that each of Messrs. Vaughan, Kaye and Scott is an "audit committee
financial expert" within the meaning of Item 407(d) of Regulation S-K. The
Board has also determined that each member of the Audit Committee is
financially literate. The Audit Committee met eight times in 2016.
The Investment Committee of the Board ("Investment Committee") is currently
comprised of Ms. Fallon-Walsh (Chair), Mr. Buberl, Mr. de Oliveira, Mr. Kaye,
Mr. Pearson and Mr. Vaughan. The primary purpose of the Investment Committee is
to oversee the investments of MLOA by (i) taking actions with respect to the
acquisition, management and disposition of investments and (ii) reviewing
investment risk, exposure and performance, as well as the investment
performance of products and accounts managed on behalf of third parties. The
Investment Committee met four times in 2016.
INDEPENDENCE OF CERTAIN DIRECTORS
Although not subject to the independence standards of the New York Stock
Exchange, as a best practice we have applied the independence standards
required for listed companies of the New York Stock Exchange to the current
members of the Board of Directors. At the February 2017 meeting, applying these
standards, the Board of Directors determined that each of Mr. de Oliveira,
Ms. Fallon-Walsh, Mr. Kaye, Ms. Matus, Mr. Scott, Ms. Slutsky and Mr. Vaughan
is independent.
CODE OF ETHICS
All of our officers and employees, including our Chief Executive Officer, Chief
Financial Officer and Chief Accounting Officer, are subject to the AXA
Financial Policy Statement on Ethics (the "Code of Ethics"), a code of ethics
as defined under Regulation S-K.
The Code of Ethics is available on our website at www.axa.com.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This section provides an overview of how the compensation of the "Named
Executive Officers" is determined. For 2016, the Named Executive Officers were:
. Mark Pearson, Chairman of the Board, President and Chief Executive
Officer
. Anders B. Malmstrom, Senior Executive Director and Chief Financial
Officer
. Brian Winikoff, Senior Executive Director and Head of U.S. Life,
Retirement and Wealth Management
. Dave Hattem, Senior Executive Director and General Counsel
. Michael Healy, Senior Executive Director and Chief Information Officer
. Sharon Ritchey, Senior Executive Director and Chief Customer Officer
through December 30, 2016
. Priscilla Brown, Senior Executive Director and Chief Marketing Officer
through August 31, 2016
The details of each Named Executive Officer's compensation may be found in the
Summary Compensation Table and other compensation tables included in this
section.
NOTE: Executive officers of MLOA are employees of AXA Equitable Life
Insurance Company ("AXA Equitable") and receive no compensation directly
from MLOA. Rather, a portion of their compensation from AXA Equitable is
allocated to MLOA under the Amended Services Agreement between AXA
Equitable and MLOA, effective as of February 1, 2005 (the "Services
Agreement"). As a result, the compensation discussion set forth below
represents the compensation decisions of AXA Equitable.
COMPENSATION PROGRAM OVERVIEW
GOAL
The overriding goal of AXA Equitable's executive compensation program is to
attract, retain and motivate top-performing executive officers who will
dedicate themselves to the long-term financial and operational success of AXA
Equitable, AXA Financial and AXA Financial Group's insurance-related businesses
("AXA Financial Life and Savings Operations") as well as our ultimate parent
and shareholder, AXA. Accordingly, as further described below, the program
incorporates metrics which measure that success.
Since the executive officers of AB are principally responsible for the success
of the Investment Management Segment, they do not participate in AXA
Equitable's executive compensation program. AB maintains separate compensation
plans and programs, the details of which may be found in the AB 10-K.
PHILOSOPHY AND STRATEGY
To achieve its goal, AXA Equitable's executive compensation program is
structured to foster a pay-for-performance management culture by:
. providing total compensation opportunities that are competitive with the
levels of total compensation available at the large diversified
financial services companies with which the AXA Financial Group most
directly competes in the marketplace;
. making performance-based variable compensation the principal component
of executive pay to drive superior performance by basing a significant
portion of the executive officers' financial success on the financial
and operational success of AXA Financial Life and Savings Operations and
AXA;
. setting performance objectives and targets for variable compensation
arrangements that provide individual executives with the opportunity to
earn above-median compensation by achieving above-target results;
. establishing equity-based arrangements that align the executives'
financial interests with those of AXA by ensuring the executives have a
material financial stake in the rising equity value of AXA and the
business success of its affiliates; and
. structuring compensation packages and outcomes to foster internal equity.
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COMPENSATION COMPONENTS
To support this pay-for-performance strategy, the Total Compensation Program
provides a mix of fixed and variable compensation components that bases the
majority of each executive's compensation on the success of AXA Financial Life
and Savings Operations and AXA as well as an assessment of each executive's
overall contribution to that success.
Fixed Component
The fixed compensation component of the Total Compensation Program, base
salary, falls within the market median of the large diversified financial
services companies that are the AXA Financial Group's major competitors and is
meant to fairly and competitively compensate executives for their positions and
the scope of their responsibilities.
Variable Components
The variable compensation components of the Total Compensation Program, the
short-term incentive compensation program and equity-based awards, give
executives the opportunity to receive compensation at the median of the market
if they meet various corporate and individual financial and operational goals
and to receive compensation above the median if they exceed their goals. The
variable compensation components measure and reward performance with short-term
and long-term focuses.
The short-term incentive compensation program focuses executives on annual
corporate and business unit goals that, when attained, drive AXA's global
success. It also serves as the primary means for differentiating, recognizing
and most directly rewarding individual executives for their personal
achievements and leadership based on both qualitative and quantitative results.
Equity-based awards are structured to reward long-term value creation.
Performance share awards granted in 2014 will vest partially after three years
and partially after four years. Performance shares granted in 2015 and 2016
will vest after four years. Stock options are intended to focus executives on a
longer time horizon. Stock options are typically granted with vesting schedules
of four or five years and terms of 10 years so that they effectively merge a
portion of each executive's compensation with the long-term financial success
of AXA. AXA Equitable is confident that the direct alignment of the long-term
interests of the executives with those of AXA, combined with the multi-year
vesting and performance periods of its equity-based awards, promotes executive
retention, focuses executives on gearing their performances to long-term
value-creation strategies and discourages excessive risk-taking.
HOW COMPENSATION DECISIONS ARE MADE
ROLE OF THE AXA BOARD OF DIRECTORS
The global framework governing the executive compensation policies for AXA
Group and its U.S. subsidiaries, including AXA Equitable, is set and
administered at the AXA level through the operations of AXA's Board of
Directors. The AXA Board of Directors (i) reviews the compensation policies
that apply to executives of AXA Group worldwide, which are then adapted to
local law, conditions and practices by the boards of directors and compensation
committees of AXA's subsidiaries, (ii) sets annual caps on equity-based awards,
(iii) reviews and approves all AXA equity-based compensation programs prior to
their implementation and (iv) approves individual grants of equity-based awards.
The Compensation and Governance Committee of the AXA Board of Directors is
responsible for reviewing the compensation of key executives of the AXA Group,
including Mr. Pearson. The Compensation and Governance Committee also
recommends to the AXA Board of Directors the amount of equity-based awards to
be granted to the members of the Management Committee, an internal committee
established to assist the Chief Executive Officer of AXA with the operational
management of the AXA Group. Mr. Pearson is a member of the Management
Committee. The Compensation and Governance Committee is exclusively composed of
directors determined to be independent by the AXA Board of Directors in
accordance with the criteria set forth in the Corporate Governance Code for
French listed companies (a code of corporate governance principles issued by
the French Association of Private Companies (Association Francaise des
Entreprises Privees -- AFEP) and the French Confederation of Business
Enterprises (Mouvement des Entreprises de France -- MEDEF). The Senior
Independent Director is the Chairperson of the Committee. The Chairman of the
Board of Directors of AXA and the Chief Executive Officer of AXA, although not
members of the Committee, also take part in its work and attend its meetings
unless their personal performance or compensation is being discussed.
ROLE OF THE ORGANIZATION AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
OF AXA EQUITABLE
Within the global framework of executive compensation policies that AXA has
established, direct responsibility for overseeing the development and
administration of the executive compensation program for AXA Equitable falls to
the Organization and Compensation Committee (the
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"OCC") of the Board of Directors of AXA Equitable (the "Board of Directors").
The OCC consists of four members, all of whom were determined to be independent
directors by the Board of Directors under New York Stock Exchange standards as
of February 16, 2017. In implementing AXA's global compensation program at the
entity level, the OCC is aided by the Chief Executive Officer of AXA who, while
not a formal member of the OCC, is a member of the Board of Directors and
participates in the OCC's deliberations related to compensation issues and
assists in ensuring coordination with AXA's global compensation policies.
The OCC is primarily responsible for general oversight of compensation and
compensation related matters, including reviewing new benefit plans,
equity-based plans and the compensation practices of AXA Equitable to ensure
they support AXA Equitable's business strategy and meet the objectives set by
AXA for its global compensation policy. Also, in accordance with New York
Insurance Law, the OCC is responsible for evaluating the performance of AXA
Equitable's principal officers and comparably paid employees (as determined
under New York Insurance Law) and recommending their compensation, including
their salaries and variable compensation, to the Board of Directors for its
discussion and approval. As of February 16, 2017, Mr. Pearson, Mr. Malmstrom
and Mr. Winikoff were principal officers and Mr. Hattem was a comparably paid
employee (the "Approval Named Executive Officers").
The OCC is also responsible for:
. reviewing all other senior executive compensation arrangements;
. supervising the policies relating to compensation of officers and
employees; and
. reviewing and approving corporate goals and objectives included in
variable compensation arrangements and evaluating executive management
performance in light of those goals and objectives.
ROLE OF THE CHIEF EXECUTIVE OFFICER
As Chief Executive Officer of AXA Equitable, Mr. Pearson assists the OCC in its
review of the total compensation of all the Named Executive Officers except
himself. Mr. Pearson provides the OCC with his assessment of the performance of
each Named Executive Officer relative to the corporate and individual goals and
other expectations set for the Named Executive Officer for the preceding year.
Based on these assessments, he then provides his recommendations for each Named
Executive Officer's total compensation and the appropriate goals for each in
the year to come. However, the OCC is not bound by his recommendations.
Other than the Chief Executive Officer, no Named Executive Officer plays a
decision-making role in determining the compensation of any other Named
Executive Officer.
ROLE OF AXA EQUITABLE HUMAN RESOURCES
AXA Equitable Human Resources supports the OCC's work on executive compensation
matters and is responsible for many of the organizational and administrative
tasks that underlie the compensation review and determination process and
making presentations on various topics. Human Resources' efforts include, among
other things:
. evaluating the compensation data from peer groups, national executive
pay surveys and other sources for the Named Executive Officers and other
officers as appropriate;
. gathering and correlating performance ratings and reviews for individual
executive officers, including the Named Executive Officers;
. reviewing executive compensation recommendations against appropriate
market data and for internal consistency and equity; and
. reporting to, and answering requests for information from, the OCC.
Human Resources officers also coordinate and share information with their
counterparts at our ultimate parent company, AXA, and take part in its annual
comprehensive review of the total compensation of executive officers, as
described below in the section entitled "EXECUTIVE COMPENSATION REVIEW."
ROLE OF COMPENSATION CONSULTANT
Towers Watson continues to be retained by AXA Equitable to serve as an
executive compensation consultant. Towers Watson provides various services
including advising AXA Equitable management on issues relating to AXA
Equitable's executive compensation practices and providing market information
and analysis regarding the competitiveness of the Total Compensation Program.
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During 2016, Towers Watson performed the following specific services for AXA
Equitable management:
. prepared a comparative review of the total compensation of Mr. Pearson
against that received by chief executive officers at peer companies;
. provided periodic updates on legal, accounting and other developments
and trends affecting compensation and benefits generally and executive
compensation specifically;
. offered a competitive review of total compensation (including base
salary, targeted and actual annual incentives, annualized value of
long-term incentives, welfare and retirement benefits) against selected
peer companies, covering specific groups of executive positions;
. conducted a comprehensive review of the risk profile of AXA Equitable's
short-term and long-term incentive compensation plans, as well as
certain wholesale distribution sales plans maintained by an AXA
Equitable subsidiary;
. prepared an independent director compensation study; and
. assisted in analyzing general reports published by third party national
compensation consultants on corporate compensation and benefits.
Although AXA Equitable management has full authority to approve all fees paid
to Towers Watson, determine the nature and scope of its services, evaluate its
performance and terminate its engagement, the OCC reviewed the services to be
provided by Towers Watson in 2016 as well as the related fees. The total amount
of fees paid to Towers Watson by AXA Equitable in 2016 for executive
compensation services was approximately $95,000. The AXA Financial Group may
also pay fees to Towers Watson from time to time for actuarial or other
services unrelated to its compensation programs. AXA and other AXA affiliates
may also pay fees to Towers Watson for various services. Specifically, AXA pays
fees for services in connection with its Executive Compensation Review
described below.
EXECUTIVE COMPENSATION REVIEW
In addition to the foregoing processes, each year, AXA Human Resources conducts
a comprehensive review of the total compensation paid to the top approximately
200 executives of AXA Group worldwide, including all the Named Executive
Officers except Mr. Pearson since compensation of the members of AXA's
Management Committee is reviewed separately by the Compensation and Governance
Committee of the AXA Board of Directors. The Management Committee participates
in this review which focuses on each executive's performance over the last year
and the decisions made about the executive's compensation in light of that
performance. AXA Equitable Human Resources provides detailed information to AXA
Human Resources in preparation for the review.
USE OF COMPETITIVE COMPENSATION DATA
Because AXA Equitable competes most directly for executive talent with large
diversified financial services companies, AXA Equitable regards it as essential
to regularly review the competitiveness of the Total Compensation Program for
its executives to ensure that they are provided compensation opportunities that
compare favorably with the levels of total compensation offered to similarly
situated executives by peer companies. A variety of sources of compensation
information are used to benchmark the competitive market for AXA Equitable
executives, including the Named Executive Officers.
PRIMARY COMPENSATION DATA SOURCE
For all Named Executive Officers, AXA Equitable currently relies primarily on
the Towers Watson U.S. Diversified Insurance Study of Executive Compensation
for information to compare their total compensation to the total compensation
reported for equivalent executive officer positions at peer companies. For the
2015 study (which was used in determining 2016 target compensation), the
companies included:
AFLAC Lincoln Financial Principal Financial Group
AIG Massachusetts Mutual Prudential Financial
Allstate MetLife Securian Financial Group
CIGNA Nationwide Sun Life Financial
CNO Financial New York Life Thrivent Financial for Lutherans
Genworth Financial Northwestern Mutual TIAA-CREF
Guardian Life OneAmerica Financial Partners Transamerica
Hartford Financial Services Pacific Life Unum Group
John Hancock Phoenix Companies USAA
Voya Financial Services
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OTHER COMPENSATION DATA SOURCES
The above U.S. compensation data source is supplemented with additional
information from general surveys of corporate compensation and benefits
published by various national compensation consulting firms. AXA Equitable also
participates in surveys conducted by Mercer, McLagan Partners, Towers Watson
and LOMA Executive Survey to benchmark both the executive and non-executive
compensation programs.
All these information sources are employed to measure and compare actual pay
levels not only on a total compensation basis but also by breaking down the
Total Compensation Program component by component to review and compare
specific compensation elements as well as the particular mixes of fixed versus
variable, short-term versus long-term and cash versus equity-based compensation
at peer companies. This information, as collected and reviewed by Human
Resources, is submitted to the OCC for review and discussion.
PRICING PHILOSOPHY
AXA Equitable's compensation practices are designed with the aid of the market
data to set the total target compensation of each Named Executive Officer at
the median for total compensation with respect to the pay for comparable
positions at peer companies. The analysis takes into account certain individual
factors such as the specific characteristics and responsibilities of a
particular Named Executive Officer's position as compared to similarly situated
executives at peer companies. Differences in the amounts of total compensation
for the Named Executive Officers in 2016 resulted chiefly from differences in
each executive's level of responsibilities, tenure, performance and appropriate
benchmark data as well as general considerations of internal consistency and
equity.
COMPONENTS OF THE TOTAL REWARDS PROGRAM
The Total Rewards Program for the Named Executive Officers consists of six
components. These components include the three components of the Total
Compensation Program (i.e., base salary, short-term incentive compensation and
equity-based awards) as well as: (i) retirement, financial protection and other
compensation and benefit programs, (ii) severance and change-in-control
benefits and (iii) perquisites.
BASE SALARY
The primary purpose of base salary is to compensate each Named Executive
Officer fairly based on the position held, the Named Executive Officer's career
experience, the scope of the position's responsibilities and the Named
Executive Officer's own performance, all of which are reviewed with the aid of
market survey data. Using this data, a 50th percentile pricing philosophy is
maintained, comparing base salaries against the median for comparable salaries
at peer companies, unless exceptional conditions require otherwise (for
example, a base salary may include an additional amount in lieu of a housing or
education allowance) or a Named Executive Officer's experience and tenure
warrant a lower initial salary with an adjustment to market over time. Once
set, base salaries for the Named Executive Officers are typically not
increased, except to reflect a change in job responsibility, a sustained change
in the market compensation for the position or a market adjustment for a Named
Executive Officer whose initial base salary was set below the 50th percentile.
Mr. Pearson is the only Named Executive Officer with an employment agreement.
Under this agreement, Mr. Pearson's employment will continue until he is age 65
unless the employment agreement is terminated earlier by either party on 30
days' prior written notice. Mr. Pearson is entitled to a minimum rate of base
salary of $1,225,000 per year, except that his rate of base salary may be
decreased in the case of across-the-board salary reductions similarly affecting
all AXA Equitable officers with the title of Executive Director or higher.
Mr. Hattem's annual rate of base salary was increased in 2016 to reflect a
sustained change in market compensation and to offset the elimination of a
fringe benefit. Mr. Healy's annual rate of base salary was increased in 2016 to
reflect a sustained change in market compensation. None of the Named Executive
Officers other than Mr. Hattem or Mr. Healy received an increase in their
annual rate of base salary in 2016.
The base salaries earned by the Named Executive Officers in 2016, 2015 and 2014
are reported in the Summary Compensation Table included in this Item 11.
SHORT-TERM INCENTIVE COMPENSATION PROGRAM
Annual variable cash awards for the Named Executive Officers are available
under The AXA Equitable Short-Term Incentive Compensation Program (the "STIC
Program").
The purpose of the STIC Program is to:
. align incentive awards with corporate strategic objectives and reward
participants based on both company and individual performance;
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. enhance the performance assessment process with a focus on
accountability;
. establish greater compensation differentiation based on performance;
. provide competitive total compensation opportunities; and
. attract, motivate and retain top performers.
The STIC Program awards are typically paid in March of each year, following
review of each participant's performance and achievements over the course of
the preceding fiscal year. Awards can vary from year to year, and differ by
participant, depending primarily on the business and operational results of AXA
Financial Life and Savings Operations, as measured by the performance
objectives under the STIC Program with a discretionary adjustment as described
below under "DISCRETIONARY ADJUSTMENT BY MANAGEMENT COMMITTEE," as well as the
participant's individual contributions to those results. No individual is
guaranteed any award under the STIC Program, except for certain limited
guarantees for new hires. For example, Mr. Winikoff, who joined the company in
2016, was guaranteed a minimum STIC Program award of $900,000 for 2016.
Individual Targets
Initially, individual award targets are assigned to each STIC Program
participant based on evaluations of competitive market data for his or her
position. These individual award targets are reviewed each year and may be
increased or decreased, but generally remain constant from year to year unless
there has been a significant change in the level of the participant's
responsibilities or a proven and sustained change in the market compensation
for the position. For example, Mr. Hattem's STIC Program award target increased
by $50,000 in 2016 due to a sustained change in the market compensation for the
position.
STIC Program Pool
All the money available to pay STIC Program awards to Senior Executive
Directors of AXA Equitable comes from, and is limited by, a cash pool (the
"Executive STIC Pool") from which the awards are paid. The size of this pool is
determined each year by a formula under which the sum of all the individual
award targets established for all the Executive STIC Pool participants for the
year is multiplied by a funding percentage (the "Funding Percentage"). The
Funding Percentage is determined by combining the individual performance
percentages for AXA Financial Life and Savings Operations (weighted 90%) and
AXA Group (weighted 10%) which measure their performance against certain
financial and other targets.
After the performance percentage for AXA Financial Life and Savings Operations
is determined, it may be adjusted positively or negatively by the Management
Committee, as described below, before being combined with the AXA Group
performance percentage to arrive at the Funding Percentage.
Mr. Pearson's STIC Program award is determined independently of the Executive
STIC Pool and is based 20% on AXA Group's performance (which reflects his
broader range of performance responsibilities within AXA Group worldwide as a
member of the Management Committee), 30% on the performance of AXA Financial
Life and Savings Operations (measured in the same manner as for the Executive
STIC Pool) and 50% on his individual performance.
The 2016 STIC Program awards for Mr. Malmstrom, Mr. Winikoff and Mr. Hattem
were paid from the Executive STIC Pool for 2016. Since Mr. Healy was not a
Senior Executive Director during 2016, his 2016 STIC Program award was paid
from a cash pool from which the awards of all Executive and Managing Directors
of AXA Equitable were paid (the "Director STIC Pool"). The size of this pool
was determined by a formula under which the sum of all the individual award
targets established for all the Director STIC Pool participants for the year
was multiplied by the performance percentage for AXA Financial Life and Savings
Operations, measured in the same manner as for the Executive STIC Pool.
Ms. Ritchey and Ms. Brown did not receive 2016 STIC Program awards since they
terminated employment with AXA Equitable during 2016.
Performance Percentages
To determine the performance percentage for AXA Financial Life and Savings
Operations, various performance objectives are established for AXA Financial
Life and Savings Operations, and a target is set for each one. Each performance
objective is separately subject to a 150% cap and a 50% cliff. For example, if
a particular performance objective is weighted 15% for AXA Financial Life and
Savings Operations, 15% will be added to the overall performance percentage for
AXA Financial Life and Savings Operations if that target is met, regardless of
AXA Financial Life and Savings Operations' performance on its other objectives.
If the target for that performance objective is exceeded, the amount added to
the overall performance percentage for AXA Financial Life and Savings
Operations will be increased up to a maximum of 22.5%
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(150% x 15%). If the target for the performance objective is not met, the
amount added to the performance percentage will be decreased down to a
threshold of 7.5% (50% x 15%). If performance is below the threshold for a
performance objective, 0% will be added to AXA Financial Life and Savings
Operations' overall performance percentage.
AXA FINANCIAL LIFE AND SAVINGS OPERATIONS -- The following grid presents the
targets for each of the performance objectives used to measure the performance
of AXA Financial Life and Savings Operations in 2016, along with their relative
weightings. The performance objectives for AXA Financial Life and Savings
Operations and their relative weightings are standardized for AXA Group life
and savings companies in mature markets worldwide and, accordingly, are not
measures calculated and presented in accordance with U.S. GAAP.
AXA FINANCIAL LIFE AND SAVINGS OPERATIONS
PERFORMANCE OBJECTIVES WEIGHTING TARGET/(1)/
------------------------------------------------- --------- ----------
Underlying earnings/(2)/ 45.0% 879
Gross Written Premiums/(3)/ 20.0% 3,300
Return on Equity (Cash)/(4)/ 10.0% 17.1%
Customer Centricity/(5)/
Customer Experience Tracking 20.0% 76.7%
Brand Preference Tracking 5.0% 46.0%
/(1)/All numbers other than those stated in percentages are in millions of U.S.
dollars.
/(2)/"Underlying earnings" means adjusted earnings excluding net capital gains
or losses attributable to shareholders. "Adjusted earnings" means net
income before the impact of exceptional and discontinued operations,
certain integration and restructuring costs, goodwill and other related
intangibles and profit or loss on financial assets accounted for under the
fair value option and derivatives. Underlying earnings and adjusted
earnings are measured using International Financial Reporting Standards
("IFRS") since AXA uses IFRS as its principal method of accounting. Note
that, in addition to the underlying earnings of AXA Financial Life and
Savings Operations, this performance objective also includes the underlying
earnings of AXA Corporation Solutions Life Reinsurance Company (an AXA
Group affiliate that is managed by AXA Equitable personnel) and AXA
Financial.
/(3)/"Gross Written Premiums" means total premiums (first year premiums plus
renewal premiums) for pure life insurance protection business.
/(4)/"Return on Equity (Cash)" means the expected dividends to be paid to AXA
divided by the average short-term economic capital. Short-term economic
capital measures the portion of the available financial resources that
could be lost in a year if a 1 in 200 year "shock" were to occur.
/(5)/"Customer Centricity" is comprised of two components -- Customer
Experience Tracking and Brand Preference Tracking. Generally, Customer
Experience Tracking measures customers' level of satisfaction based on the
responses received for a certain customer survey question. Negative
responses are subtracted from positive responses to obtain a net
satisfaction index. Brand Preference Tracking measures "intent to purchase"
among clients who currently own a life insurance or annuity product based
on the percentage of favorable responses received for certain customer
survey questions.
Since the performance objectives are meant to cover only the key performance
indicators for a year, there are generally no more than five objectives. The
performance objectives and their relative weightings are determined based on
AXA's strategy and focus and they may change from year to year as different
metrics may become more relevant. Underlying earnings is generally the most
highly weighted performance objective, however, reflecting AXA's belief that it
is the strongest indicator of performance for a year and should be the dominant
metric to determine a STIC Program participant's STIC Program award.
The 2016 STIC Program eliminated the Economic Expenses performance objective
that was included in the 2015 STIC Program and weighted at 10%. Accordingly, an
additional 5% weighting was added to each of the Underlying Earnings and Gross
Written Premiums performance objectives. Also, Return on Capital was replaced
by Return on Equity (Cash) since Return on Equity (Cash) is less market-driven
and a better measurement of management performance.
For 2016, actual Underlying Earnings and Return on Equity (Cash) slightly
exceeded target while actual Gross Written Premiums were slightly below target.
The actual results for Brand Preference Tracking and Customer Experience
Tracking exceeded target, with Brand Preference Tracking's contribution to the
overall performance percentage for AXA Financial Life and Savings Operations
hitting its cap of 7.5%.
AXA GROUP -- AXA Group's performance percentage is primarily based on
underlying earnings per share (65%). Adjusted return on equity (15%) and
customer experience tracking (20%) are also considered. For this purpose,
"adjusted return on equity" means adjusted earnings (as defined above) divided
by average shareholder's equity excluding undated subordinated debt and other
comprehensive income.
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Discretionary Adjustment by the Management Committee
As stated above, the performance percentage for AXA Financial Life and Savings
Operations may be adjusted by the Management Committee before being combined
with AXA's performance percentage to arrive at the Funding Percentage for the
Executive STIC Pool. When making this adjustment, the Management Committee
generally considers whether any uncontrollable factors such as market
fluctuations may have unduly influenced AXA Financial Life and Savings
Operations' results with respect to the performance objectives listed above and
may increase or decrease the performance percentage by 15%, subject to an
overall cap of 150% for the performance percentage. With respect to 2016, the
Management Committee made a negative adjustment to the performance percentage
to reflect its belief that market fluctuations unduly impacted the results for
Customer Experience Tracking in a positive manner.
Individual Determinations
Once the Executive STIC Pool and Director STIC Pool are determined, they are
allocated to the participants in the pool based on their individual performance
and demonstrated leadership behaviors. As stated above, no participant is
guaranteed his or her target award or any award under the STIC Program except
for certain limited guarantees for new hires, such as Mr. Winikoff's guarantee
of a minimum STIC Program award of $900,000 for 2016.
The OCC reviewed the performance of each Named Executive Officer during 2016 as
well as Management's recommendations for each Named Executive Officer's STIC
Program award, except for Ms. Brown and Ms. Ritchey since they terminated
employment with AXA Equitable in 2016. Based on its subjective determination of
each Named Executive Officer's performance, the OCC made its recommendations as
to the maximum STIC Program award for each Approval Named Executive Officer to
the AXA Equitable Board of Directors and recommended the amount of the STIC
Program award to be paid to Mr. Healy to Mr. Pearson. The AXA Equitable Board
of Directors approved the final maximum award amounts for the Approval Named
Executive Officers and delegated authority to the Chief Executive Officer of
AXA to determine the final award amount for Mr. Pearson and to Mr. Pearson to
determine the final award amount for the other Approval Named Executive
Officers.
In making its recommendation for Mr. Winikoff, the OCC took into account that
his guaranteed minimum STIC Program award of $900,000 for 2016 was based on his
annual STIC Program award target without any pro-ration to reflect his half
year of service. For the other Named Executive Officers, the OCC took into
account the factors that it deemed relevant, including the following
accomplishments achieved in 2016 by the Named Executive Officers and the
Funding Percentage. Since the Named Executive Officers are responsible for the
success of each of AXA Equitable, AXA Financial and AXA Financial Life and
Savings Operations, the OCC considered all related 2016 accomplishments. The
OCC also consider the Named Executive Officers' contribution to the AXA Group
worldwide. The accomplishments and contributions considered included:
EXECUTIVE ACCOMPLISHMENTS
Mr. Pearson . Drove strong 2016 performance of AXA Financial Group, meeting or exceeding
all goals for earnings, productivity, cash return on equity, capital
management, customer satisfaction and risk management.
. Drove the company's strategy, including overseeing the successful
development of plans to meet AXA's Ambition 2020 goals and the company's
role in influencing legal and regulatory developments such as the
Department of Labor fiduciary rule and the NAIC reserve and capital
framework.
. Implemented executive management changes and restructured the AXA
Equitable Executive Committee, including adding a Chief Transformation
Officer and Head of In-Force Business to better position the company for
the execution of its strategic plan.
. Continued to set a strong tone at the top with respect to workplace and
diversity issues, resulting in AXA Equitable receiving certification as a
"Great Place to Work" for the first time by an independent workplace
authority and a 100% rating by the Human Rights Campaign Foundation's
Corporate Equality Index for the fourth year in a row.
. Broadened personal visibility with employees and field force by
instituting a program of leadership roundtables, CEO dialogues and branch
visits. Also raised the profile of AXA in the industry through activities
in industry groups.
. Served as an influential member of AXA's Management Committee and
implemented and chaired a new executive committee for AXA companies in the
US, identifying synergies and cost-saving opportunities and sharing best
practices.
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EXECUTIVE ACCOMPLISHMENTS
Mr. Malmstrom . Actively managed capital including reducing debt to AXA Group and
delivering AXA Equitable dividends of over $1 billion while ensuring
capital and solvency levels remained in excess of risk tolerance levels.
. Actively managed assets, including implementing a number of yield
enhancement initiatives for the General Account and the hedging of
separate account fee exposure to domestic equity.
. Successfully led the company's efficiency efforts, including sponsoring an
efficiency task force which exceeded 2016 savings targets and identifying
action plans to meet AXA's Ambition 2020 savings targets.
. Successfully led the strategic planning process, providing insight on
margin and revenue streams for each business area and identifying
mitigating actions to close the gap to targets.
. Led local efforts to shape positive investor and rating agency perceptions
for AXA Group which were well-received. Played key role in the company's
and the industry's efforts related to the NAIC reserve and capital
framework.
Mr. Hattem . Provided strong leadership, oversight and team support in connection with
a decisive victory in the Sivollela case, a high-profile excessive fee
litigation case closely watched by the mutual fund industry.
. Successfully led company efforts with respect to several significant
regulatory developments that required analysis, initiatives to influence
rule-making and compliance program development, including the Department
of Labor fiduciary rule.
. Developed effective controls in response to dynamic legal and regulatory
environment and managed relationship with key regulators such as the SEC,
FINRA and the New York State Department of Financial Services.
. Effectively oversaw all legal work related to key corporate initiatives
such as the increased level of investment and hedging programs and the
continued expansion of the proprietary fund complex while containing
related outside counsel costs.
. Acted as key advisor to Mr. Pearson throughout Board and executive
management changes and restructure of the AXA Equitable Executive
Committee.
. Actively developed leaders in the Law Department, enabling internal
promotions, and recruited high quality talent to fill open positions while
furthering our diversity goals.
. Sponsored the law department's well-received Cyber Security Conference
which brought together leading cyber security talent from a variety of
companies.
Mr. Healy . Delivered the IT Agile Transformation Program resulting in significant
productivity savings.
. Successfully implemented new employee benefits platform using cloud
services and innovative technology to differentiate the company in the
marketplace
. Continued strengthening the company's IT security practices, including
alignment with industry frameworks.
. Actively led the fraud response technology team and delivered the
long-term strategy for an organizational fraud hub.
. Achieved highest employee engagement survey scores for AXA IT
organizations worldwide and top scores in the AXA Financial Group.
. Recognized as a leader in the implementation of the AXA group IT strategy
across all projects and programs.
No specific weight was assigned to any particular factor and all were evaluated
in the aggregate to arrive at the recommended STIC Program award for each of
the Named Executive Officers. Mr. Malmstrom and Mr. Hattem, who were paid their
STIC Program awards from the Executive STIC Pool, received a percentage of
their STIC Program award target that was approximately equal and greater than
the Funding Percentage for the Executive STIC Pool, respectively. Mr. Pearson
received a STIC Program award equal to approximately 102% of his STIC Program
award target. Mr. Healy, who was paid his STIC Program award from the Director
STIC Pool, received a percentage of his STIC Program award target that was
greater than the performance percentage for AXA Financial Life and Savings
Operations. Mr. Winikoff received his guaranteed minimum STIC Program award.
The STIC Program awards and bonuses earned by the Named Executive Officers in
2016, 2015 and 2014 are reported in the Summary Compensation Table included in
this section.
EQUITY-BASED AWARDS
The value of the equity-based awards is linked to the performance of AXA's
stock. The purpose of the equity-based awards is to:
. align strategic interests of award recipients with those of our ultimate
parent and shareholder, AXA;
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. provide competitive total compensation opportunities;
. focus on achievement of medium-range and long-term strategic business
objectives; and
. attract, motivate and retain top performers.
Annual equity-based awards for eligible employees, including the Named
Executive Officers, are available under the umbrella of AXA's global equity
program. Equity-based awards may also be granted from time to time to executive
officers outside of AXA's global equity program as part of a sign-on package or
as a retention vehicle.
Annual Awards Process
Annual equity-based awards under AXA's global equity program are subject to the
oversight of the AXA Board of Directors, which is authorized to approve all
annual equity programs prior to their implementation and to approve all
individual grants. The AXA Board of Directors also sets the size of the equity
pool each year, after considering the amounts authorized by shareholders for
equity-based awards (AXA's shareholders authorize a global cap for equity-based
awards every three to four years) and the recommendations of chief executive
officers or boards of directors of affiliates worldwide on the number of stock
option and other grants for the year. The pools are allocated annually among
AXA Group affiliates based on each affiliate's contribution to AXA Group's
financial results during the preceding year and with consideration for specific
local needs (e.g., market competitiveness, consistency with local practices,
group development).
The AXA Board of Directors sets the mix of equity-based awards for individual
grants, which is standardized through AXA Group worldwide. Since 2004, there
has been a decreasing reliance on stock options in equity-based awards. For
example, in 2016, equity grants were awarded entirely in performance shares at
the senior and junior employee levels. Executive officers have continued to
receive a portion of their grant in stock options, however, since stock options
are a long-term award and AXA believes that executive officers are required to
have a more significant long-term focus than senior or junior employees.
Each Named Executive Officer is eligible to receive an annual equity-based
award. Individual equity-based award targets are assigned to each of the Named
Executive Officers other than Mr. Pearson based on evaluations of competitive
market data for his or her position. These individual award targets are
reviewed each year and may be increased or decreased, but generally remain
constant from year to year unless there has been a significant change in the
level of the Named Executive Officer's responsibilities or a proven and
sustained change in the market compensation for the position. For example,
Mr. Hattem's equity-based award target increased in 2016. This increase will
apply to Mr. Hattem's annual equity-based award granted in 2017. For
Mr. Pearson, his equity-based award target is based on his actual award for the
prior year.
Each year, the OCC submits recommendations to the AXA Board of Directors with
respect to annual equity-based awards for the Named Executive Officers, taking
into account the available equity pool allocation and based on a review of each
officer's potential future contributions, consideration of the importance of
retaining the officer in his or her current position and a review of
competitive market data relating to equity-based awards for similar positions
at peer companies, as described above in the section entitled, "Use of
Competitive Compensation Data." The AXA Board of Directors approves the
individual grants as it deems appropriate.
2016 Annual Award Grants
Each Named Executive Officer other than Mr. Winikoff received an equity-based
award grant on June 6, 2016. For the Named Executive Officers other than
Mr. Healy, these grants involved a mix of two components: (1) AXA ordinary
share options granted under the AXA Stock Option Plan and (2) performance
shares granted under the 2016 Performance Share Plan. Mr. Healy's equity-based
award grant consisted solely of performance shares.
The awards to the Named Executive Officers were granted using U.S. dollar
values. The U.S. dollar values for the Named Executive Officers other than
Mr. Healy were allocated between stock options and performance shares in
accordance with the mix determined by the AXA Board of Directors. For this
purpose, the value of the stock options and performance shares granted were
determined using a Black-Scholes pricing methodology which was based on
assumptions which differ from the assumptions used in determining an option's
or performance share's grant date fair value reflected in the Summary
Compensation Table which is based on FASB ASC Topic 718.
Since he began his employment with AXA Equitable after the annual equity-based
award grant date for 2016, Mr. Winikoff received a sign-on equity-based award
grant of restricted stock units in lieu of a grant of stock options and
performance shares as described below in "2016 One-Time Awards."
Ms. Ritchey and Ms. Brown each forfeited their 2016 performance shares grant
due to their termination of employment in 2016.
2016 Stock Option Award Grants
The stock option awards granted to the Named Executive Officers on June 6, 2016
have a 10-year term and a vesting schedule of five years, with one-third of the
grant vesting on each of the third, fourth and fifth anniversaries of the
grant, provided that the last third will vest on
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June 6, 2021 only if the AXA ordinary share performs at least as well as the
Stoxx Insurance Index ("SXIP Index") over a specified period of at least three
years. This performance condition applies to all of Mr. Pearson's options. The
exercise price for the options is 21.52 euro, which was the average of the
closing prices for the AXA ordinary share on Euronext Paris SA over the 20
trading days immediately preceding June 6, 2016.
In the event of a Named Executive Officer's retirement, the stock options
continue to vest and may be exercised until the end of the term, except in the
case of misconduct. Accordingly, since Mr. Hattem and Mr. Pearson are currently
eligible to retire, these stock options will not be forfeited due to any
service condition.
2016 Performance Share Award Grants
A performance share is a "phantom" share of AXA stock that, once earned and
vested, provides the right to receive an AXA ordinary share at the time
of payment. Performance shares are granted unearned. Under the 2016 Performance
Shares Plan, the number of shares that is earned is determined at the end of a
three-year performance period, starting on January 1, 2016 and ending on
December 31, 2018, by multiplying the number of shares granted by a performance
percentage that is determined as described below. If no dividend is proposed
for payment by the AXA Board of Directors to AXA's shareholders for 2016 or
2017 or 2018, the performance percentage for the grant will be divided in half.
The performance shares granted to the Named Executive Officers on June 6, 2016
have a cliff vesting schedule of four years.
The performance percentage for the 2016 Performance Share Plan initially will
be determined based: (a) 40% on AXA Group's performance with respect to
adjusted earnings per share, (b) 50% on AXA Financial Life and Savings
Operations' performance with respect to adjusted earnings and underlying
earnings (each weighted 50%) and (c) 10% on AXA Group's score on the DJSI
World, a Dow Jones sustainability index which tracks the performance of the
world's sustainability leaders. A positive or negative adjustment of 5% will
then be made to the performance percentage based on AXA Group's relative
performance against a selection of its peers with respect to total shareholder
return. The components of the performance percentage and their targets are
determined by the AXA Board of Directors based on their review of AXA's
strategic objectives, market practices and regulatory changes.
Generally, if performance targets are met, 100% of the performance shares
initially granted is earned. Performance that exceeds the targets results in
increases in the number of shares earned, subject to a cap of 130% of the
initial number of shares. Performance that falls short of targets results in a
decrease in the number of shares earned with a possible forfeiture of all
shares. Since AXA uses IFRS as its principal method of accounting, AXA Group's
adjusted earnings per share and AXA Financial Life and Savings Operations'
adjusted earnings and underlying earnings are calculated using IFRS.
Accordingly, they are not measures calculated and presented in accordance with
U.S. GAAP.
The settlement of 2016 performance shares will be made in AXA ordinary shares
on June 6, 2020. The 2016 plan provides that, in the case of retirement, a
participant is treated as if he or she continued employment until the
settlement date. Accordingly, Mr. Hattem and Mr. Pearson will still receive a
payout under this plan if they choose to retire prior to the end of the vesting
period.
2016 One-Time Awards
On July 5, 2016, Mr. Winikoff received a sign-on equity-based grant of 84,611
restricted stock units ("RSUs"). These RSUs will vest ratably over a four-year
period and be paid out in cash within 30 days after the vesting date. This
grant was approved by the OCC and the Board of Directors.
Detailed information on the RSU, stock option and performance share grants for
each of the Named Executive Officers in 2016 is reported in the 2016 Grants of
Plan-Based Awards Table included in this Item 11.
2016 Payouts from Prior Year Awards
In 2016, certain Named Executive Officers received the payout of their
performance shares under the 2013 Performance Share Plan. The 2013 Performance
Share Plan was similar to the 2016 Performance Share Plan except that 100% of
the shares earned were vested after three years, on March 22, 2016. Also, AXA
Financial Life and Savings Operations' performance over a two-year performance
period (i.e., January 1, 2013 through December 31, 2015) counted for two-thirds
and AXA Group's performance over the same period counted for one-third toward
the performance percentage for that plan. AXA Group's performance was based on
net income per share while AXA Financial Life and Savings Operations'
performance was based on net income (weighted 50%) and underlying earnings
(weighted 50%). The performance percentage that was ultimately achieved under
the plan was 119.58%, based on AXA Financial Life and Savings Operations'
performance of 130% and AXA Group's performance of 98.74%.
On March 16, 2012, eligible AXA Group employees worldwide, including certain of
the Named Executive Officers, were each granted 50 AXA miles. AXA miles were
"phantom" shares of AXA stock that were eligible to be converted to actual AXA
ordinary shares at the end of a four-year
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vesting period. 25 of the AXA miles granted in 2012 were subject to a
performance condition requiring that at least one of the following two metrics
must have improved in 2012 in order for them to convert to actual shares: AXA's
underlying earnings per share (1.57 euro in 2011) or AXA's customer scope index
(79.3 in 2011). Since this performance condition was met, all 50 AXA miles
vested on March 16, 2016.
Detailed information on the payouts of 2013 performance shares and 2012 AXA
miles in 2016 is reported in the 2016 Option Exercises and Stock Vested Table
included in this section.
OTHER COMPENSATION AND BENEFITS
AXA Equitable believes that a comprehensive benefits program which offers
long-term financial support and security for all employees plays a critical
role in attracting and retaining high caliber executives. Accordingly, all
employees, including the Named Executive Officers, are offered a benefits
program that includes group health and disability coverage, group life
insurance and various deferred compensation and retirement benefits. In
addition, as discussed below, AXA Equitable offers certain benefit programs for
executives that are not available to non-executive employees. The overall
program is periodically reviewed to ensure that the benefits it provide
continue to serve business objectives and remain cost-effective and competitive
with the programs offered by large diversified financial services companies.
QUALIFIED RETIREMENT PLANS
AXA Equitable believes that qualified retirement plans encourage long-term
service. Accordingly, the following qualified retirement plans are offered to
eligible employees, including the Named Executive Officers:
AXA Equitable 401(k) Plan (the "401(k) Plan")
AXA Equitable sponsors the 401(k) Plan, a tax-qualified defined contribution
plan, for its eligible employees, including the Named Executive Officers.
Eligible employees may contribute to the 401(k) Plan on a before tax,
after-tax, or Roth 401(k) basis (or any combination of the foregoing), up to
plan and tax law limits. The 401(k) Plan also provides participants with the
opportunity to earn a discretionary profit sharing contribution and a company
contribution. The discretionary profit sharing contribution for a calendar year
is based on company performance for that year and ranges from 0% to 4% of
annual eligible compensation (subject to tax law limits). Any contribution for
a calendar year is expected to be made in the first quarter of the following
year. A profit sharing contribution of 1% of annual eligible compensation is
expected to be made for the 2016 plan year. The company contribution for a
calendar year is based on the following formula and is subject to tax law
limits: (i) 2.5% of eligible compensation up to the Social Security Wage Base
($118,500 in 2016) plus, (ii) 5.0% of eligible compensation in excess of the
Social Security Wage Base, up to the qualified plan compensation limit
($265,000 in 2016).
AXA Equitable Retirement Plan (the "Retirement Plan")
AXA Equitable sponsors the Retirement Plan, a tax-qualified defined benefit
plan for eligible employees which was frozen effective December 31, 2013. The
Retirement Plan provides for retirement benefits upon reaching age sixty-five
and has provisions for early retirement, death benefits and benefits upon
termination of employment for vested participants. It has a three-year
cliff-vesting schedule. Mr. Pearson, Mr. Hattem and Mr. Healy participated in
the plan prior to its freeze.
Prior to its freeze, the Retirement Plan provided a cash balance benefit
whereby AXA Equitable established a notional account in the name of each
Retirement Plan participant. The notional account was credited with deemed pay
credits equal to 5% of eligible compensation up to the Social Security Wage
Base plus 10% of eligible compensation above the Social Security Wage Base up
to the qualified plan compensation limit. These notional accounts continue to
be credited with deemed interest credits.
For certain grandfathered participants, the Retirement Plan provides benefits
under a traditional defined benefit formula based on final average pay,
estimated Social Security benefits and years of service. None of the Named
Executive Officers are grandfathered participants.
EXCESS PLANS
AXA Equitable believes that excess plans are an important component of
competitive market-based compensation in both its peer group and generally.
Accordingly, the following excess plan benefits are offered to eligible
employees, including the Named Executive Officers:
Excess 401(k) Contributions
AXA Equitable provides excess 401(k) contributions for participants in the
401(k) Plan with eligible compensation in excess of the qualified plan
compensation limit. These contributions are equal to 10% of the participant's
(i) eligible compensation in excess of the qualified plan
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compensation limit and (ii) voluntary deferrals to the AXA Equitable Post-2004
Variable Deferred Compensation Plan for Executives for the applicable year, and
are made to accounts established for participants under the AXA Equitable
Post-2004 Variable Deferred Compensation Plan for Executives. All the Named
Executive Officers were eligible to receive excess 401(k) contributions in 2016.
AXA Equitable Excess Retirement Plan (the "Excess Plan")
AXA Equitable sponsors the Excess Plan, a nonqualified defined benefit plan for
eligible employees which was frozen effective December 31, 2013. Prior to its
freeze, the Excess Plan allowed eligible employees, including Mr. Pearson,
Mr. Hattem and Mr. Healy, to earn retirement benefits in excess of what was
permitted under the Code with respect to the Retirement Plan. Specifically, the
Excess Plan permitted participants to accrue and be paid benefits that they
would have earned and been paid under the Retirement Plan but for certain Code
limits.
VOLUNTARY NON-QUALIFIED DEFERRED COMPENSATION PLAN
AXA Equitable believes that compensation deferral is a cost-effective method of
enhancing the savings of executives. Accordingly, AXA Equitable sponsors the
following plans:
The AXA Equitable Post-2004 Variable Deferred Compensation Plan for Executives
(the "Post-2004 Plan")
AXA Equitable sponsors the Post-2004 Plan which allows eligible employees to
defer the receipt of certain compensation, including base salary and STIC
Program awards. The amount deferred is credited to a bookkeeping account
established in the participant's name and participants may choose from a range
of nominal investments according to which their accounts rise or decline.
Participants annually elect the amount they want to defer, the date on which
payment of their deferrals will begin and the form of payment. In addition, as
mentioned above, excess 401(k) contributions are made to accounts established
for eligible employees under the Post-2004 Plan.
The AXA Equitable Variable Deferred Compensation Plan for Executives (the
"VDCP")
The VDCP is the predecessor plan to the Post-2004 Plan. Like the Post-2004
Plan, it allowed eligible employees to defer the receipt of compensation. To
preserve its grandfathering from the provisions of Internal Revenue Code
Section 409A ("Section 409A"), the VDCP was frozen in 2004 so that no amounts
earned or vested after 2004 may be deferred under the VDCP. Section 409A
imposes stringent requirements which covered nonqualified deferred compensation
arrangements must meet to avoid the imposition of additional taxes, including a
20% additional income tax, on the amounts deferred under the arrangements.
FINANCIAL PROTECTION
The AXA Equitable Executive Survivor Benefits Plan (the "ESB Plan")
AXA Equitable sponsors the ESB Plan which offers financial protection to a
participant's family in the case of his or her death. Eligible employees may
choose up to four levels of coverage and the form of benefit to be paid at each
level. Each level provides a benefit equal to one times the participant's
eligible compensation and offers different coverage choices. Generally, the
participant can choose between a life insurance death benefit and a deferred
compensation benefit payable upon death at each level.
For additional information on 401(k) Plan benefits and excess 401(k)
contributions for the Named Executive Officers as well as amounts voluntarily
deferred by Mr. Hattem under the Post-2004 Plan and the VDCP, see the Summary
Compensation Table and Nonqualified Deferred Compensation Table included in
this section. For additional information on Retirement Plan, Excess Plan and
ESB Plan benefits for the Named Executive Officers, see the Pension Benefits
Table included in this section.
SEVERANCE AND CHANGE IN CONTROL BENEFITS
AXA Equitable maintains severance pay arrangements to provide temporary income
to all employees following an involuntary termination of employment. The Named
Executive Officers are also eligible for additional severance benefits as
described below. In addition, AXA Equitable offers certain limited change in
control benefits to provide a moderate level of protection to employees to help
reduce anxiety that may accompany a change in control.
The AXA Equitable Severance Benefit Plan (the "Severance Plan")
AXA Equitable sponsors the Severance Plan to provide severance benefits to
eligible employees whose jobs are eliminated for specific defined reasons. The
Severance Plan generally bases severance payments to eligible employees on
length of service or base salary. Payments are
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capped at 52 weeks of base salary or, in some cases, $300,000. To obtain
benefits under the Severance Plan, participants must execute a general release
and waiver of claims against AXA Equitable and affiliates. For Named Executive
Officers, the general release and waiver of claims typically includes
non-competition and non-solicitation provisions.
The AXA Equitable Supplemental Severance Plan for Executives (the "Supplemental
Severance Plan")
AXA Equitable sponsors the Supplemental Severance Plan for officers at the
level of Executive Director or above. The Supplemental Severance Plan is
intended solely to supplement, and is not duplicative of, any severance
benefits for which an executive may be eligible under the Severance Plan. The
Supplemental Severance Plan provides that eligible executives will receive,
among other benefits:
. Severance payments equal to 52 weeks' of base salary, reduced by any
severance payments for which the executive may be eligible under the
Severance Plan;
. Additional severance payments equal to the greater of:
. The most recent short-term incentive compensation award paid to
the executive;
. The average of the three most recent short-term incentive
compensation awards paid to the executive; and
. The annual target short-term incentive compensation award for the
executive for the year in which he or she receives notice of job
elimination;
. An additional year of participation in the ESB Plan; and
. A lump sum payment equal to the sum of: (a) the executive's short-term
incentive compensation for the year in which the executive receives
notice of job elimination, pro-rated based on the number of the
executive's full calendar months of service in that year and (b) $40,000.
MR. PEARSON'S EMPLOYMENT AGREEMENT.
Mr. Pearson waived the right to receive any benefits under the Severance Plan
or the Supplemental Severance Plan. Rather, his employment agreement provides
that, if his employment is terminated by AXA Equitable prior to his attaining
age 65 other than for cause, excessive absenteeism or death, or Mr. Pearson
resigns for "good reason," Mr. Pearson will be entitled to certain severance
benefits, including (i) severance pay equal to the sum of two years of salary
and two times the greatest of: (a) Mr. Pearson's most recent bonus, (b) the
average of Mr. Pearson's last three bonuses and (c) Mr. Pearson's target bonus
for the year in which termination occurred, (ii) a pro-rated bonus at target
for the year of termination and (iii) a cash payment equal to the additional
employer contributions that Mr. Pearson would have received under the 401(k)
Plan and its related excess plan for the year of his termination if those plans
provided employer contributions on his severance pay and all of his severance
pay was paid in that year.
For this purpose, "good reason" includes a material reduction in Mr. Pearson's
duties or authority, the removal of Mr. Pearson from his positions, AXA
Equitable requiring Mr. Pearson to be based at an office more than 75 miles
from New York City, a diminution of Mr. Pearson's titles, a material failure by
the company to comply with the agreement's compensation provisions, a failure
of the company to secure a written assumption of the agreement by any successor
company and a change in control of AXA Financial (provided that Mr. Pearson
delivers notice of termination within 180 days after the change in control).
The severance benefits are contingent upon Mr. Pearson releasing all claims
against AXA Equitable and its affiliates and his entitlement to severance pay
will be discontinued if he provides services for a competitor. Also, in the
event of a termination of Mr. Pearson's employment by AXA Equitable without
cause or Mr. Pearson's resignation due to a change in control, Mr. Pearson's
severance benefits will cease after one year if certain performance conditions
are not met for each of the two consecutive fiscal years immediately preceding
the year of termination.
MR. WINIKOFF'S SEVERANCE ARRANGEMENT.
Mr. Winikoff's severance arrangement with the company provides that, if
Mr. Winikoff's employment is terminated by the company without cause or by
Mr. Winikoff for "good reason:"
. any outstanding RSUs granted to Mr. Winikoff would immediately vest and
be paid out in cash on their otherwise applicable payment dates and
. he would be eligible to receive a payment equal to (i) two times his
annual base salary plus his STIC Program award target for the year in
which his employment is terminated, reduced by (ii) any severance pay
for which he may be otherwise eligible under the Severance Plan or the
Supplemental Severance Plan. This payment would be contingent on all
other terms and conditions of the Severance Plan and Supplemental
Severance Plan, including the execution of a general release and waiver
of claims against AXA Equitable and affiliates.
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For this purpose, "good reason" includes: (a) relocation of his position to a
work site that is more than 35 miles away from 1290 Avenue of the Americas, New
York City, (b) a material reduction in his compensation (other than in
connection with, and substantially proportionate to, reductions by the company
of the compensation of other similarly situated senior executives), (c) a
material diminution in his duties, authority or responsibilities and (d) a
material change in the lines of reporting such that he no longer reports to the
company's President and Chief Executive Officer.
MS. RITCHEY'S SEPARATION AGREEMENT
Ms. Ritchey entered into a separation agreement and general release with AXA
Equitable pursuant to which she terminated employment on December 30, 2016. She
will receive severance benefits in accordance with the Severance Plan and
Supplemental Severance Plan as well as a lump sum payment of $1,285,877.
Ms. Ritchey's separation agreement and general release contains standard
provisions related to confidentiality, non-disparagement and non-solicitation.
MS. BROWN'S SEPARATION AGREEMENT
Ms. Brown entered into a separation agreement and general release with AXA
Equitable pursuant to which she terminated employment on August 31, 2016. She
received severance benefits in accordance with the Severance Plan and
Supplemental Severance Plan as well as a lump sum payment of $1,180,821.
Ms. Brown's separation agreement and general release contains standard
provisions related to confidentiality, non-disparagement and non-solicitation.
CHANGE IN CONTROL BENEFITS
Change in control benefits are provided for stock options granted under the
Stock Option Plan. Under that plan, if there is a change in control of AXA
Financial, all stock options will become immediately exercisable for their term
regardless of the otherwise applicable exercise schedule.
Mr. Pearson's employment agreement also provides for change in control benefits
as described above in "Mr. Pearson's Employment Agreement."
For additional information on severance and change in control benefits for the
Named Executive Officers, see "Potential Payments Upon Termination of Change in
Control" in this section.
PERQUISITES
The Named Executive Officers receive limited perquisites. Specifically, each of
the Named Executive Officers may use a car and driver for personal purposes
from time to time and may occasionally bring spouses and guests on private
aircraft flights otherwise being taken for business reasons. Also, financial
planning and tax preparation services are provided for the Named Executive
Officers to help ensure their peace of mind so that they are not unnecessarily
distracted from focusing on the company's business.
Pursuant to his employment agreement, Mr. Pearson is entitled to unlimited
personal use of a car and driver, two business class trips to the United
Kingdom per year with his spouse, expatriate tax services, a company car for
his personal use, excess liability insurance coverage, and repatriation costs.
The incremental costs of perquisites for the Named Executive Officers during
2016 are included in the column entitled "All Other Compensation" in the
Summary Compensation Table included in this Item 11.
OTHER COMPENSATION POLICIES
CLAWBACKS
In the event an individual's employment is terminated for cause, all stock
options granted under the Stock Option Plan held by the individual are
forfeited as of the date of termination. In addition, if an individual retires
and induces others to leave the employment of an AXA affiliate, misuses
confidential information learned while in the employ of AXA affiliate or
otherwise acts in a manner that is substantially detrimental to the business or
reputation of any AXA affiliate, all outstanding stock options held by the
individual will be forfeited.
SHARE OWNERSHIP POLICY
AXA Equitable does not have stock ownership guidelines. However, any executives
who are subject to AXA's stock ownership policy as members of AXA's Management
Committee are required to meet AXA's requirements for holding AXA Stock. Those
requirements are
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expressed as a multiple of base salary, with members of AXA's Management
Committee (such as Mr. Pearson) required to hold the equivalent of their base
salary multiplied by two.
DERIVATIVES TRADING AND HEDGING POLICIES
The AXA Financial Group's reputation for integrity and high ethical standards
in the conduct of its affairs is of paramount importance to it. To preserve
this reputation, all employees of the AXA Financial Group, including the Named
Executive Officers, are subject to the AXA Financial Insider Trading Policy.
This policy prohibits, among other items, all short sales of securities of AXA
and its publicly-traded subsidiaries and any hedging of equity compensation
awards (including stock option, performance unit, performance share or similar
awards) or the securities underlying those awards. Members of AXA's Management
Committee must pre-clear with the AXA Group General Counsel any derivatives
transactions with respect to AXA securities and/or the securities of other AXA
Group publicly-traded subsidiaries (including AllianceBernstein).
IMPACT OF ACCOUNTING AND TAX RULES
Code Section 162(m) limits tax deductions relating to executive compensation of
certain executives of publicly held companies. Because neither AXA Financial
nor MLOA is deemed to be publicly held for purposes of Code Section 162(m),
these limitations are not applicable to the executive compensation program
described above.
AXA Equitable's nonqualified deferred compensation arrangements that are
subject to Section 409A are designed to comply with the requirements of Section
409A to avoid additional income taxes.
Accounting and tax impacts are also considered in the design of equity-based
award programs.
COMPENSATION COMMITTEE REPORT
Not Applicable.
CONSIDERATION OF RISK MATTERS IN DETERMINING COMPENSATION
AXA Equitable has considered whether its compensation practices are reasonably
likely to have a material adverse effect on AXA Equitable and determined that
they do not. When conducting the analysis, AXA Equitable considered that its
programs have a number of features that contribute to prudent decision-making
and avoid an incentive to take excessive risk. The overall design and metrics
of AXA Equitable's incentive compensation program effectively balance
performance over time, considering both company earnings and individual results
with multi-year vesting and performance periods. AXA Equitable's short-term
incentive program further mitigates risk by permitting discretionary
adjustments for both funding and granting purposes. AXA Equitable also
considered that its general risk management controls, oversight of programs,
award review and governance processes preclude decision-makers from taking
excessive risk to achieve targets under the compensation plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Not Applicable
Executive officers of MLOA are employees of AXA Equitable and receive no
compensation directly from MLOA. Rather, a portion of their compensation from
AXA Equitable is allocated to MLOA under the Services Agreement. Accordingly,
the compensation of the executive officers is determined by AXA Equitable
rather than MLOA.
SUMMARY COMPENSATION TABLE
The following table presents the total compensation of our Named Executive
Officers for services performed for the AXA Financial Group for the years ended
December 31, 2016, December 31, 2015, and December 31, 2014, except that no
information is provided for years prior to 2016 for Mr. Winikoff, Mr. Healy,
Ms. Ritchey and Ms. Brown since they were not Named Executive Officers in those
years.
The amounts listed in this table as well as all other executive compensation
tables reflect all payments made to the Named Executive Officers by AXA
Equitable allocated to MLOA in a manner consistent with the allocation of
compensation expenses under the Services Agreement. The total compensation
reported in the following table includes items such as salary and non-equity
incentive compensation as well as the grant
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date fair value of performance shares, RSUs and stock options. The performance
shares, RSUs and stock options may never become payable or may end up with a
value that is substantially different from the value reported here. The amounts
in the Total column do not represent "Total Compensation" as described in the
Compensation Discussion and Analysis.
CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
NON-EQUITY COMP-
FISCAL STOCK OPTION INCENTIVE ENSATION
NAME YEAR SALARY/(1)/ BONUS/(2)/ AWARDS/(3)/ AWARDS/(4)/ COMPENSATION/(5)/ EARNINGS/(6)/
---- ------ ------------- --------- ----------- ------------ ---------------- ------------
PEARSON, MARK...................... 2016 $ 38,773 $ 62,324 $ 11,855 $ 67,084 $ 12,197
CHAIRMAN, PRESIDENT AND 2015 $ 38,773 $ 52,119 $ 8,101 $ 72,571
CHIEF EXECUTIVE OFFICER 2014 $ 46,163 $ 57,121 $ 13,213 $ 90,243 $ 56,031
MALMSTROM, ANDERS.................. 2016 $ 20,405 $ 15,407 $ 3,599 $ 26,350 $ 8,698
SENIOR EXECUTIVE DIRECTOR AND 2015 $ 20,405 $ 10,850 $ 1,900 $ 29,140 $ 686
CHIEF FINANCIAL OFFICER 2014 $ 24,354 $ 14,094 $ 3,566 $ 25,900 $ 832
WINIKOFF, BRIAN.................... 2016 $ 10,321 $ 49,598 $ -- $ 27,900 $ --
SENIOR EXECUTIVE
DIRECTOR AND HEAD OF
US LIFE, RETIREMENT AND
WEALTH MANAGEMENT
HATTEM, DAVE....................... 2016 $ 18,597 $ 20,102 $ 3,824 $ 23,250 $ 7,386
SENIOR EXECUTIVE DIRECTOR 2015 $ 17,091 $ 1,475 $ 13,322 $ 2,071 $ 22,320 $ 510
& GENERAL COUNSEL 2014 $ 20,186 $ 15,614 $ 3,634 $ 26,640 $ 33,920
HEALY, MICHAEL..................... 2016 $ 12,248 $ 8,011 $ -- $ 12,462 $ 5,035
SENIOR EXECUTIVE
DIRECTOR AND CHIEF
INFORMATION OFFICER
RITCHEY, SHARON.................... 2016 $ 18,615 $ 11,555 $ 2,699 $ 5,646
SENIOR EXECUTIVE DIRECTOR
& CHIEF CUSTOMER OFFICER
BROWN, PRISCILLA................... 2016 $ 11,865 $ 5,778 $ 1,350 $ 8,350
SENIOR EXECUTIVE DIRECTOR
& CHIEF MARKETING OFFICER
ALL OTHER
COMP-
NAME ENSATION/(7)/ TOTAL
---- ------------- ---------
PEARSON, MARK...................... $ 12,065 $ 204,298
CHAIRMAN, PRESIDENT AND $ 17,765 $ 189,329
CHIEF EXECUTIVE OFFICER $ 25,723 $ 288,494
MALMSTROM, ANDERS.................. $ 5,359 $ 79,818
SENIOR EXECUTIVE DIRECTOR AND $ 5,125 $ 68,106
CHIEF FINANCIAL OFFICER $ 13,640 $ 82,386
WINIKOFF, BRIAN.................... $ 622 $ 88,441
SENIOR EXECUTIVE
DIRECTOR AND HEAD OF
US LIFE, RETIREMENT AND
WEALTH MANAGEMENT
HATTEM, DAVE....................... $ 4,161 $ 77,320
SENIOR EXECUTIVE DIRECTOR $ 4,955 $ 61,744
& GENERAL COUNSEL $ 5,658 $ 105,652
HEALY, MICHAEL..................... $ 2,064 $ 39,820
SENIOR EXECUTIVE
DIRECTOR AND CHIEF
INFORMATION OFFICER
RITCHEY, SHARON.................... $ 107,735 $ 146,250
SENIOR EXECUTIVE DIRECTOR
& CHIEF CUSTOMER OFFICER
BROWN, PRISCILLA................... $ 90,269 $ 117,612
SENIOR EXECUTIVE DIRECTOR
& CHIEF MARKETING OFFICER
/(1)/The amounts in this column reflect actual salary paid in each year.
/(2)/No bonuses were paid to the Named Executive Officers in 2016, 2015 or 2014
except that Mr. Hattem was paid a bonus in May 2015 to compensate him for
the loss of stock options due to regulatory and other constraints
prohibiting his exercise.
/(3)/For Mr. Winikoff, this column reflects the grant date fair value of his
sign-on RSU grant. For all other Named Executive Officers, the amounts
reported in this column represent the aggregate grant date fair value of
performance shares awarded in each year in accordance with FASB ASC Topic
718. The performance share grants were valued at target which represents
the probable outcome at grant date. The 2016 performance share grants as
well as Mr. Winikoff'sign-on RSU grant are described in more detail below
in "Supplemental Information for Summary Compensation and Grants of
Plan-Based Awards Tables."
/(4)/The amounts reported in this column represent the aggregate grant date
fair value of stock options awarded in each year in accordance with FASB
ASC Topic 718. The 2016 stock option grants are described in more detail
below in "Supplemental Information for Summary Compensation and Grants of
Plan-Based Awards Tables."
/(5)/The amounts reported for 2016 are the awards paid in February 2017 to each
of the Named Executive Officers based on their 2016 performance. The
amounts reported for 2015 are the awards paid in February 2016 to each of
the Named Executive Officers based on their 2015 performance. The amounts
reported for 2014 are the awards paid in February 2015 to each of the
Named Executive Officers based on their 2014 performance.
F-105
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(6)/The amounts reported represent the increase in the actuarial present value
of accumulated pension benefits for the Named Executive Officer. The Named
Executive Officers did not have any above-market earnings on non-qualified
deferred compensation in 2016, 2015 or 2014. For more information regarding
the pension benefits for each Named Executive Officer, see the Pension
Benefits as of December 31, 2016 Table below.
/(7)/The following table provides additional details for the compensation
information found in the All Other Compensation column.
EXCESS
LIABILITY FINANCIAL 401(K) PLAN
NAME AUTO/(A)/ INSURANCE/(B)/ ADVICE/(C)/ CONTRIBUTIONS/(D)/
------------------------------------------------- ----------- -------------- -------------- -----------------
PEARSON, MARK..................................... 2016 $ 356 $ 251 $ 751 $ 401
2015 $ 554 $ 251 $ 1,073 $ 524
2014 $ 782 $ 178 $ 985 $ 613
MALMSTROM, ANDERS................................. 2016 $ 10 $ 805 $ 401
2015 $ 26 $ 905 $ 524
2014 $ 15 $ 828 $ --
WINIKOFF, BRIAN................................... 2016 $ -- $ -- $ 401
HATTEM, DAVE...................................... 2016 $ 2 $ -- $ 401
2015 $ 191 $ 543 $ 524
2014 $ 555 $ 613
HEALY, MICHAEL.................................... 2016 $ -- $ -- $ 401
RITCHEY, SHARON................................... 2016 $ -- $ 587 $ 401
BROWN, PRISCILLA.................................. 2016 $ -- $ -- $ 584 $ 401
EXCESS OTHER
401 (K) PERQUISITES/
NAME CONTRIBUTIONS/(E)/ BENEFITS/(F)/ TOTAL
------------------------------------------------- ----------------------- --------------- -----------
PEARSON, MARK..................................... $ 10,306 $ -- $ 12,065
$ 10,610 $ 4,753 $ 17,765
$ 12,663 $ 10,502 $ 25,723
MALMSTROM, ANDERS................................. $ 4,133 $ 10 $ 5,359
$ 3,389 $ 281 $ 5,125
$ 12,797 $ 13,640
WINIKOFF, BRIAN................................... $ 211 $ 10 $ 622
HATTEM, DAVE...................................... $ 3,549 $ 209 $ 4,161
$ 3,396 $ 301 $ 4,955
$ 4,285 $ 205 $ 5,658
HEALY, MICHAEL.................................... $ 1,653 $ 10 $ 2,064
RITCHEY, SHARON................................... $ 3,049 $ 103,698 $ 107,735
BROWN, PRISCILLA.................................. $ 2,403 $ 86,881 $ 90,269
/a./ Pursuant to his employment agreement, Mr. Pearson is entitled to the
business and personal use of a dedicated car and driver. The personal use
of this vehicle for 2016 was valued based on a formula considering the
annual lease value of the vehicle, the compensation of the driver and the
cost of fuel. The other Named Executive Officers may use cars and drivers
for personal matters from time to time. The value for each executive's car
use is based on a similar formula taking into account the annual lease
value of the vehicle and the compensation of the driver.
/b./ AXA Equitable pays the premiums for excess liability insurance coverage
for Mr. Pearson pursuant to his employment agreement. The amounts in this
column reflect the actual amount of the premiums paid for each year.
/c./ AXA Equitable pays for financial planning and tax preparation services for
each of the Named Executive Officers. The amounts in this column reflect
the actual amounts paid to the service provider for each year.
/d./ This column includes the amount of any employer profit sharing
contributions and company contributions received by each Named Executive
Officer under the 401(k) Plan for 2016.
/e./ This column includes the amount of any excess 401(k) contributions made by
the company to the Post-2004 Plan for each Named Executive Officer.
/f./ This column includes:
Mr. Malmstrom cost related to having a guest accompany him to a company event
Mr. Winikoff cost related to having a guest accompany him to a company event
Mr. Hattem cost related to one month of parking and having a guest accompany him to a company event
Mr. Healy cost related to having a guest accompany him to an event
payment for temporary housing related to relocation and tax grow-up related to that payment, severance pay under
the Supplemental Severance Plan and lump sum payment under the Supplemental Severance Plan plus an additional
Ms. Ritchey lump sum paid upon separation
payout of unused paid time off, severance pay under the Supplemental Severance Plan and lump sum payment under
Ms. Brown the Supplemental Severance Plan plus an additional lump sum paid upon separation
F-106
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
2016 GRANTS OF PLAN-BASED AWARDS
The following table provides additional information about plan-based
compensation disclosed in the Summary Compensation Table allocated to MLOA in a
manner consistent with the allocation of compensation expenses under the
Services Agreement. This table includes both equity and non-equity awards
granted during 2016.
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE UNDER EQUITY INCENTIVE
PLAN AWARDS/(2)/ PLAN AWARDS/(3)/
OCC ------------------------- ------------------------
GRANT APPROVAL THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM
NAME DATE DATE/(1)/ ($) ($) ($) (#) (#) (#)
------------------------------------------------- -------- --------- --------- ------- ------- --------- ------ -------
PEARSON, MARK..................................... 6/6/2016 2/18/2016 -- $65,980 N/A -- 5,768 5,768
6/6/2016 2/18/2016 -- 3,296 4,285
MALMSTROM, ANDERS................................. 6/6/2016 2/18/2016 -- $24,800 N/A 584 584
6/6/2016 2/18/2016 1001 1,301
WINIKOFF, BRIAN................................... 6/6/2016 2/18/2016 $27,900 $27,900 N/A -- -- --
6/6/2016 2/18/2016 -- -- --
7/5/2016
HATTEM, DAVE...................................... 6/6/2016 2/18/2016 -- $20,150 N/A -- 620 620
6/6/2016 2/18/2016 -- 1063 1382
HEALY, MICHAEL.................................... 6/6/2016 2/18/2016 -- $10,850 N/A -- -- --
6/6/2016 2/18/2016 -- 520 676
RITCHEY, SHARON................................... 6/6/2016 2/18/2016 -- $21,700 N/A -- 438 438
6/6/2016 2/18/2016 750 976
BROWN, PRISCILLA.................................. 6/6/2016 2/18/2016 -- $17,050 N/A -- 219 219
6/6/2016 2/18/2016 375 488
ALL OTHER ALL OTHER
STOCK OPTION EXERCISE CLOSING GRANT
AWARDS: AWARDS: OR BASE MARKET DATE FAIR
NUMBER OF NUMBER OF PRICE OF PRICE ON VALUE OF
SHARES OF SECURITIES OPTION DATE OF STOCK AND
STOCK OR UNDERLYING AWARDS/(4)/ GRANT OPTION
NAME UNITES (#) OPTIONS ($/SH) ($/SH) AWARDS/(5)/
------------------------------------------------- ---------- (#) ---------- -------- ----------
PEARSON, MARK..................................... $ 24.00 $ 24.76 $ 11,855
$ 62,324
MALMSTROM, ANDERS................................. 1167 $ 24.00 $ 24.76 $ 3,599
$ 15,407
WINIKOFF, BRIAN................................... -- N/A N/A $ --
$ --
2,623 $ 49,598
HATTEM, DAVE...................................... 1240 $ 24.00 $ 24.76 $ 3,824
$ 20,102
HEALY, MICHAEL.................................... -- N/A N/A $ --
$ 8,011
RITCHEY, SHARON................................... 876 $ 24.00 $ 24.76 $ 2,699
$ 11,555
BROWN, PRISCILLA.................................. 438 $ 24.00 $ 24.76 $ 1,350
$ 5,778
/(1)/This column shows the date on which the OCC approved the recommendation of
the grants to the AXA Board of Directors.
/(2)/The target column shows the target award for 2016 for each Named Executive
Officer under the STIC Program assuming the plan was 100% funded. There is
no minimum or maximum award for any participant in this plan. The actual
2016 awards granted to the Named Executive Officers are listed in the
Non-Equity Incentive Compensation column of the Summary Compensation Table.
/(3)/The second row for each Named Executive Officer shows the stock options
granted under the Stock Option Plan on June 6, 2016. The third row for
each Named Executive Officer shows the performance shares granted under
the 2016 Performance Share Plan on June 6, 2016. The fourth row for
Mr. Winikoff reflects his sign-on RSU grant.
/(4)/The exercise price for the stock options granted on June 6, 2016 is equal
to the average of the closing prices for the AXA ordinary share on
Euronext Paris SA over the 20 trading days immediately preceding June 6,
2016. For purposes of this table, the exercise price was converted to U.S.
dollars using the euro to U.S. dollar exchange rate on June 5, 2016.
/(5)/The amounts in this column represent the aggregate grant date fair value
of stock options and performance shares granted in 2016 in accordance with
FASB ASC Topic 718. The performance share grants were valued at target
which represents the probable outcome at grant date.
SUPPLEMENTAL INFORMATION FOR SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED
AWARDS TABLES
2016 Stock Option Award Grants
The stock option awards granted to the Named Executive Officers on June 6, 2016
have a 10-year term and a vesting schedule of five years, with one-third of the
grant vesting on each of the third, fourth and fifth anniversaries of the
grant, provided that the last third will vest on June 6, 2021 only if the AXA
ordinary share performs at least as well as the SXIP Index over a specified
period of at least three years. This performance condition applies to all of
Mr. Pearson's options. The exercise price for the options is 21.52 euro, which
was the average of the closing prices for the AXA ordinary share on Euronext
Paris SA over the 20 trading days immediately preceding June 6, 2016.
F-107
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
In the event of a Named Executive Officer's retirement, the stock options
continue to vest and may be exercised until the end of the term, except in the
case of misconduct. Accordingly, since Mr. Hattem and Mr. Pearson are currently
eligible to retire, these stock options will not be forfeited due to any
service condition.
2016 Performance Share Award Grants
A performance share is a "phantom" share of AXA stock that, once earned and
vested, provides the right to receive an AXA ordinary share at the time of
payment. Performance shares are granted unearned. Under the 2016 Performance
Shares Plan, the number of shares that is earned is determined at the end of a
three-year performance period, starting on January 1, 2016 and ending on
December 31, 2018. by multiplying the number of shares granted by a performance
percentage that is determined as described below. If no dividend is proposed
for payment by the AXA Board of Directors to AXA's shareholders for 2016 or
2017 or 2018, the performance percentage for the grant will be divided in half.
The performance shares granted to the Named Executive Officers on June 6, 2016
have a cliff vesting schedule of four years.
The performance percentage for the 2016 Performance Share Plan initially will
be determined based: (a) 40% on AXA Group's performance with respect to
adjusted earnings per share, (b) 50% on AXA Financial Life and Savings
Operations' performance with respect to adjusted earnings and underlying
earnings (each weighted 50%) and (c) 10% on AXA Group's score on the DJS1
World, a Dow Jones sustainability index which tracks the performance of the
world's sustainability leaders. A positive or negative adjustment of 5% will
then be made to the performance percentage based on AXA Group's relative
performance against a selection of its peers with respect to total shareholder
return. The components of the performance percentage and their targets are
determined by the AXA Board of Directors based on their review of AXA's
strategic objectives, market practices and regulatory changes.
Generally, if performance targets are met, 100% of the performance shares
initially granted is earned. Performance that exceeds the targets results in
increases in the number of shares earned, subject to a cap of 130% of the
initial number of shares. Performance that falls short of targets results in a
decrease in the number of shares earned with a possible forfeiture of all
shares. Since AXA uses IFRS as its principal method of accounting. AXA Group's
adjusted earnings per share and AXA Financial Life and Savings Operations'
adjusted earnings and underlying earnings are calculated using IFRS.
Accordingly, they are not measures calculated and presented in accordance with
U.S. GAAP.
The settlement of 2016 performance shares will be made in AXA ordinary shares
on June 6,2020. The 2016 plan provides that, in the case of retirement, a
participant is treated as if he or she continued employment until the
settlement date. Accordingly, Mr. Hattem and Mr. Pearson will still receive a
payout under this plan if they choose to retire prior to the end of the vesting
period.
Due to their termination of employment with AXA Equitable during 2016, both
Ms. Ritchey and Ms. Brown have forfeited all of their performance shares,
including the 2016 grant.
Mr. Winikoff's RSUs Grant
On July 5.2016, Mr. Winikoff received a sign-on equity-based grant of RSUs.
These RSUs will vest ratably over a four-year period and be paid out in cash
within 30 days after the vesting date.
F-108
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2016
The following table lists outstanding equity grants for each Named Executive
Officer as of December 31, 2016 allocated to MLOA in a manner consistent with
the allocation of compensation expenses under the Services Agreement. The table
includes outstanding equity grants from past years as well as the current year.
OPTION AWARDS
------------------------------------------------------------------------- ---------------
EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF NUMBER OF NUMBER OF NUMBER
SECURITIES SECURITIES SECURITIES OF SHARES
UNDERLYING UNDERLYING UNDERLYING OR UNITS OF
UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT
OPTIONS (#) OPTIONS (#) UNEARNED EXERCISE EXPIRATION HAVE NOT
NAME EXERCISABLE/(1)/ UNEXERCISABLE/(1)/ OPTIONS(#)/(1)/ PRICE($)/(2)/ DATE VESTED/(3)/ (#)
---- --------------- ----------------- -------------- ------------- ---------- -------------
PEARSON, MARK....... 182 91 $ 44.60 5/10/2017 1,418
182 91 $ 33.21 4/1/2018
1072 $ 21.59 6/10/2019
1,876 $ 21.08 3/19/2020
4,263 $ 20.63 3/18/2021
2,397 1,199 $ 15.96 3/16/2022
1,447 2,893 $ 17.83 3/22/2023
3,825 $ 25.74 3/24/2024
4,509 $ 26.12 6/19/2025
5,768 $ 24.00 06/06/26
MALMSTROM, ANDERS... 361 $ 17.83 3/22/2023 418
757 378 $ 25.74 3/24/2024
768 384 $ 26.12 6/19/2025
1,167 584 $ 24.00 6/19/2026
WINIKOFF, BRIAN..... -- --
HATTEM, DAVE........ 145 72 $ 45.72 05/10/17 388
140 70 $ 33.21 04/01/18
647 $ 20.63 03/18/21
454 227 $ 15.96 03/16/22
331 331 331 $ 17.83 03/22/23
701 351 $ 25.74 03/24/24
768 384 $ 26.12 06/19/25
1240 620 $ 24.00 06/06/26
HEALY, MICHAEL...... 11 $ 45.72 05/10/17 297
51 $ 33.21 04/01/18
53 $ 21.08 03/19/20
135 $ 20.63 03/18/21
340 $ 15.96 03/16/22
RITCHEY, SHARON..... 757 378 $ 25.74 03/24/24 --
768 384 $ 26.12 06/19/25
876 438 $ 24.00 06/06/26
BROWN, PRISCILLA.... 384 192 $ 26.12 06/19/25 --
438 219 $ 24.00 06/06/26
STOCK AWARDS
----------------------------------------------
EQUITY EQUITY
INCENTIVE INCENTIVE
PLAN PLAN
AWARDS: AWARDS:
NUMBER OF MARKET OR
MARKET UNEARNED PAYOUT VALUE
VALUE OF SHARES, OF UNEARNED
SHARES OR UNITS OR SHARES, UNITS
UNITS OF OTHER OR OTHER
STOCK THAT RIGHTS THAT RIGHTS THAT
HAVE NOT HAVE NOT HAVE NOT
NAME VESTED ($) VESTED/(4) /(#) VESTED (#)
---- ------------------ ------------- --------------
PEARSON, MARK....... $ 35,844 7,018 $ 177,439
MALMSTROM, ANDERS... $ 10,574 1,997 $ 50,491
WINIKOFF, BRIAN..... $ -- 2,623 $ 66,315
HATTEM, DAVE........ $ 9,798 2035 $ 51,445
HEALY, MICHAEL...... $ 7,519 1234 $ 31,202
RITCHEY, SHARON..... $ -- -- $ --
BROWN, PRISCILLA.... $ -- -- $ --
F-109
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(1)/All stock options have ten-year terms. All stock options granted after
2013 have a vesting schedule of five years, with one-third of the grant
vesting on each of the third, fourth and fifth anniversaries of the grant,
and all stock options granted in 2008 through 2013 have a vesting schedule
of four years, with one-third of the grant vesting on each of the second,
third and fourth anniversaries of the grant date; provided that for all
these grants the last third will vest only if the AXA ordinary share
performs at least as well as the SXIP Index during a specified period (this
condition applies to all options granted to Mr. Pearson after 2011). All
stock options granted in 2007 are vested with the exception of the last
third of the grants made to Mr. Pearson and Mr. Hattem. These stock options
will vest only if the AXA ordinary share performs at least as well as the
SXIP Index during a specified period.
/(2)/All stock options have euro exercise prices. All euro exercise prices have
been converted to U.S. dollars based on the euro to U.S. dollar exchange
rate on the day prior to the grant date. The actual U.S. dollar equivalent
of the exercise price will depend on the exchange rate at the date of
exercise.
/(3)/This column reflects earned but unvested performance shares granted in
2014 with a vesting date of March 24, 2017.
/(4)/For Mr. Winikoff, this column reflects his sign-on RSU grant. His RSUs
will vest ratably over a four-year period and be paid out in cash within 30
days after the vesting date. For the other Named Executive Officers, this
column reflects unearned and unvested performance shares granted in 2014,
2015 and 2016.
OPTION EXERCISES AND STOCK VESTED IN 2016
The following table summarizes the value received from stock option exercises
and stock awards vested during 2016 allocated to MLOA in a manner consistent
with the allocation of compensation expenses under the Services Agreement.
OPTION AWARDS STOCK AWARDS
----------------------------------- --------------------------------
NUMBER OF VALUE NUMBER OF VALUE
SHARES REALIZED SHARES REALIZED
ACQUIRED ON ACQUIRED ON ON
NAME ON EXERCISE(#)/(1)/ EXERCISE ($)/(2)/ VESTING (#)/(3)/ VESTING ($)/(4)/
---- ------------------ ---------------- --------------- ----------------
PEARSON, MARK..................................... -- $ -- 3,114 $ 74,453
MALMSTROM, ANDERS................................. 834 $ 9,049 778 $ 18,610
WINIKOFF, BRIAN................................... -- $ -- -- $ --
HATTEM, DAVE...................................... -- $ -- 714 $ 17,062
HEALY, MICHAEL.................................... -- $ -- 757 $ 18,094
RITCHEY, SHARON................................... -- $ -- -- $ --
BROWN, PRISCILLA.................................. -- $ -- -- $ --
/(1)/This column reflects the number of options that Mr. Malmstrom exercised in
2016.
/(2)/Mr. Malmstrom immediately sold all shares acquired upon option exercise.
This column reflects the actual sale price received less the exercise price.
/(3)/For Mr. Pearson, this column reflects the number of performance shares he
earned under the 2013 AXA International Performance Shares Plan that vested
on March 22, 2016. For the other Named Executive Officers, this column
reflects AXA miles that vested on March 16, 2016 in addition to their
performance shares earned under the 2013 AXA International Performance
Shares Plan. For a description of the 2013 AXA Performance Shares Plan and
AXA Miles, please see "Compensation Discussion and Analysis" included in
this section.
/(4)/The value of the performance shares that vested in 2016 was determined
based on the average of the high and low AXA ordinary share price on the
vesting date, converted to US dollars using the European Central Bank
reference rate on the vesting date. The value of the AXA miles that vested
in 2016 was determined based on the actual sale price obtained by AXA Miles
recipients who elected to have the plan administrator sell their AXA
ordinary shares on the date of vesting.
F-110
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PENSION BENEFITS AS OF DECEMBER 31, 2016
The following table lists the pension program participation and actuarial
present value of each Named Executive Officer's defined benefit pension at
December 31, 2016 allocated to MLOA in a manner consistent with the allocation
of compensation expenses under the Services Agreement. Note that Mr. Malmstrom,
Mr. Winikoff, Ms. Ritchey and Ms. Brown did not participate in the Retirement
Plan or the Excess Plan since they were not eligible to participate in these
plans prior to their freeze.
NUMBER OF
YEARS PRESENT VALUE OF
CREDITED ACCUMULATED PAYMENTS DURING
SERVICE/(2) BENEFIT THE LAST FISCAL YEAR
NAME PLAN NAME/(1)/ /(#) ($) ($)
------------------- ---------------------------------------------- ----------- ---------------- --------------------
PEARSON, MARK....... AXA Equitable Retirement Plan 3 $ 2,080 --
AXA Equitable Excess Retirement Plan 3 $ 20,855 --
AXA Equitable Executive Survivor Benefit Plan 22 $ 102,719 --
MALMSTROM, ANDERS... AXA Equitable Retirement Plan -- $ -- --
AXA Equitable Excess Retirement Plan -- $ -- --
AXA Equitable Executive Survivor Benefit Plan 5 $ 10,273 --
WINIKOFF, BRIAN..... AXA Equitable Retirement Plan -- $ -- --
AXA Equitable Excess Retirement Plan -- $ -- --
AXA Equitable Executive Survivor Benefit Plan -- $ -- --
HATTEM, DAVE........ AXA Equitable Retirement Plan 19 $ 15,262 --
AXA Equitable Excess Retirement Plan 19 $ 31,814 --
AXA Equitable Executive Survivor Benefit Plan 23 $ 60,256 --
HEALY, MICHAEL...... AXA Equitable Retirement Plan 6 $ 4,583 --
AXA Equitable Excess Retirement Plan 6 $ 4,942 --
AXA Equitable Executive Survivor Benefit Plan 10 $ 4,506 --
RITCHEY, SHARON..... AXA Equitable Retirement Plan -- $ -- --
AXA Equitable Excess Retirement Plan -- $ -- --
AXA Equitable Executive Survivor Benefit Plan 3 $ 9,957 --
BROWN, PRISCILLA.... AXA Equitable Retirement Plan -- $ -- --
AXA Equitable Excess Retirement Plan -- $ -- --
AXA Equitable Executive Survivor Benefit Plan 2 $ 8,350 --
/(1)/The December 31, 2016 liabilities for the Retirement Plan, the Excess
Plan, and the ESB Plan were calculated using the same participant data,
plan provisions and actuarial methods and assumptions used for financial
reporting purposes, except that a retirement age of 65 is assumed for all
calculations. The assumptions used include:
. a discount rate of 3.81% for the Retirement Plan;
. a discount rate of 3.69% for the Excess Plan;
. a discount rate of 3.92% for the ESB Plan and
. the RP-2000 mortality table projected on a full generational basis
using Scale BB.
/(2)/Credited service for purposes of the Retirement Plan and the Excess Plan
does not include an executive's first year of service and does not include
any service after the freeze of the plans on December 31, 2013. Pursuant
to his employment agreement, Mr. Pearson's credited service for purposes
of the ESB Plan includes approximately 16 years of service with AXA
Equitable affiliates. However, this additional credited service does not
result in any benefit augmentation for Mr. Pearson.
THE RETIREMENT PLAN
The Retirement Plan is a tax-qualified defined benefit plan for eligible
employees. The Retirement Plan was frozen effective December 31, 2013.
Participants became vested in their benefits under the Retirement Plan after
three years of service. Participants are eligible to retire and begin receiving
benefits under the Retirement Plan: (a) at age 65 (the "normal retirement
date") or (b) if they are at least age 55 with at least 5 full years of service
(an "early retirement date").
F-111
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Prior to the freeze, the Retirement Plan provided a cash balance benefit
whereby AXA Equitable established a notional account for each Retirement Plan
participant. This notional account was credited with deemed pay credits equal
to 5% of eligible compensation up to the Social Security wage base plus 10% of
eligible compensation above the Social Security wage base. Eligible
compensation included base salary and short-term incentive compensation and was
subject to limits imposed by the Internal Revenue Code. These notional accounts
continue to be credited with deemed interest credits. For pay credits earned on
or after April 1, 2012 up to December 31, 2013, the interest rate is determined
annually based on the average discount rates for one-year Treasury Constant
Maturities. For pay credits earned prior to April 1, 2012, the annual interest
rate is the greater of 4% and a rate derived from the average discount rates
for one-year Treasury Constant Maturities. For 2016, pay credits earned prior
to April 1, 2012 received an interest crediting rate of 4% while pay credits
earned on or after April 1, 2012 received an interest crediting rate of .5%.
Participants elect the time and form of payment of their cash balance account
after they separate from service. The normal form of payment depends on a
participant's marital status as of the payment commencement date. If the
participant is unmarried, the normal form will be a single life annuity. If the
participant is married, the normal form will be a 50% joint and survivor
annuity. Subject to spousal consent requirements, participants may elect the
following optional forms of payment for their cash balance account:
. Single life annuity;
. Optional joint and survivor annuity of any whole percentage between
1% and 100%; and
. Lump sum.
Mr. Pearson, Mr. Hattem and Mr. Healy are each entitled to a frozen cash
balance benefit under the Retirement Plan. Mr. Pearson and Mr. Hattem are
currently eligible for early retirement under the plan.
Note that, for certain grandfathered participants, the Retirement Plan provides
benefits under a traditional defined benefit formula based on final average
pay, estimated Social Security benefits and years of service. None of the Named
Executive Officers are grandfathered participants.
THE EXCESS PLAN
The purpose of the Excess Plan, which was frozen as of December 31, 2013 was to
allow eligible employees to earn retirement benefits in excess of those
permitted under the Retirement Plan. Specifically, the Retirement Plan is
subject to rules under the Internal Revenue Code that cap both the amount of
eligible earnings that may be taken into account for determining benefits under
the Retirement Plan and the amount of benefits that the Retirement Plan may pay
annually. Prior to the freeze of the Retirement Plan, the Excess Plan permitted
participants to accrue and be paid benefits that they would have earned and
been paid under the Retirement Plan but for these limits. The Excess Plan is an
unfunded plan and no assets are actually set aside in participants' names.
The Excess Plan was amended effective September 1, 2008 to comply with the
provisions of Code Section 409A. Pursuant to the amendment, a participant's
Excess Plan benefits vested after 2005 will generally be paid in a lump sum on
the first day of the month following the month in which separation from service
occurs, provided that payment will be delayed six months for "specified
employees" (generally, the fifty most highly-compensated officers of AXA
Group), unless the participant made a special one-time election with respect to
the time and form of payment of those benefits by November 14, 2008. None of
Mr. Pearson, Mr. Hattem and Mr. Healy made a special election. The time and
form of payment of Excess Plan benefits that vested prior to 2005 is the same
as the time and form of payment of the participant's Retirement Plan benefits.
THE ESB PLAN
The ESB Plan offers financial protection to a participant's family in the case
of his or her death. Eligible employees may choose up to four levels of
coverage and the form of benefit to be paid at each level. Each level provides
a benefit equal to one times the participant's eligible compensation
(generally, base salary plus the higher of: (a) most recent short-term
incentive compensation award and (b) the average of the three highest
short-term incentive compensation awards), subject to an overall $25 million
cap. Each level offers different coverage choices. Generally, the participant
can choose between a life insurance death benefit and a deferred compensation
benefit payable upon death at each level. Participants are not required to
contribute to the cost of Level 1 or Level 2 coverage but are required to
contribute annually to the cost of any options elected under Levels 3 and 4
until age 65.
Level 1 coverage continues after retirement until the participant attains age
65. Level 2, Level 3 and Level 4 coverage continue after retirement until the
participant's death, provided that, for Level 3 and Level 4 coverage, all
required participant contributions are made.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Level 1
A participant can choose between the following two options at Level 1:
LUMP SUM OPTION -- Under the Lump Sum Option, a life insurance policy is
purchased on the participant's life. At the death of the participant, the
participant's beneficiary receives a tax-free lump sum death benefit from the
policy. The participant is taxed annually on the value of the life insurance
coverage provided.
SURVIVOR INCOME OPTION -- Upon the participant's death, the Survivor Income
Option provides the participant's beneficiary with 15 annual payments
approximating the value of the Lump Sum Option or a payment equal to the amount
of the lump sum. The payments will be taxable but the participant is not
subject to annual taxation.
Level 2
At Level 2, a participant can choose among the Lump Sum Option and Survivor
Income Option, described above, and the following option:
SURVIVING SPOUSE BENEFIT OPTION -- The Surviving Spouse Benefit Option provides
the participant's spouse with monthly income equal to about 25% of the
participant's monthly compensation (with an offset for social security). The
payments are taxable but there is no annual taxation to the participant. The
duration of the monthly income depends on the participant's years of service
(with a minimum duration of 5 years).
Levels 3 and 4
At Levels 3 and 4, a participant can choose among the Lump Sum Option and
Survivor Income Option, described above and the following option:
SURVIVING SPOUSE INCOME ADDITION OPTION -- The Surviving Spouse Income Addition
Option provides monthly income to the participant's spouse for life equal to
10% of the participant's monthly compensation. The payments are taxable but
there is no annual taxation to the participant.
NON-QUALIFIED DEFERRED COMPENSATION TABLE AS OF DECEMBER 31, 2016
The following table provides information on (i) compensation Mr. Hattem has
elected to defer and (ii) the excess 401(k) contributions received by the Named
Executive Officers. All amounts are allocated to MLOA in a manner consistent
with the allocation of compensation expenses under the Services Agreement.
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS EARNINGS IN WITHDRAWALS/ BALANCE AT
IN LAST IN LAST LAST DISTRIBUTIONS LAST
NAME PLAN NAME FY ($) FY ($)/(1)/ FY ($)/(2)/ ($) FYE ($)/(3)/
---- --------------------------- ------------- ------------- ------------ ------------- -----------
PEARSON, MARK....... The Post-2004 Variable
Deferred Compensation Plan $ 10,306 $ 1,590 $ 32,893
MALMSTROM, ANDERS... The Post-2004 Variable
Deferred Compensation Plan $ 4,133 $ 804 $ 8,243
WINIKOFF, BRIAN..... The Post-2004 Variable
Deferred Compensation Plan $ 211 $ -- $ 211
HATTEM, DAVE........ The Post-2004 Variable
Deferred Compensation Plan $ 3,549 $ 1,400 $ 2,876 $ 20,324
The Variable Deferred
Compensation Plan $ 3,058 $ 36,754
HEALY, MICHAEL...... The Post-2004 Variable
Deferred Compensation Plan $ 1,653 $ 424 $ 5,268
RITCHEY, SHARON..... The Post-2004 Variable
Deferred Compensation Plan $ 3,049 $ 326 $ 7,240
BROWN, PRISCILLA.... The Post-2004 Variable
Deferred Compensation Plan $ 2,403 $ 247 $ 5,172
/(1)/The amounts reported in this column are also reported in the "All Other
Compensation" column of the 2016 Summary Compensation Table above.
/(2)/The amounts reported in this column are not reported in the 2016 Summary
Compensation Table.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(3)/The amounts in this column that were previously reported as compensation
in the Summary Compensation Table for previous years are:
Mr. Pearson...................................... $ 23,273
Mr. Malmstrom.................................... $ 3,389
Mr. Hattem....................................... $ 7,681
THE POST-2004 PLAN
The above table reflects the excess 401(k) contributions made by AXA Equitable
to the eligible Named Executive Officers under the Post-2004 Plan as well as
amounts deferred by Mr. Hattem under the plan.
The Post-2004 Plan allows eligible employees to defer the receipt of up to 25%
of their base salary and short-term incentive compensation. Deferrals are
credited to a bookkeeping account in the participant's name on the first day of
the month following the month in which the compensation otherwise would have
been paid to him or her. The account is used solely for record keeping purposes
and no assets are actually placed into any account in the participant's name.
Account balances in the Post-2004 Plan are credited with gains and losses as if
invested in the available earnings crediting options chosen by the participant.
The Post-2004 Plan currently offers a variety of earnings crediting options
which are among those offered by the AXA Premier VIP Trust and EQ Advisors
Trust.
Each year, participants in the Post-2004 Plan can elect to make deferrals into
an account they have already established under the plan or they may open a new
account, provided that they may not allocate any new deferrals into an account
if they are scheduled to receive payments from the account in the next calendar
year. When participants establish an account, they must elect the form and
timing of payments for that account. They may receive payments of their account
balance in a lump sum or in any combination of lump sum and/or annual
installments paid over consecutive years. They may elect to commence payments
from an account in July or December of any year after the year following the
deferral election provided that payments must commence by the first July or
December following age 71.
In addition, AXA Equitable provides excess 401(k) contributions in the
Post-2004 Plan for participants in the 401(k) Plan with eligible compensation
in excess of the qualified plan compensation limit. These contributions are
equal to 10% of the participant's (i) eligible compensation in excess of the
qualified plan compensation limit ($265,000 in 2016 and 2016) and
(ii) voluntary deferrals to the Post-2004 Plan for the applicable year.
THE VARIABLE DEFERRED COMPENSATION PLAN FOR EXECUTIVES (THE "VDCP")
The above table also reflects amounts deferred by Mr. Hattem under the VDCP.
Under the VDCP, eligible employees were permitted to defer the receipt of up to
25% of their base salary and short-term incentive compensation. Deferrals were
credited to a bookkeeping account in the participant's name on the first day of
the month following the month in which the compensation otherwise would have
been paid to him or her. The account is used solely for record keeping purposes
and no assets are actually placed into any account in the participant's
name. The VDCP was frozen as of December 31, 2004 so that no amounts earned or
vested after 2004 can be deferred under the VDCP.
Account balances in the VDCP that are attributable to deferrals of base salary
and short-term incentive compensation are credited with gains and losses as if
invested in the available earnings crediting options chosen by the
participant. The VDCP currently offers a variety of earnings crediting options
which are among those offered by the AXA Premier VIP Trust and EQ Advisors
Trust.
Participants in the VDCP could elect to credit their deferrals to in-service or
retirement distribution accounts. For retirement accounts, payments may be
received in any combination of a lump sum and/or annual installments paid in
consecutive years. Payments may begin in any January or July following the
participant's termination date, but they must begin by either the first January
or the first July following the later of: (a) the participant's attainment of
age 65 and (b) the date that is thirteen months following the participant's
termination date. For in-service accounts, payments are made to the participant
in December of the year elected by the participant in a lump sum or in up to
five annual installments over consecutive years.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The table below and the accompanying text present the hypothetical payments and
benefits that would have been payable if the Named Executive Officers other
than Ms. Ritchey and Ms. Brown terminated employment, or a change-in-control of
AXA Financial occurred, on December 31, 2016 (the "Trigger Date") allocated to
MLOA in a manner consistent with the allocation of compensation expenses under
the Services Agreement and use the closing price of the AXA ordinary share on
December 30, 2016, converted to U.S. dollars, where applicable. Since
Ms. Ritchey and Ms. Brown actually terminated employment with AXA Equitable in
2016, only the terms of their actual separation agreements are discussed.
Except for Ms. Ritchey and Ms. Brown, the payments and benefits described below
are hypothetical only, as no such payments or benefits have been paid or made
available. Hypothetical payments or benefits that would be due under
arrangements that are generally available on the same terms to all salaried
employees are not described.
RETIREMENT
The Named Executive Officers (other than Ms. Ritchey and Ms. Brown) would have
been entitled to the following payments and benefits if they retired on the
Trigger Date. For this purpose, "retirement" means termination of service on or
after the normal retirement date or any early retirement date under the
Retirement Plan. Note that the only Named Executive Officers eligible to retire
on the Trigger Date were Mr. Pearson and Mr. Hattem.
Short-Term Incentive Compensation: The executives would have received
short-term incentive compensation awards for 2016 under the Retiree Short-Term
Incentive Compensation Program.
Stock Options: All stock options granted to the executives would have continued
to vest and be exercisable until their expiration date, except in the case of
misconduct (for which the options would be forfeited).
Performance Shares: The executives would have been treated as if they continued
in the employ of the company until the end of the vesting period for purposes
of their performance share awards. Accordingly, they would have received
performance share plan payouts at the same time and in the same amounts as they
would have received such payouts if they had not retired.
Retirement Benefits: The executives would have been entitled to the benefits
described in the pension and nonqualified deferred compensation tables above.
Medical Benefits: The executives would have been entitled to access to retiree
medical coverage without any company subsidy.
ESB Plan: The executives would have been entitled to continuation of their
participation in the ESB Plan described above.
VOLUNTARY TERMINATION OTHER THAN RETIREMENT
MR. HEALY AND MR. MALMSTROM
If Mr. Healy and Mr. Malmstrom had voluntarily terminated employment on the
Trigger Date:
Short-Term Incentive Compensation: The executives would not have been entitled
to any STIC Program awards for 2016.
Stock Options: All stock options granted to the executives would have been
forfeited on the termination date.
Performance Shares: The executives would have forfeited all performance shares
on the termination date.
Retirement Benefits: The executives would have been entitled to the benefits
described in the pension and nonqualified deferred compensation tables above,
except that they would no longer be entitled to any benefits under the ESB Plan.
MR. WINIKOFF
If Mr. Winikoff had voluntarily terminated on the Trigger Date for "good
reason:"
. any outstanding RSUs granted to Mr. Winikoff would have immediately
vested and been paid out in cash on their otherwise applicable payment
dates and
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
. he would have been eligible to receive a payment equal to two times his
annual base salary plus his STIC Program award target for 2016. This
payment would have been contingent on the execution of a general release
and waiver of claims against AXA Equitable and affiliates.
For this purpose, "good reason" includes: (a) relocation of his position to a
work site that is more than 35 miles away from 1290 Avenue of the Americas, New
York City, (b) a material reduction in his compensation (other than in
connection with, and substantially proportionate to, reductions by the company
of the compensation of other similarly situated senior executives), (c) a
material diminution in his duties, authority or responsibilities and (d) a
material change in the lines of reporting such that he no longer reports to the
company's President and Chief Executive Officer.
Regardless of whether the voluntary termination was for "good reason,"
Mr. Winikoff would have been entitled to the benefits described in the pension
and nonqualified deferred compensation tables above, except that they would no
longer be entitled to any benefits under the ESB Plan.
MR. PEARSON
If Mr. Pearson had voluntarily terminated on the Trigger Date for "good reason"
as described below, he would have been entitled to: (i) severance pay equal to
the sum of two years of salary and two times the greatest of: (a) Mr. Pearson's
most recent STIC Program award, (b) the average of Mr. Pearson's last three
STIC Program awards and (c) Mr. Pearson's target STIC Program award for the
year in which termination occurred, (ii) a pro-rated STIC Program award at
target for the year of termination and (iii) a cash payment equal to the
additional employer contributions that Mr. Pearson would have received under
the 401(k) Plan and its related excess plan for the year of his termination if
those plans provided employer contributions on his severance pay and all of his
severance pay was paid in that year.
For this purpose, "good reason" includes a material reduction in Mr. Pearson's
duties or authority, the removal of Mr. Pearson from his positions, AXA
Equitable requiring Mr. Pearson to be based at an office more than 75 miles
from New York City, a diminution of Mr. Pearson's titles, a material failure by
the company to comply with the agreement's compensation provisions, a failure
of the company to secure a written assumption of the agreement by any successor
company and a change in control of AXA Financial (provided that Mr. Pearson
delivers notice of termination within 180 days after the change in control).
The severance benefits are contingent upon Mr. Pearson releasing all claims
against AXA Equitable and its affiliates and his entitlement to severance pay
will be discontinued if he provides services for a competitor. Also, in the
event of a termination of Mr. Pearson's employment by AXA Equitable without
cause or Mr. Pearson's resignation due to a change in control, Mr. Pearson's
severance benefits will cease after one year if certain performance conditions
are not met for each of the two consecutive fiscal years immediately preceding
the year of termination.
Mr. Pearson would have received the following amounts if he had voluntarily
terminated for good reason on the Trigger Date and released all claims against
AXA Equitable and its affiliates:
Severance Pay..................................... $ 228,842
Pro-Rated Bonus................................... $ 65,980
Cash Payment...................................... $ 22,884
In addition, because Mr. Pearson was eligible to retire on the Trigger Date, he
would have been eligible for the retirement benefits described above,
regardless of whether he terminated for Good Reason.
MR. HATTEM
Because Mr. Hattem was eligible to retire on the Trigger Date, he would have
been eligible for the retirement benefits described above.
DEATH
If the Named Executive Officers had terminated employment due to death on the
Trigger Date:
Short-Term Incentive Compensation: The executives' estates would not have been
entitled to any STIC Program awards for 2016.
Stock Options: All stock options would have immediately vested and would have
continued to be exercisable until the earlier of their expiration date and the
six-month anniversary of the date of death.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Performance Shares: The total number of performance shares granted in 2015 and
2016 and the second half of the performance shares granted in 2014 would have
been multiplied by an assumed performance factor of 1.3 and the first half of
the performance shares granted in 2014 would have been multiplied by the actual
performance factor for that tranche. The performance shares would have been
paid in AXA ordinary shares to the executive's heirs within 90 days following
death.
Restricted Stock Units: Mr, Winikoff's RSUs would have immediately vested in
full.
Retirement Benefits: The executives' heirs would have been entitled to the
benefits described in the pension and nonqualified deferred compensation tables
above.
INVOLUNTARY TERMINATION WITHOUT CAUSE
NAMED EXECUTIVE OFFICERS OTHER THAN MR. PEARSON
The Named Executive Officers, excluding Mr. Pearson, would have been eligible
for severance benefits under the Severance Benefit Plan, as supplemented by the
Supplemental Severance Plan (collectively, the "Severance Plan"), if an
involuntary termination of employment had occurred on the Trigger Date that
satisfied the conditions in the Severance Plan. To receive benefits, the
executives would have been required to sign a separation agreement including a
release of all claims against AXA Equitable and its affiliates and
non-solicitation provisions.
The severance benefits would have included:
. severance pay equal to 52 weeks' of base salary;
. additional severance pay equal to the greater of: (i) the most recent
STIC Program award paid to the executive, (ii) the average of the three
most recent STIC Program awards paid to the executive or (iii) the
executive's target STIC Program award for 2016;
. a lump sum payment equal to the sum of: (i) the executive's target STIC
Program award for 2016 and (ii) $40,000; and
. one year's continued participation in the ESB Plan.
The Named Executive Officers would have had a one-year severance period. If a
Named Executive Officer would have been eligible to retire prior to the end of
the severance period, all stock options granted to the Named Executive Officer
would have continued to vest and be exercisable until their expiration date,
except in the case of misconduct (for which the options would be
forfeited). Also, the Named Executive Officer would have been treated as if he
continued in the employ of AXA Equitable until the end of the vesting period
for his performance shares.
In addition to the above, Mr. Winikoff would have received the following:
. the immediately vesting of his outstanding RSUs and
. a payment equal to (i) two times his annual base salary plus his STIC
Program award target for 2016, reduced by (ii) anv severance pay for
which he would otherwise eligible under the Severance Plan or the
Supplemental Severance Plan. This payment would be contingent on all
other terms and conditions of the Severance Plan and Supplemental
Severance Plan, including the execution of a general release and waiver
of claims against AXA Equitable and affiliates.
The following table lists the payments that the executives would have received
if they were involuntarily terminated under the Severance Plan on the Trigger
Date as well as the implications for their stock option and performance shares
awards:
SEVERANCE BENEFITS EQUITY GRANTS
----------------------- --------------------------------------------
LUMP SUM PERFORMANCE
NAME SEVERANCE PAYMENT STOCK OPTIONS SHARES
----------------------------- ----------- ----------- -------------------------------- -----------
MALMSTROM, ANDERS............. $ 49,467 $ 26,040 Options would continue to Forfeited
vest and be exercisable until
the earlier of their expiration
date and 30 days after the
end of the one-year severance
period.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SEVERANCE BENEFITS
---------------------
LUMP SUM
NAME SEVERANCE PAYMENT
------------------------------------------------- ------------ --------
WINIKOFF, BRIAN................................... $ 99,200 $12,865
HATTEM, DAVE...................................... $ 41,758 $21,390
HEALY, MICHAEL.................................... $ 24,919 $12,090
EQUITY GRANTS
--------------------------------------------------------------
PERFORMANCE
NAME STOCK OPTIONS SHARES
------------------------------------------------- -------------------------------- -----------------------------
WINIKOFF, BRIAN................................... Options would continue to Forfeited
vest and be exercisable until
the earlier of their expiration
date and 30 days after the
end of the one-year severance
period.
HATTEM, DAVE...................................... Continued vesting in all Would receive payouts in the
options and ability to exercise same time and in the same
the options through amounts as if he had
expiration date. continued to be employed.
HEALY, MICHAEL.................................... Options would continue to Forfeited
vest and be exercisable until
the earlier of their expiration
date and 30 days after the
end of the one-year severance
period.
MR. PEARSON
Under Mr. Pearson's employment agreement, he waived any right to participate in
the Severance Plan. Rather, if Mr. Pearson's employment had been terminated
without "Cause" on the Trigger Date, he would have been entitled to the same
benefits as termination for Good Reason as described above, subject to the same
conditions. "Cause" is defined in Mr. Pearson's employment agreement as:
(i) willful failure to perform substantially his duties after reasonable notice
of his failure, (ii) willful misconduct that is materially injurious to the
company, (iii) conviction of, or plea of NOLO CONTEDERE to, a felony or
(iv) willful breach of any written covenant or agreement with the company to
not disclose information pertaining to them or to not compete or interfere with
the company.
Ms. Ritchey's Separation Agreement
Ms. Ritchey entered into a separation agreement and general release with AXA
Equitable pursuant to which she terminated employment on December 30, 2016.
Payments related to her separation include:
. $40,192 severance pay under the terms of Severance Plan
. $22,940 lump sum payment under the terms of the Severance Plan
. Additional lump sum payment of $39,862
Ms. Brown's Separation Agreement
Ms. Brown entered into a separation agreement and general release with AXA
Equitable pursuant to which she terminated employment on August 31, 2016.
Payments related to her separation include:
. $36,605 severance pay under the terms of Severance Plan
. $12,607 lump sum payment under the terms of the Severance Plan
. Additional lump sum payment of $36,605
CHANGE-IN-CONTROL
With the exception of Mr. Pearson, none of the Named Executive Officers are
entitled to any special benefits upon a change-in-control of AXA Financial
other than the benefits provided for all stock options granted under the Stock
Option Plan. For those options, if there is a change in control of AXA
Financial, all unvested options will become immediately exercisable for their
term regardless of the otherwise applicable exercise schedule.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
As mentioned above, Mr. Pearson's employment agreement provides that "good
reason" includes Mr. Pearson's termination of employment in the event of a
change in control (provided that Mr. Pearson delivers notice of termination
within 180 days after the change in control). Accordingly, Mr. Pearson would
have been entitled to the benefits described above for a voluntary termination
for "good reason", subject to the same conditions. For this purpose, a change
in control includes: (a) any person becoming the beneficial owner of more than
50% of the voting stock of AXA Financial, (b) AXA and its affiliates ceasing to
control the election of a majority of the AXA Financial Board of directors and
(c) approval by AXA Financial's stock holders of a reorganization, merger or
consolidation or sale of all or substantially all of the assets of AXA
Financial unless AXA and its affiliates owned directly or indirectly more than
50% of voting power of the company resulting from such transaction.
2016 DIRECTOR COMPENSATION TABLE
The following table provides information on compensation that was paid to our
directors for 2016 services.
CHANGE IN
PENSION VALUE
AND
FEES NONQUALIFIED
EARNED NON-EQUITY DEFERRED
OR PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION
CASH/(1)/ AWARDS/(2)/ AWARDS/(3)/ COMPENSATION EARNINGS
NAME ($) ($) ($) ($) ($)
------------------------------------------------- ---------- ---------- ---------- -------------- -------------
BUBERL, THOMAS.................................... $ -- $ -- $ -- $ -- $ --
DE CASTRIES, HENRI/(5)/........................... $ -- $ -- $ -- $ -- $ --
DUVERNE, DENIS.................................... $ -- $ -- $ -- $ -- $ --
DE OLIVEIRA, RAMON................................ $ 27,126 $ 32,994 $ -- $ -- $ --
EVANS, PAUL....................................... $ -- $ -- $ -- $ -- $ --
FALLON-WALSH, BARBARA............................. $ 40,458 $ 32,994 $ -- $ -- $ --
KAYE, DANIEL...................................... $ 32,274 $ 32,994 $ -- $ -- $ --
KRAUS, PETER S./(6)/.............................. $ -- $ -- $ -- $ -- $ --
MATUS, KRISTI..................................... $ 26,334 $ 32,994 $ -- $ -- $ --
SCOTT, BERTRAM.................................... $ 30,690 $ 32,994 $ -- $ -- $ --
SLUTSKY, LORIE A.................................. $ 30,030 $ 32,994 $ -- $ -- $ --
VAUGHAN, RICHARD C................................ $ 38,874 $ 32,994 $ -- $ -- $ --
ALL OTHER
COMPENSATION/(4)/ TOTAL
NAME ($) ($)
------------------------------------------------- ---------------- ---------
BUBERL, THOMAS.................................... $ -- $ --
DE CASTRIES, HENRI/(5)/........................... $ 89,661 $ 89,661
DUVERNE, DENIS.................................... $ 59,880 $ 59,880
DE OLIVEIRA, RAMON................................ $ 328 $ 60,448
EVANS, PAUL....................................... $ -- $ --
FALLON-WALSH, BARBARA............................. $ 562 $ 74,014
KAYE, DANIEL...................................... $ 568 $ 65,836
KRAUS, PETER S./(6)/.............................. $ -- $ --
MATUS, KRISTI..................................... $ 187 $ 59,515
SCOTT, BERTRAM.................................... $ 491 $ 64,175
SLUTSKY, LORIE A.................................. $ 375 $ 63,399
VAUGHAN, RICHARD C................................ $ 627 $ 72,495
/(1)/For 2016, each of the non-officer directors received the following cash
compensation:
. $25,000 cash retainer (pro-rated for partial years of service);
. $400 for each special board meeting attended;
. $500 for each Audit Committee meeting attended; and
. $400 for all other Committee meetings attended.
In addition, the Chairpersons of the Organization and Compensation
Committee, the Investment Committee and the Investment and Finance Committee
each received a $3,333 retainer and the Chairman of the Audit Committee
received a $6,666 retainer.
/(2)/The amounts reported in this column represent the aggregate grant date
fair value of restricted and unrestricted stock awarded in 2016 in
accordance with FASB ASC Topic 718. As of December 31, 2016, our directors
had outstanding restricted stock awards in the following amounts:
Mr. De Oliveira.................................. 1,838
Ms. Fallon-Walsh................................. 1,838
Mr. Kaye......................................... 994
Ms. Matus........................................ 994
Ms. Scott........................................ 1,838
Ms. Slutsky...................................... 1,838
Mr. Vaughan...................................... 1,838
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(3)/As of December 31, 2016, our directors had outstanding stock options in
the following amounts:
Mr. De Oliveira.................................. 1,454
Ms. Fallon-Walsh................................. 709
Ms. Scott........................................ 709
Ms. Slutsky...................................... 3,367
Mr. Vaughan...................................... 2,101
/(4)/For Mr. De Castries, this column lists amounts received for services
performed for AXA Financial. For Mr. Duverne, this column lists amounts
received for services performed for AXA Financial and amounts paid by the
company for his spouse to accompany him to a business event. For all other
directors, this column lists premiums paid by the company for group life
insurance coverage and any amounts paid by the company for a director's
spouse to accompany the director on a business trip or to a business event.
/(5)/Mr. De Castries resigned as a director, effective September 1, 2016.
/(6)/Mr. Kraus resigned as a director, effective November 18, 2016.
THE EQUITY PLAN FOR DIRECTORS
Under the current terms of The Equity Plan for Directors (the "Equity Plan"),
non-officer directors are granted the following each year:
. a restricted stock award of $15,000 (granted in the first quarter);
and
. a stock retainer of $18,333, payable in two installments in June and
December.
For calendar years prior to 2014, non-officer directors were also granted
option awards each year.
Stock Options
The value of the stock option grants were determined using the Black-Scholes
methodology or other methodology used with respect to option awards
contemporaneously made to employees. The options are subject to a four-year
vesting schedule whereby one-third of each grant vests on the second, third and
fourth anniversaries of the grant date.
Restricted Stock
The number of shares of restricted stock to be granted to each non-officer
director is determined by dividing $15,000 by the fair market value of the
stock on the applicable grant date (rounded down to the nearest whole number).
During the restricted period, the directors are entitled to exercise full
voting rights on the restricted stock and receive all dividends and
distributions. The restricted stock has a three-year cliff vesting schedule.
Termination of Service
In the event a non-officer director dies or, after completing one year of
service, is removed without cause, is not reelected, retires or resigns:
(a) his or her options will become fully vested and exercisable at any time
prior to the earlier of the expiration of the grant or five years from
termination of service and (b) his or her restricted stock will immediately
become non-forfeitable; provided that if the director performs an act of
misconduct, all of his or her options and restricted stock then outstanding
will become forfeited. Upon any other type of termination, all outstanding
options and restricted stock are forfeited.
Deferrals of Restricted Stock and Stock Retainer
Non-officer directors may elect to defer receipt of at least ten percent of
their stock retainer and/or restricted stock awards. Upon deferral, the
director receives deferred stock units in the same number and with the same
vesting restrictions, if any, as the underlying awards. The director is
entitled to receive dividend equivalents on such deferred stock units, if
applicable. The deferred stock units will be distributed in stock on an elected
distribution date or upon the occurrence of certain events.
F-120
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Change in Control
Upon a change in control of AXA Financial, unless the awards will be assumed or
substituted following the change in control: (a) the options will either become
fully exercisable or cancelled in exchange for a payment in cash equal to the
excess, if any, of the change in control price over the exercise price, and
(b) the restricted stock will become immediately non-forfeitable.
CHARITABLE AWARD PROGRAM FOR DIRECTORS
Under the Charitable Award Program for Directors, a non-officer director may
designate up to five charitable organizations and/or education institutions to
receive an aggregate donation of $166,667 after his or her death. Although the
company may purchase life insurance policies insuring the lives of the
participants to financially support the program, it has not elected to do so.
MATCHING GIFTS
Non-officer directors may participate in AXA Foundation's Matching Gifts
program. Under this program, the AXA Foundation matches donations made by
participants to public charities of $50 or more, up to $667 per year.
BUSINESS TRAVEL ACCIDENT
All directors are covered for accidental loss of life while traveling to, or
returning from:
. board or committee meetings;
. trips taken at our request; and
. trips for which the director is compensated.
Each director is covered up to four times their annual compensation, subject to
certain maximums.
DIRECTOR EDUCATION
All directors are encouraged to attend director education programs as they deem
appropriate to stay abreast of developments in corporate governance and best
practices relevant to their contribution to the board generally, as well as to
their responsibilities in their specific committee assignments and other roles.
We generally reimburse non-officer directors for the cost to attend director
education programs offered by third parties, including related reasonable
travel and lodging expenses, up to a maximum amount of $1,667 per director each
calendar year.
THE POST-2004 VARIABLE DEFERRED COMPENSATION PLAN FOR DIRECTORS
Non-officer directors may defer up to 100% of their annual cash retainer and
meetings fees under The Post-2004 Variable Deferred Compensation Plan for
Directors (the "Deferral Plan"). Deferrals are credited to a bookkeeping
account in the director's name in the month that the compensation otherwise
would have been paid to him or her. The account is used solely for record
keeping purposes and no assets are actually placed into any account in the
director's name. The minimum deferral is 10%.
Account balances in the Deferral Plan are credited with gains and losses as if
invested in the available earnings crediting options chosen by the participant.
The Deferral Plan currently offers a variety of earnings crediting options
which are among those offered by the AXA Premier VIP Trust and EQ Advisors
Trust.
Participants in the Deferral Plan elect the form and timing of payments from
their accounts. Payments may be received in any combination of a lump sum
and/or annual installments paid in consecutive years. Payments may begin in any
July or December after the year of deferral, but they must begin by the first
July or the first December following age 70 (72 in the case of certain
grandfathered directors). Participants make alternate elections in the event of
separation from service prior to the specified payment date and death prior to
both the specified payment date and separation from service.
The Deferral Plan was designed, and is intended to be administered, in
accordance with the requirements of Code Section 409A.
F-121
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
We are an indirect, wholly-owned subsidiary of AXA Financial. AXA Financial's
common stock is 100% owned by AXA and its subsidiaries. For additional
information regarding AXA, see "Business -- Parent Company".
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 1, 2016, certain information
regarding the beneficial ownership of common stock of AXA by each of our
directors and executive officers and by all of our directors and executive
officers as a group.
AXA COMMON STOCK/(1)/
NUMBER OF SHARES
AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------------------- -------------------- ----------------
Mark Pearson/(2)/................................. 946,422 *
Thomas Buberl/(3)/................................ 248,150 *
Ramon de Oliveria/(4)/............................ 32,242 *
Paul Evans/(5)/................................... 251,577 *
Barbara Fallon-Walsh/(6)/......................... 23,521 *
Daniel G. Kaye.................................... 5,038 *
Kristi A. Matus................................... 5,038 *
Bertram L. Scott/(7)/............................. 23,526 *
Lorie A. Slutsky/(8)/............................. 51,920 *
Richard C. Vaughan/(9)/........................... 38,534 *
Josh Braverman/(10)/.............................. 121,329 *
Marine de Boucaud/(11)/........................... 33,115 *
Dave S. Hattem/(12)/.............................. 175,819 *
Michael Healy/(13)/............................... 83,096 *
Adrienne Johnson/(14)/............................ 81,130 *
Anders Malmstrom/(15)/............................ 102,846 *
Brian Winikoff.................................... -- *
All directors, director nominees and executive
officers as a group (17 persons)/(16)/.......... 2,223,303 *
* Number of shares listed represents less than 1% of the outstanding AXA
common stock.
/(1)/Holdings of AXA American Depositary Shares ("ADS") are expressed as their
equivalent in AXA ordinary shares. Each AXA ADS represents the right to
receive one AXA ordinary share.
/(2)/Includes 544,391 shares Mr. Pearson can acquire within 60 days under
option plans. Also includes 272,129 unvested AXA performance shares.
/(3)/Includes 102,714 unvested AXA performance shares.
/(4)/Includes 4,361 shares Mr. de Oliveira can acquire within 60 days under
option plans.
/(5)/Includes 113,402 shares Mr. Evans can acquire within 60 days under option
plans. Also includes 106,094 unvested AXA performance shares.
/(6)/Includes(i) 2,127 shares Ms. Fallon-Walsh can acquire within 60 days under
option plans and (ii) 18,964 deferred stock units under The Equity Plan
for Directors.
/(7)/Includes (i) 2,127 shares Mr. Scott can acquire within 60 days under
option plans and (ii) 17,288 deferred stock units under The Equity Plan
for Directors.
/(8)/Includes (i) 10,102 shares Ms. Slutsky can acquire within 60 days under
options plans and (ii) 39,971 deferred stock units under The Equity Plan
for Directors.
/(9)/Includes 6,303 shares Mr. Vaughan can acquire within 60 days under option
plans.
/(10)/Includes 68,442 shares Mr. Braverman can acquire within 60 days under
option plans. Also includes 52,887 unvested AXA performance shares
/(11)/Includes 8,034 shares Ms. de Boucaud can acquire within 60 days under
option plans. Also includes 25,081 unvested AXA performance shares.
/(12)/Includes 97,602 shares Mr. Hattem can acquire within 60 days under option
plans. Also includes 78,140 unvested AXA performance shares.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(13)/Includes 19,017 shares Mr. Healy can acquire within 60 days under option
plans. Also includes 49,404 unvested AXA performance shares.
/(14)/Includes 35,049 shares Ms. Johnson can acquire within 60 days under
option plans. Also includes 33,980 unvested AXA performance shares.
/(15)/Includes 23,852 shares Mr. Malmstrom can acquire within 60 days under
option plans. Also includes 77,913 unvested AXA performance shares.
/(16)/Includes 934,809 shares the directors and executive officers as a group
can acquire within 60 days under option plans.
F-123
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
POLICIES AND PROCEDURES REGARDING TRANSACTIONS WITH RELATED PERSONS
AXA Financial, our indirect parent company, has formal policies covering its
employees and directors and the employees and directors of its subsidiaries
that are designed to avoid conflicts of interests that may arise in certain
related party transactions. For example, employees of AXA Financial and its
subsidiaries are subject to the Code of Ethics. The Code of Ethics includes
provisions designed to avoid conflicts of interests that may lead to divided
loyalties by requiring that employees, among other things, not exercise any
responsibility in a transaction in which they have an interest, receive certain
approvals before awarding any contract to a relative or close personal friend
and not take for their own benefit business opportunities developed or learned
of during the course of employment. Similarly, MLOA's non-officer directors are
subject to the AXA Financial Policy Statement on Interests of Directors and
Contracts With Directors And Their Relatives for Non-Officer Directors (the
"Policy Statement"). The Policy Statement includes provisions designed to
maintain the directors' independent judgment by requiring, among other things,
disclosure of interests in any proposed transaction and abstention from voting
if a director has a significant financial interest in the transaction or the
transaction is with a business organization in which the director has an
official affiliation. It further prohibits certain credit related transactions
and requires disclosure of potential contracts with and employment of close
relatives. Each director must submit a report annually regarding his or her
compliance with the Policy Statement.
Other than as set forth above, MLOA does not have written policies regarding
the employment of immediate family members of any of its related persons.
As a wholly-owned indirect subsidiary of AXA Financial, and ultimately of AXA,
MLOA enters into various transactions with both AXA Financial and AXA and their
subsidiaries in the normal course of business including, among others, service
agreements, reinsurance transactions, and lending and other financing
arrangements. While there is no formal written policy for the review and
approval of transactions between MLOA and AXA and/or AXA Financial, such
transactions are routinely subject to a review and/or approval process. For
example, payments made by MLOA to AXA and its subsidiaries pursuant to certain
intercompany service or other agreements ("Intercompany Agreements") are
reviewed with the Audit Committee on an annual basis. The amount paid by MLOA
for any personnel, property and services provided under such Intercompany
Agreements may not exceed the fair market value of such personnel, property and
services. Additionally, Intercompany Agreements to which MLOA is a party are
subject to the approval of the Arizona Department of Insurance, pursuant to
Arizona's insurance holding company systems act.
In practice, any proposed related party transaction which management deems to
be significant or outside of the ordinary course of business would be submitted
to the Board of Directors for its approval.
TRANSACTIONS BETWEEN MLOA AND AFFILIATES
Under MLOA's service agreement with AXA Equitable, personnel services, employee
benefits, facilities, supplies and equipment are provided to MLOA to conduct
its business. The associated costs related to the service agreement are
allocated to MLOA based on methods that management believes are reasonable,
including a review of the nature of such costs and activities performed to
support MLOA. As a result of such allocations, MLOA incurred expenses of
$129,215,429, $88,073,086 and $67,404,204 for 2016, 2015 and 2014, respectively.
MLOA paid $70,554,003, $63,846,023 and $52,235,271 in commissions and fees for
the sale of its insurance products to AXA Distribution Holding Corporation and
its subsidiaries in 2016, 2015 and 2014, respectively. AXA Distribution Holding
Corporation is an indirect wholly-owned subsidiary of AXA Financial and its
subsidiaries include AXA Advisors, LLC, AXA Network LLC and PlanConnect, LLC.
Various AXA affiliates, including MLOA, cede a portion of their life, health
and catastrophe insurance business through reinsurance agreements to AXA Global
Life an affiliate. Beginning in 2008 AXA Global Life, in turn, retrocedes a
quota share portion of these risks to MLOA on a one-year term basis. Premiums
assumed from the above mentioned affiliated reinsurance transactions during
2016, 2015 and 2014, were $2,977,403, $1,332,127 and $1,475,856, respectively.
Claims and expenses assumed under these agreements during 2016, 2015 and 2014
were $1,935,698, $1,402,968 and $653,026, respectively.
MLOA cedes a portion of its life business through excess of retention treaties
to AXA Equitable on a yearly renewal term basis and reinsured the no lapse
guarantee riders through AXA RE Arizona Company, an affiliate. Premiums earned
from the above mentioned affiliated reinsurance transactions during 2016, 2015
and 2014, were $2,876,872, $2,222,640 and $1,592,849, respectively. Claims and
expenses assumed under these agreements during 2016, 2015 and 2014 were $0,
$7,359 and $1,777,487, respectively.
MLOA paid $10,598,867, $12,966,783 and $2,193,006 in commissions and fees for
the sale of its insurance products to AXA Distributors in 2016, 2015 and 2014,
respectively.
In addition to the AXA Equitable service agreement, MLOA has various other
service and investment advisory agreements with AB. The amount of expenses
incurred by MLOA related to these agreements was $1,572,382, $1,374,155 and
$1,156,818 for 2016, 2015 and 2014, respectively.
F-124
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PART II
ITEM 13.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ESTIMATED
ITEM OF EXPENSE EXPENSE
--------------- ---------
Registration fees........................................... $ 0.00
Federal taxes............................................... N/A
State taxes and fees (based on 50 state average)............ N/A
Trustees' fees.............................................. N/A
Transfer agents' fees....................................... N/A
Printing and filing fees.................................... $50,000*
Legal fees.................................................. N/A
Accounting fees............................................. N/A
Audit fees.................................................. $20,000*
Engineering fees............................................ N/A
Directors and officers insurance premium paid by Registrant. N/A
--------
* Estimated expense.
ITEM 14.INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-Laws of MONY Life Insurance Company of America provide, in Article VI
as follows:
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he or she is or
was or has agreed to become a director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding had no reasonable cause to believe his or
her conduct was unlawful; except that in the case of an action or suit by or in
the right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in which
such action or suit was brought or other court of competent jurisdiction shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
1
entitled to indemnity.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of no contest or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 6. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of Title 10, Arizona Revised Statutes are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article shall not be deemed exclusive
of any other right to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 7. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and
incurred by such person in any such capacity or arising out of his or her
status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
By-Law.
The directors and officers of MONY Life Insurance Company of America are
insured under policies issued by X.L. Insurance Company, Arch Insurance
Company, Endurance Specialty Insurance Company, U.S. Specialty Insurance,
St. Paul Travelers, Chubb Insurance Company, AXIS Insurance Company and Zurich
Insurance Company. The annual limit on such policies is $105 million, and the
policies insure officers and directors against certain liabilities arising out
of their conduct in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Underwriting Agreement.
(a) Wholesale Distribution Agreement dated April 1, 2005 by and
between MONY Life Insurance Company of America, MONY Securities
Corporation, and AXA Distributors, LLC, is incorporated herein by
reference to the Registration Statement on Form S-3 (333-177419) filed
on October 20, 2011.
(b) Form of Brokerage General Agent Sales Agreement with Schedule and
Amendment to Brokerage General Agent Sales Agreement among [Brokerage
General Agent] and AXA Distributors, LLC, AXA Distributors Insurance
Agency, LLC, AXA Distributors Insurance Agency of Alabama, LLC and AXA
Distributors Insurance Agency of Massachusetts, LLC. incorporated herein
by reference to post-effective amendment no. 7 to the registration
statement on Form N-4 (File No. 333-72632) filed on April 22, 2005.
(c) Form of Wholesale Broker-Dealer Supervisory and Sale Agreement
among [Broker Dealer] and AXA Distributors, LLC. incorporated herein by
reference to post-effective amendment no. 7 to the registration
statement on Form N-4 (File No. 333-72632) filed on April 22, 2005.
(d) General Agent Sales Agreement dated June 6, 2005, by and between
MONY Life Insurance Company of America and AXA Network, LLC, previously
filed with this registration statement on Form S-1 (File No. 333-180068)
filed on March 13, 2012.
(i) First Amendment dated as of August 1, 2006 to General Agent Sales
Agreement dated as of August 1, 2006 by and between MONY Life Insurance
Company of America and AXA Network, incorporated herein by reference to
Exhibit (c)(9) to the Registration Statement on Form N-6 (File
No. 333-134304) filed on March 1, 2012.
(ii) Second Amendment dated as of April 1, 2008 to General Agent
Sales Agreement dated as of April 1, 2008 by and between MONY Life
Insurance Company of America and AXA Network, LLC, previously filed with
this registration statement on Form S-1 (File No. 333-180068) filed on
March 13, 2012.
(iii) Form of the Third Amendment to General Agent Sales Agreement
dated as of October 1, 2013 by and between MONY Life Insurance Company
of America and AXA Network, LLC, previously filed with this registration
statement on Form S-1 (333-195491) on April 21, 2015.
(iv) Form of the Fourth Amendment to General Agent Sales Agreement
dated as of October 1, 2014 by and between MONY Life Insurance Company
of America and AXA Network, LLC, previously filed with this registration
statement on Form S-1 (333-195491) on April 21, 2015.
(e) Broker-Dealer Distribution and Servicing Agreement, dated June 6,
2005, made by and between MONY Life Insurance Company of America and AXA
Advisors, LLC, previously filed with this registration statement on Form
S-1 (File No. 333-180068) filed on March 13, 2012.
(2) Not Applicable.
(3)(i) Articles of Incorporation.
(a) Articles of Restatement of the Articles of Incorporation of MONY
Life Insurance Company of America (as Amended July 22, 2004), incorporated
herein by reference to post-effective amendment no. 7 to the registration
statement on Form N-4 (File No. 333-72632) filed on April 22, 2005.
(3)(ii) By-Laws.
(a) By-Laws of MONY Life Insurance Company of America (as Amended
July 22, 2004), incorporated herein by reference to post-effective
amendment no. 8 to the registration statement on Form N-4 (File No.
333-72632) filed on May 4, 2005.
(4) Form of contract.
(a) Variable Indexed Option Rider (R09-30), incorporated herein by
reference to Exhibit 4 to the Registration Statement (File No. 333-167938
on Form S-3, filed on September 30, 2010.
(b) Variable Indexed Option Rider (ICC09-R09-30), previously filed
with this registration statement on Form S-1 (File No. 333-180068) filed
on March 13, 2012.
2
(5) Opinion and consent of counsel regarding legality
(a) Opinion and consent of Shane Daly as to the legality of
securities being registered, filed herewith.
(8) Not Applicable.
(9) Not Applicable.
(10) Material Contracts.
(a) Services Agreement between The Mutual Life Insurance Company of
New York and MONY Life Insurance Company of America, incorporated herein
by reference to Post-Effective Amendment No. 22 to the registration
statement on Form N-6 (File No. 333-06071) filed on April 30, 2003.
(b) Amended and Restated Services Agreement between MONY Life
Insurance Company of America and AXA Equitable Life Insurance Company
dated as of February 1, 2005, incorporated herein by reference to
Exhibit 10.2 to Annual Report (File No. 333-65423) on Form 10-K, filed
on March 31, 2005.
(11) Not Applicable.
(12) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(21) Not Applicable.
(23) Consents of Experts and Counsel.
(a) Consent of PricewaterhouseCoopers LLP, filed herewith.
(b) See Item (5) above.
(24) Powers of Attorney.
(a) Powers of Attorney, filed herewith.
(25) Not Applicable.
(26) Not Applicable.
101.INS XBRL Instance Document, filed herewith.
101.SCH XBRL Taxonomy Extension Schema Document, filed herewith.
101.CAL XRL Taxonomy Extension Calculation Linkbase Document, filed herewith.
101.LAB XBRL Taxonomy Label Linkbase Document, filed herewith.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document, filed herewith.
3
ITEM 17.UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10
(a) (3) of the Securities Act of 1933;
(ii)to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424 (b) if, in the aggregate,
the changes in volume and price represent no more than 20%
change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii)to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a) (1) (i), (a) (1) (ii) and
(a) (1) (iii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant pursuant
to Section 13 or Section 15 (d) of the Securities Act of 1934 that are
incorporated by reference in the registration statement, or is contained in
a form of prospectus filed pursuant to Rule 424 (b) that is part of this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the
Securities Act of 1933 to any purchaser, each prospectus filed
pursuant to Rule 424 (b) as part of a registration statement
relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
4
(5) That, for the purpose of determining liability of the Registrant
under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned Registrant
undertakes that in a primary offering of securities of the
undersigned Registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the securities
to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned Registrant will be a seller to the purchaser and will
be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
Registrant relating to the offering required to be filed pursuant
to Rule 424; (ii) Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned Registrant or
used or referred to by the undersigned Registrant; (iii) The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the
undersigned Registrant; and (iv) Any other communication that is
an offer in the offering made by the undersigned Registrant to the
purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City and State of
New York, on this 18th day of April, 2017.
MONY Life Insurance Company of America
(Registrant)
By: /s/ Shane Daly
--------------------------------------------------
Shane Daly
Vice President and Associate General Counsel
MONY Life Insurance Company of America
Pursuant to requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
PRINCIPAL EXECUTIVE OFFICER:
*Mark Pearson Chairman of the Board, Chief
Executive Officer, Director and
President
PRINCIPAL FINANCIAL OFFICER:
*Anders B. Malmstrom Senior Executive Vice President and
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
*Andrea Nitzan Executive Vice President, Chief
Accounting Officer and Controller
*DIRECTORS:
Ramon de Oliveira Kristi A. Matus Lorie A. Slutsky
Barbara Fallon-Walsh Mark Pearson Richard C. Vaughan
Daniel G. Kaye Bertram Scott
*By: /s/ Shane Daly
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Shane Daly
Attorney-in-Fact
April 18, 2017
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION TAG VALUE
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(5)(a) Opinion and Consent of Shane Daly EX-99.5a
(23)(a) Consent of PricewaterhouseCoopers LLP EX-99.23a
(24)(a) Powers of Attorney Ex-99.24a
101.INS XBRL Instance Document EX-101.INS
101.SCH XBRL Taxonomy Extension Schema Document EX-101.SCH
101.CAL XRL Taxonomy Extension Calculation Linkbase Document EX-101.CAL
101.LAB XBRL Taxonomy Label Linkbase Document EX-101.LAB
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document EX-101.PRE
101.DEF XBRL Taxonomy Extension Definition Linkbase Document EX-101.DEF