REGISTRATION NO. 333-223704
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
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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)
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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)
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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. 333-216771. 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)
Emerging growth company [_]
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 7(a)(2)(B)
of the Securities Act . [_]
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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 $154,000,000 $ $ $19,173
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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 MONY Life Insurance Company of America 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 $154,000,000.
(2)Prior to the filing of this Registration Statement, $4,000,000 of units of
interest under the Market Stabilizer Option (R) remained unregistered and
unsold, pursuant to Registration Statement File No. 333-216771 on Form S-1,
which was filed with the Commission on April 18, 2017. Those unsold units
and the associated filing fee of $498 are carried forward pursuant to
Rule 415(a)(6) with the initial filing of this Registration Statement on
March 16, 2018, and such unsold units of interest were deemed deregistered
upon effectiveness of this Registration Statement. The remaining balance of
$18,675 for an additional $150,000,000 units of interest was also paid with
the initial filing of this Registration Statement.
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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.
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Market Stabilizer Option(R) Available Under Certain Variable Life Insurance
Policies Issued by MONY Life Insurance Company of America
PROSPECTUS DATED MAY 1, 2018
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 (5/18) Cat # 235457
NB (IL Leg II/IL Leg III and IL Optimizer III - all states except NY and PR) #502903
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 affiliate of AXA Equitable Life Insurance Company ("AXA
Equitable") and an indirect wholly owned subsidiary of AXA Equitable Holdings,
Inc., which is an indirect majority owned subsidiary of AXA S.A. ("AXA"), a
French holding company for an international group of insurance and related
financial services companies. As the majority 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 Equitable Holdings, Inc. and its consolidated subsidiaries managed
approximately $669.9 billion in assets as of December 31, 2017. 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, 2017 and 2016 and for
each of the three years in the period ended December 31, 2017 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-21
Description of Property............................................................... F-32
Legal Proceedings..................................................................... F-33
Financial Statements and Notes to Financial Statements................................ F-34
Selected Financial Data............................................................... F-76
Management's Discussion and Analysis of Financial Condition and Results of Operations. F-77
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. F-97
Quantitative and Qualitative Disclosures About Market Risk............................ F-98
Directors, Executive Officers, Promoters and Control Persons.......................... F-100
Executive Compensation................................................................ F-105
Security Ownership of Certain Beneficial Owners and Management........................ F-141
Transactions with Related Persons, Promoters and Certain Control Persons.............. F-142
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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, AND THE TERM "AB" REFERS
TO ALLIANCEBERNSTEIN HOLDING L.P. AND ALLIANCEBERNSTEIN L.P. 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 OUR BUSINESS
RISKS RELATING TO CONDITIONS IN THE FINANCIAL MARKETS AND ECONOMY
CONDITIONS IN THE GLOBAL CAPITAL MARKETS AND THE ECONOMY COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Our business, results of operations or financial condition are materially
affected by conditions in the global capital markets and the economy generally.
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., equity market performance, continued low interest
rates, uncertainty regarding 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 the actions the Trump administration and Congress may pursue, global
economic factors including quantitative easing or similar programs by major
central banks or the unwinding of quantitative easing or similar programs, the
United Kingdom's vote to exit from the European Union, and other geopolitical
issues. Given our interest rate and equity market exposure in our investment
and derivatives portfolios and certain of our products, these factors could
have a material adverse effect on us. Our revenues may decline, our profit
margins could erode and we could incur significant losses. The value of our
investments and derivatives portfolios may also be impacted by reductions in
price transparency, changes in the assumptions or methodology we use to
estimate fair value and changes in investor confidence or preferences, which
could potentially result in higher realized or unrealized losses and have a
material adverse effect on our business, results of operations or financial
condition. Market volatility may also make it difficult to transact in or to
value certain of our securities if trading becomes less frequent.
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
our products and our investment returns could be materially and adversely
affected. The profitability of many of our products depends in part on the
value of the General Account and Separate Accounts supporting them, which may
fluctuate substantially depending on any of the foregoing conditions. In
addition, a change in market conditions could cause a change in consumer
sentiment and adversely affect sales and could cause the actual persistency of
these products to vary from their anticipated persistency (the probability that
a product will remain in force from one period to the next) and adversely
affect profitability. Changing economic conditions or adverse public perception
of financial institutions can influence customer behavior, which can result in,
among other things, an increase or decrease in the levels of claims, lapses,
deposits, surrenders and withdrawals in certain products, any of which could
adversely affect profitability. Our policyholders may choose to defer paying
insurance premiums or stop paying insurance premiums altogether. In addition,
market conditions may affect the availability and cost of reinsurance
protections and the availability and performance of hedging instruments in ways
that could materially and adversely affect our profitability.
Accordingly, both market and economic factors may affect our business results
by adversely affecting our business volumes, profitability, cash flow,
capitalization and overall financial condition. Disruptions in one market or
asset class can also spread to other markets or asset classes. Upheavals and
stagnation in the financial markets could also materially affect our financial
condition (including our liquidity and capital levels) as a result of the
impact of such events on our assets and liabilities.
EQUITY MARKET DECLINES AND VOLATILITY MAY MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
The S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite are on
an eight-year bull market run and are at or near record high levels. A market
correction or bear market could materially and adversely affect our business,
results of operations or financial condition. Declines or volatility in the
equity markets can negatively impact our investment returns as well as our
business, results of operations or financial condition. For example, equity
market declines or volatility could, among other things, decrease the account
value ("AV") of our variable life contracts which, in turn, would reduce the
amount of revenue we derive from fees charged on those account and asset
values. Equity market declines and volatility may also 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
F-1
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
to more conservative investment options (which may have lower fees), which
could negatively impact our future profitability or increase our benefit
obligations particularly if they were to remain in such options during an
equity market increase. Market volatility can negatively impact the value of
equity securities we hold for investment which could in turn reduce our
statutory capital. In addition, equity market volatility could reduce demand
for variable products relative to fixed products, lead to changes in estimates
underlying our calculations of deferred acquisition costs ("DAC") that, in
turn, could accelerate our DAC amortization and reduce our current earnings.
INTEREST RATE FLUCTUATIONS OR PROLONGED PERIODS OF LOW INTEREST RATES MAY
MATERIALLY AND ADVERSELY IMPACT OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION.
We are affected by the monetary policies of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") and the Federal Reserve Bank
of New York (collectively, with the Federal Reserve Board, the "Federal
Reserve") and other major central banks, including the unwinding of
quantitative easing programs, as such policies may adversely impact the level
of interest rates and, as discussed below, the income we earn on our
investments or the level of product sales.
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 and contracts 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 quickly replace the assets in our General Account
with 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 DAC;
. 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 and the cost of some of our hedges;
. 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.
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;
. we may not be able to effectively mitigate, including through our
hedging strategies, 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, an extended
period of declining interest rates or a prolonged period of low interest rates
may also cause us to change our long-term view of the interest rates that we
can earn on our investments. Such a change in our view would cause us to change
the long-term interest rate that we assume in our calculation of insurance
assets and liabilities under accounting principles generally accepted in the
United States of America ("U.S. GAAP"). Any future revision would result in
increased reserves, accelerated amortization of DAC and other unfavorable
consequences. In addition, certain statutory capital and reserve requirements
are based on formulas or models that consider interest rates, and an extended
period of low interest rates may increase
F-2
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
the statutory capital we are required to hold and the amount of assets we must
maintain to support statutory 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.
We manage interest rate risk as part of our asset and liability management
strategies, which include (i) maintaining an investment portfolio with
diversified maturities that has a weighted average duration that is within an
acceptable range of the duration of our estimated liability cash flow profile
given our risk appetite and (ii) our hedging programs. For certain of our
liability portfolios, it is not possible to invest assets to the full liability
duration, thereby creating some asset/liability mismatch. Where a liability
cash flow may exceed the maturity of available assets, as is the case with
certain retirement products, we may support such liabilities with equity
investments, derivatives or interest rate mismatch strategies. We take measures
to manage the economic risks of investing in a changing interest rate
environment, but we may not be able to mitigate the interest rate risk of our
fixed income investments relative to our interest sensitive liabilities.
Widening credit spreads, if not offset by equal or greater declines in the
risk-free interest rate, would also cause the total interest rate payable on
newly issued securities to increase, and thus would have the same effect as an
increase in underlying interest rates.
RISKS RELATING TO OUR OPERATIONS
FAILURE TO PROTECT THE CONFIDENTIALITY OF CUSTOMER INFORMATION OR PROPRIETARY
BUSINESS INFORMATION COULD ADVERSELY AFFECT OUR REPUTATION AND HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Our business and relationships with customers are dependent upon our ability to
maintain the confidentiality of our and our customers' proprietary business and
confidential information (including customer transactional data and personal
data about our customers and the employees and customers of our customers).
Pursuant to federal laws, various federal regulatory and law enforcement
agencies have established rules protecting the privacy and security of personal
information. In addition, most states have enacted laws, which vary
significantly from jurisdiction to jurisdiction, to safeguard the privacy and
security of personal information.
Our confidential information is retained on AXA Equitable's and certain third
parties' information systems and in cloud-based systems (including customer
transactional data and personal information about our customers, the employees
and customers of our customers, and our own employees). AXA Equitable relies on
commercial technologies and third parties to maintain the security of those
systems. Anyone who is able to circumvent these security measures and penetrate
these information systems or cloud-based systems, could access, view,
misappropriate, alter or delete any information in the systems, including
personally identifiable customer information and proprietary business
information. It is possible that an employee, contractor or representative
could, intentionally or unintentionally, disclose or misappropriate personal
information or other confidential 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 our information
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
information systems or cloud-based 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 any of which could have a material adverse
effect on our reputation, business, results of operations or financial
condition.
OUR OWN OPERATIONAL FAILURES OR THOSE OF SERVICE PROVIDERS ON WHICH WE RELY,
INCLUDING FAILURES ARISING OUT OF HUMAN ERROR, COULD DISRUPT OUR BUSINESS,
DAMAGE OUR REPUTATION AND HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Weaknesses or failures in our internal processes or systems could lead to
disruption of our operations, liability to clients, exposure to disciplinary
action or harm to our reputation. Our business is highly dependent on our
ability to process, on a daily basis, large numbers of transactions, many of
which are highly complex, across numerous and diverse markets. These
transactions generally must comply with client investment guidelines, as well
as stringent legal and regulatory standards.
Weaknesses or failures within a vendor's internal processes or systems, or
inadequate business continuity plans, can materially disrupt our business
operations. In addition, vendors may lack the necessary infrastructure or
resources to effectively safeguard our confidential data. If we are unable to
effectively manage the risks associated with such third-party relationships, we
may suffer fines, disciplinary action and reputational damage.
Our obligations to clients require us to exercise skill, care and prudence in
performing our services. The large number of transactions we process makes it
highly likely that errors will occasionally occur. If we make a mistake in
performing our services that causes financial harm to
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
a client, we have a duty to act promptly to put the client in the position the
client would have been in had we not made the error. The occurrence of
mistakes, particularly significant ones, can have a material adverse effect on
our reputation, business, results of operations or financial condition.
OUR INFORMATION SYSTEMS MAY FAIL OR THEIR SECURITY MAY BE COMPROMISED, WHICH
COULD MATERIALLY AND ADVERSELY IMPACT OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION.
Our business is highly dependent upon the effective operation of AXA
Equitable's and certain third parties' information systems. We also have
arrangements in place with outside vendors and other 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 third-party distribution
firms, performing actuarial analyses and modeling, hedging, performing
operational tasks (E.G., processing transactions and calculating net asset
value) and maintaining financial records. AXA Equitable's information systems
and those of our outside vendors and service providers may be vulnerable to
physical or cyber-attacks, computer viruses or other computer related attacks,
programming errors and similar disruptive problems. In some cases, such
physical and electronic break-ins, cyber-attacks or other security breaches may
not be immediately detected. In addition, we could experience a failure of one
or these systems, AXA Equitable's employees or agents could fail to monitor and
implement enhancements or other modifications to a system in a timely and
effective manner, or AXA Equitable's employees or agents could fail to complete
all necessary data reconciliation or other conversion controls when
implementing a new software system or implementing modifications to an existing
system. 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, results of operations or financial condition. In
addition, a failure of these systems could lead to the possibility of
litigation or regulatory investigations or actions, including regulatory
actions by state and federal governmental authorities. While we take
preventative measures to avoid cyber-attacks and other security breaches, we
cannot guarantee that such measures will successfully prevent an attack or
breach.
Many of the software applications that we use in our business are licensed
from, and supported, upgraded and maintained by, vendors. A suspension or
termination of certain of these licenses or the related support, upgrades and
maintenance could cause temporary system delays or interruptions. Additionally,
technology rapidly evolves and we cannot guarantee that our competitors may not
implement more advanced technology platforms for their products and services,
which may place us at a competitive disadvantage and materially and adversely
affect our results of operations and business prospects.
Our service providers, including service providers to whom we outsource certain
of our functions, are also subject to the risks outlined above, any one of
which could result in our incurring substantial costs and other negative
consequences, including a material adverse effect on our business, results of
operations or financial condition.
Central banks in Europe and Japan have in recent years begun to pursue negative
interest rate policies, and the Federal Open Market Committee has not ruled out
the possibility that the Federal Reserve would adopt a negative interest rate
policy for the United States, at some point in the future, if circumstances so
warranted. Because negative interest rates are largely unprecedented, there is
uncertainty as to whether the technology used by financial institutions,
including us, could operate correctly in such a scenario. Should negative
interest rates emerge, our hardware or software, or the hardware or software
used by our contractual counterparties and financial services providers, may
not function as expected or at all. In such a case, our business, results of
operations or financial condition could be materially and adversely affected.
WE FACE COMPETITION FROM OTHER INSURANCE COMPANIES, BANKS AND OTHER FINANCIAL
INSTITUTIONS, WHICH MAY ADVERSELY IMPACT OUR MARKET SHARE AND RESULTS OF
OPERATIONS.
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. As a result, 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. As with any highly competitive market, competitive pricing
structures are important. If competitors charge lower fees for similar products
or strategies, we may decide to reduce the fees on our own products or
strategies (either directly on a gross basis or on a net basis through fee
waivers) in order to retain or attract customers. Such fee reductions, or other
effects of competition, could have a material adverse effect on our business,
results of operations or financial condition.
Competition may adversely impact our market share and profitability. Many of
our competitors are large and well-established and some have greater market
share or breadth of distribution, offer a broader range of products, services
or features, assume a greater level of risk, have greater financial resources,
have higher claims-paying or credit ratings, have better brand recognition or
have more established relationships with clients than we do. We may also face
competition from new market entrants or non-traditional or online competitors,
which may have a material adverse effect on our business.
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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, our financial strength as evidenced, in part, by our financial and
claims-paying ratings; new regulations 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.
Many of our competitors also have been able to increase their distribution
systems through mergers, acquisitions, partnerships or other contractual
arrangements. Furthermore, larger competitors may have lower operating costs
and have an ability to absorb greater risk, while maintaining financial
strength ratings, allowing them to price products more competitively. These
competitive pressures could result in increased pressure on the pricing of
certain of our products and services, and could harm our ability to maintain or
increase profitability. In addition, if our financial strength and credit
ratings are lower than our competitors, we may experience increased surrenders
or a significant decline in sales. The competitive landscape in which we
operate may be further affected by government sponsored programs or regulatory
changes in the United States and similar governmental actions outside of the
United States. Competitors that receive governmental financing, guarantees or
other assistance, or that are not subject to the same regulatory constraints,
may have or obtain pricing or other competitive advantages. Due to the
competitive nature of the financial services industry, there can be no
assurance that we will continue to effectively compete within the industry or
that competition will not materially and adversely impact our business, results
of operations or financial condition.
We may also face competition from new entrants into our markets, many of whom
are leveraging digital technology that may challenge the position of
traditional financial service companies, including us, by providing new
services or creating new distribution channels.
THE INABILITY OF AXA ADVISORS AND AXA NETWORK TO RECRUIT, MOTIVATE AND RETAIN
EXPERIENCED AND PRODUCTIVE FINANCIAL PROFESSIONALS AND AXA EQUITABLE'S
INABILITY TO RECRUIT, MOTIVATE AND RETAIN KEY EMPLOYEES MAY HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Financial professionals associated with AXA Advisors and AXA Network, LLC ("AXA
Network") and AXA Equitable's key employees are key factors driving our sales.
Intense competition exists among insurers and other financial services
companies for financial professionals and key employees. 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. Our ability to
incentivize our employees and financial professionals may be adversely affected
by tax reform. We cannot provide assurances that AXA Equitable, AXA Advisors or
AXA Network will be successful in their respective efforts to recruit, motivate
and retain key employees and top financial professionals, and the loss of such
employees and professionals could have a material adverse effect on our
business, results of operations or financial condition.
We also rely upon the knowledge and experience of AXA Equitable's employees
involved in functions that require technical expertise in order to provide for
sound operational controls for our overall enterprise, including the accurate
and timely preparation of required regulatory filings and U.S. GAAP and
statutory financial statements and operation of internal controls. A loss of
such employees, including as a result of shifting AXA Equitable's real estate
footprint away from the New York metropolitan area, could adversely impact our
ability to execute key operational functions and could adversely affect our
operational controls, including internal control over financial reporting.
MISCONDUCT BY AXA EQUITABLE'S EMPLOYEES COULD EXPOSE US TO SIGNIFICANT LEGAL
LIABILITY AND REPUTATIONAL HARM.
Past or future misconduct by AXA Equitable's employees could result in
violations of law, regulatory sanctions or serious reputational or financial
harm and the precautions we take to prevent and detect this activity may not be
effective in all cases. AXA Equitable employs controls and procedures designed
to monitor its employees' business decisions and to prevent AXA Equitable from
taking excessive or inappropriate risks, including with respect to information
security, but its employees may take such risks regardless of such controls and
procedures. AXA Equitable's compensation policies and practices are reviewed by
it as part of its overall risk management program, but it is possible that such
compensation policies and practices could inadvertently incentivize excessive
or inappropriate risk taking. If AXA Equitable's employees take excessive or
inappropriate risks, those risks could harm our reputation, subject us to
significant civil or criminal liability and require us to incur significant
technical, legal and other expenses.
WE MAY ENGAGE IN STRATEGIC TRANSACTIONS THAT COULD POSE RISKS AND PRESENT
FINANCIAL, MANAGERIAL AND OPERATIONAL CHALLENGES.
We may consider potential strategic transactions, including acquisitions,
dispositions, mergers, consolidations, joint ventures and similar transactions,
some of which may be material. These transactions may not be effective and
could result in decreased earnings and harm to our
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
competitive position. In addition, these transactions, if undertaken, may
involve a number of risks and present financial, managerial and operational
challenges, including:
. adverse effects on our earnings if acquired intangible assets or
goodwill become impaired;
. unanticipated difficulties integrating operating facilities technologies
and new technologies;
. higher than anticipated costs related to integration;
. existence of unknown liabilities or contingencies that arise after
closing; and
. potential disputes with counterparties.
Acquisitions also pose the risk that any business we acquire may lose customers
or employees or could underperform relative to expectations. Additionally, the
loss of investment personnel poses the risk that we may lose the AUM we
expected to manage, which could materially and adversely affect our business,
results of operations or financial condition. Furthermore, strategic
transactions may require us to increase our leverage or, if we issue shares to
fund an acquisition, would dilute the holdings of the existing stockholders.
Any of the above could cause us to fail to realize the benefits anticipated
from any such transaction.
OUR BUSINESS COULD BE MATERIALLY AND 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;
.. a localized catastrophic event that affects the location of one or more of
our corporate-owned or employer sponsored life insurance customers could
cause a significant loss due to the corresponding mortality claims; and
.. a terrorist attack in the United States could have long-term economic
impacts that may have severe negative effects on our investment portfolio,
including loss of AUM and losses due to significant volatility, and disrupt
our business operations. Any continuous and heightened threat of terrorist
attacks could also result in increased costs of reinsurance.
In the event of a disaster, such as a natural catastrophe, epidemic, industrial
accident, blackout, computer virus, terrorist attack, cyber-attack or war,
unanticipated problems with our disaster recovery systems could have a material
adverse impact on our ability to conduct business and on our results of
operations and financial position, particularly if those problems affect our
computer-based data processing, transmission, storage and retrieval systems and
destroy valuable data. Our ability to conduct business may be adversely
affected by a disruption in the infrastructure that supports our operations and
the communities in which they are located. This may include a disruption
involving electrical, communications, transportation or other services we may
use or third parties with which we conduct business. If a disruption occurs in
one location and our employees in that location are unable to occupy our
offices or communicate with or travel to other locations, our ability to
conduct business with and on behalf of our clients may suffer, and we may not
be able to successfully implement contingency plans that depend on
communication or travel. Furthermore, unauthorized access to our systems as a
result of a security breach, the failure of our systems, or the loss of data
could give rise to legal proceedings or regulatory penalties under laws
protecting the privacy of personal information, disrupt operations and damage
our reputation.
Our operations require experienced, professional staff. Loss of a substantial
number of such persons or an inability to provide properly equipped places for
them to work may, by disrupting our operations, adversely affect our business,
results of operations or financial condition. In addition, our property and
business interruption insurance may not be adequate to compensate us for all
losses, failures or breaches that may occur.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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. 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 we
were found to have infringed or misappropriated a third-party patent or other
intellectual property right, we could in some circumstances be enjoined from
providing certain products or services to our customers or from using and
benefiting from certain patents, copyrights, trademarks, trade secrets or
licenses. Alternatively, we could be required to enter into costly licensing
arrangements with third parties or implement a costly alternative. Any of these
scenarios could harm our reputation and have a material adverse effect on our
business, results of operations or financial condition.
THE INSURANCE THAT WE MAINTAIN MAY NOT FULLY COVER ALL POTENTIAL EXPOSURES.
We maintain property, business interruption, cyber, casualty and other types of
insurance, but such insurance may not cover all risks associated with the
operation of our business. Our coverage is subject to exclusions and
limitations, including higher self-insured retentions or deductibles and
maximum limits and liabilities covered. In addition, from time to time, various
types of insurance may not be available on commercially acceptable terms or, in
some cases, at all. We are potentially at additional risk if one or more of our
insurance carriers fail. Additionally, severe disruptions in the domestic and
global financial markets could adversely impact the ratings and survival of
some insurers. Future downgrades in the ratings of enough insurers could
adversely impact both the availability of appropriate insurance coverage and
its cost. In the future, we may not be able to obtain coverage at current
levels, if at all, and our premiums may increase significantly on coverage that
we maintain. We can make no assurance that a claim or claims will be covered by
our insurance policies or, if covered, will not exceed the limits of available
insurance coverage, or that our insurers will remain solvent and meet their
obligations. Currently, we are party to certain joint insurance arrangements
with AXA; accordingly, if AXA ceases to own a majority of Holdings' outstanding
common stock, we may need to obtain stand-alone insurance coverage, which may
be at a higher price for the same coverage, which would increase our costs and
may materially and adversely affect our business, results of operations or
financial condition.
DURING THE COURSE OF PREPARING OUR FINANCIAL STATEMENTS, WE IDENTIFIED TWO
MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING. IF OUR
REMEDIATION OF THESE MATERIAL WEAKNESSES IS NOT EFFECTIVE, WE MAY BE UNABLE TO
REPORT OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS ACCURATELY OR ON A
TIMELY BASIS.
We have identified two material weaknesses in the design and operation of our
internal control over financial reporting. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of a
company's annual or interim financial statements will not be prevented or
detected on a timely basis.
Our management has concluded that we do not (i) maintain effective controls to
timely validate actuarial models are properly configured to capture all
relevant product features and to provide reasonable assurance timely reviews of
assumptions and data have occurred, and, as a result, errors were identified in
future policyholders' benefits and deferred policy acquisition costs balances;
and (ii) maintain sufficient experienced personnel to prepare the Company's
financial statements and to verify adjusting journal entries were completely
and accurately recorded to the appropriate accounts and, as a result, errors
were identified in the Company's financial statements.
These material weaknesses resulted in revisions in the Company's previously
issued annual financial statements as of and for the years ended December 31,
2016 and 2015, that were not considered material. Additionally, these material
weaknesses could result in a misstatement of the Company's financial statements
or disclosures that would result in a material misstatement to the Company's
annual financial statements that would not be prevented or detected.
Since identifying the material weakness related to our actuarial models, we
have been, and are currently in the process of, remediating by taking steps to
validate all existing actuarial models and valuation systems as well as to
improve controls and processes around our assumption and data process. These
steps include verifying inputs and unique algorithms, ensuring alignment with
documented accounting standards and verifying assumptions used in our models
are consistent with documented assumptions and data is reliable. The
remediation efforts are being performed by our internal model risk team (which
is separate from our modeling and valuation teams), as supported by third party
firms. We will continue to enhance controls to ensure our models, including
assumptions and data, are revalidated on a fixed calendar schedule and that new
model changes and product features are tested through our internal model risk
team prior to adoption within our models and systems. Although we plan to
complete this remediation process as quickly as possible, we cannot at this
time estimate when the remediation will be completed.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Since identifying the material weakness related to our journal entry process,
we have been, and are currently in the process of, remediating by taking steps
to strengthen the control function related to our financial closing process.
These steps include recruiting additional personnel, retaining external expert
resources, further automating entries where possible, enhancing the design of
certain management review controls and providing training regarding internal
control processes. We will continue to enhance controls to ensure the financial
closing process is effectively implemented. Although we plan to complete this
remediation process as quickly as possible, we cannot at this time estimate
when the remediation will be completed.
If we fail to remediate effectively these material weaknesses or if we identify
additional material weaknesses in our internal control over financial
reporting, we may be unable to report our financial condition or financial
results accurately or report them within the timeframes required by the
Securities and Exchange Commission (the "SEC"). If this were the case, we could
become subject to sanctions or investigations by the SEC or other regulatory
authorities. Furthermore, failure to report our financial condition or
financial results accurately or report them within the timeframes required by
the SEC could cause us to curtail or cease sales of certain variable insurance
products. In addition, if we are unable to determine that our internal control
over financial reporting or our disclosure controls and procedures are
effective, users of our financial statements may lose confidence in the
accuracy and completeness of our financial reports, we may face reduced ability
to obtain financing and restricted access to the capital markets, and we may be
required to curtail or cease sales of our products.
CHANGES IN ACCOUNTING STANDARDS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Our financial statements are prepared in accordance with U.S. GAAP, the
principles of which 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 business, results of operations or financial condition.
FASB is working on several projects which could result in significant changes
in U.S. GAAP, including how we account for our insurance contracts and
financial instruments and how our financial statements are presented. The
changes to U.S. GAAP could affect the way we account for and report significant
areas of our business, could impose special demands on us in the areas of
governance, employee training, internal controls and disclosure and will likely
affect how we manage our business.
In addition, AXA, our 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. In the future, new accounting
pronouncements, as well as new interpretations of existing accounting
pronouncements, may have material adverse effects on AXA's business, results of
operations or financial condition which could impact the way we conduct our
business (including, for example, which products we offer), our competitive
position, our hedging program and the way we manage capital.
CERTAIN OF OUR ADMINISTRATIVE OPERATIONS ARE LOCATED INTERNATIONALLY,
SUBJECTING US TO VARIOUS INTERNATIONAL RISKS AND INCREASED COMPLIANCE AND
REGULATORY RISKS AND COSTS.
Certain of our administrative operations are located in India and, in the
future, we may seek to expand operations in India or other countries. As a
result of these operations, we may be exposed to economic, operating,
regulatory and political risks in those countries, such as foreign investment
restrictions, substantial fluctuations in economic growth, high levels of
inflation, volatile currency exchange rates and instability, including civil
unrest, terrorist acts or acts of war, which could have an adverse effect on
our business, financial condition or results of operations. The political or
regulatory climate in the United States could also change such that it would no
longer be lawful or practical for us to use international operations in the
manner in which they are currently conducted. If we had to curtail or cease
operations in India and transfer some or all of these operations to another
geographic area, we would incur significant transition costs as well as higher
future overhead costs that could adversely affect us.
In many foreign countries, particularly in those with developing economies, it
may be common to engage in business practices that are prohibited by laws and
regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act of
1977, as amended (the "FCPA") and similar anti-bribery laws. Any violations of
the FCPA or other anti-bribery laws by us, our employees, subsidiaries or local
agents, could have a material adverse effect on our business and reputation and
result in substantial financial penalties or other sanctions.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
FOLLOWING THE HOLDINGS IPO, WE MAY FAIL TO REPLICATE OR REPLACE FUNCTIONS,
SYSTEMS AND INFRASTRUCTURE PROVIDED BY AXA OR CERTAIN OF ITS AFFILIATES
(INCLUDING THROUGH SHARED SERVICE CONTRACTS) OR LOSE BENEFITS FROM AXA'S GLOBAL
CONTRACTS, AND AXA AND ITS AFFILIATES MAY FAIL TO PERFORM THE SERVICES PROVIDED
FOR IN A TRANSITIONAL SERVICES AGREEMENT WITH HOLDINGS.
Historically, we have received services from AXA, including information
technology services, services that support financial transactions and
budgeting, risk management and compliance services, human resources services,
insurance, operations and other support services, primarily through shared
services contracts with various third-party service providers. Following the
Holdings IPO, AXA and its affiliates will have no obligation to provide any
support to us other than the services that will be provided pursuant to a
transitional services agreement with Holdings (the "Transitional Services
Agreement"). Under the Transitional Services Agreement, AXA will continue to
provide certain services, either directly or on a pass-through basis, and AXA
Financial Group companies will continue to provide AXA with certain services,
either directly or on a pass-through basis. The Transitional Services Agreement
will not continue indefinitely.
We will work to replicate or replace the services that we will continue to need
in the operation of our business that are provided currently by AXA or its
affiliates through shared service contracts they have with various third-party
providers and that will continue to be provided under the Transitional Services
Agreement for applicable transitional periods. We cannot assure you that we
will be able to obtain the services at the same or better levels or at the same
or lower costs directly from third-party providers. As a result, when AXA or
its affiliates cease providing these services to us, either as a result of the
termination of the Transitional Services Agreement or individual services
thereunder or a failure by AXA or its affiliates to perform their respective
obligations under the Transitional Services Agreement, our costs of procuring
these services or comparable replacement services may increase, and the
cessation of such services may result in service interruptions and divert
management attention from other aspects of our operations.
There is a risk that an increase in the costs associated with replicating and
replacing the services provided to us under the Transitional Services Agreement
and the diversion of management's attention to these matters could have a
material adverse effect on our business, results of operations or financial
condition. We may fail to replicate the services we currently receive from AXA
on a timely basis or at all. Additionally, we may not be able to operate
effectively if the quality of replacement services is inferior to the services
we are currently receiving. Furthermore, once we are no longer an affiliate of
AXA, we will no longer receive certain group discounts and reduced fees that we
are eligible to receive as an affiliate of AXA. The loss of these discounts and
reduced fees could increase our expenses and have a material adverse effect on
our business, results of operations or financial condition.
COSTS ASSOCIATED WITH ANY REBRANDING THAT HOLDINGS AND ITS SUBSIDIARIES EXPECT
TO UNDERTAKE AFTER AXA CEASES TO OWN AT LEAST A MAJORITY OF HOLDINGS'
OUTSTANDING COMMON STOCK COULD BE SIGNIFICANT.
Prior to the Holdings IPO, certain AXA Financial Group companies have marketed
their products and services using the "AXA" brand name and logo together with
the "Equitable" brand. They expect to continue to use the "AXA" brand name and
logo following settlement of the Holdings IPO. We, as a group, have benefited,
and will continue to benefit, from trademarks licensed in connection with the
AXA brand. We believe the association with AXA provides us with preferred
status among our customers, vendors and other persons due to AXA's globally
recognized brand, reputation for high quality products and services and strong
capital base and financial strength. Any rebranding we undertake could
adversely affect our ability to attract and retain customers, which could
result in reduced sales of our products. We cannot accurately predict the
effect that any rebranding we undertake will have on our business, customers or
employees. We expect to incur significant costs, including marketing expenses,
in connection with any rebranding of our business. Any adverse effect on our
ability to attract and retain customers and any costs could have a material
adverse effect on our business, results of operations or financial condition.
RISKS RELATING TO CREDIT, COUNTERPARTIES AND INVESTMENTS
OUR COUNTERPARTIES' REQUIREMENTS TO PLEDGE COLLATERAL OR MAKE PAYMENTS RELATED
TO DECLINES IN ESTIMATED FAIR VALUE OF DERIVATIVE CONTRACTS EXPOSES US TO
COUNTERPARTY CREDIT RISK AND MAY ADVERSELY AFFECT OUR LIQUIDITY.
We use derivatives and other instruments to help us mitigate various business
risks. Our transactions with financial and other institutions generally specify
the circumstances under which the parties are required to pledge collateral
related to any decline in the market value of the derivatives contracts. If our
counterparties fail or refuse to honor their obligations under these contracts,
we could face significant losses to the extent collateral agreements do not
fully offset our exposures and our hedges of the related risk will be
ineffective. Such failure could have a material adverse effect on our business,
results of operations or financial condition. Additionally, the implementation
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act") and other regulations may increase the need for liquidity and
for the amount of collateral assets in excess of current levels.
WE MAY BE MATERIALLY AND ADVERSELY AFFECTED BY CHANGES IN THE ACTUAL OR
PERCEIVED SOUNDNESS OR CONDITION OF OTHER FINANCIAL INSTITUTIONS AND MARKET
PARTICIPANTS.
A default by any financial institution or by a sovereign could lead to
additional defaults by other market participants. The failure of any financial
institution could disrupt securities markets or clearance and settlement
systems and lead to a chain of defaults, because the
F-9
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
commercial and financial soundness of many financial institutions may be
closely related as a result of credit, trading, clearing or other
relationships. Even the perceived lack of creditworthiness of a financial
institution may lead to market-wide liquidity problems and losses or defaults
by us or by other institutions. This risk is sometimes referred to as "systemic
risk" and may adversely affect financial intermediaries, such as clearing
agencies, clearing houses, banks, securities firms and exchanges with which we
interact on a daily basis. Systemic risk could have a material adverse effect
on our ability to raise new funding and on our business, results of operations
or financial condition. In addition, such a failure could impact future product
sales as a potential result of reduced confidence in the financial services
industry. Regulatory changes implemented to address systemic risk could also
cause market participants to curtail their participation in certain market
activities, which could decrease market liquidity and increase trading and
other costs.
LOSSES DUE TO DEFAULTS, ERRORS OR OMISSIONS BY THIRD PARTIES, INCLUDING
OUTSOURCING RELATIONSHIPS, COULD MATERIALLY AND ADVERSELY IMPACT OUR BUSINESS,
RESULTS OF OPERATIONS OR 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 derivatives contracts, reinsurers, clearing
agents, exchanges, clearing houses and other financial intermediaries. Defaults
by one or more of these parties on their obligations to us due to bankruptcy,
lack of liquidity, downturns in the economy or real estate values, operational
failure or other factors, or even rumors about potential defaults by one or
more of these parties, could have a material adverse effect on our business,
results of operations or financial condition.
We also depend on third parties and affiliates in other contexts, including as
distribution partners. 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 rely on various counterparties and other vendors to augment our existing
investment, operational, financial and technological capabilities, but the use
of a vendor does not diminish our responsibility to ensure that client and
regulatory obligations are met. Default rates, credit downgrades and disputes
with counterparties as to the valuation of collateral increase significantly in
times of market stress. Disruptions in the financial markets and other economic
challenges may cause our counterparties and other vendors to experience
significant cash flow problems or even render them insolvent, which may expose
us to significant costs and impair our ability to conduct business.
Losses associated with defaults or other failures by these third parties and
outsourcing partners upon whom we rely could materially and adversely impact
our business, results of operations and financial condition.
We are also subject to the risk that our rights against third parties may not
be enforceable in all circumstances. The deterioration or perceived
deterioration in the credit quality of third parties whose securities or
obligations we hold could result in losses or adversely affect our ability to
use those securities or obligations for liquidity purposes. While in many cases
we are permitted to require additional collateral from counterparties that
experience financial difficulty, disputes may arise as to the amount of
collateral we are entitled to receive and the value of pledged assets. Our
credit risk may also be exacerbated when the collateral we hold cannot be
realized or is liquidated at prices not sufficient to recover the full amount
of the loan or derivatives exposure that is due to us, which is most likely to
occur during periods of illiquidity and depressed asset valuations, such as
those experienced during the financial crisis. The termination of contracts and
the foreclosure on collateral may subject us to claims for the improper
exercise of rights under the contracts. Bankruptcies, downgrades and disputes
with counterparties as to the valuation of collateral tend to increase in times
of market stress and illiquidity.
GROSS UNREALIZED LOSSES ON FIXED MATURITY SECURITIES MAY BE REALIZED OR RESULT
IN FUTURE IMPAIRMENTS, RESULTING IN A REDUCTION IN OUR NET INCOME (LOSS).
Fixed maturity 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 income (loss). Our gross unrealized losses on
fixed maturity securities at December 31, 2017 were approximately $4 million.
The accumulated change in estimated fair value of these available-for-sale
securities is recognized in net income (loss) 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 income (loss) in a particular quarterly or annual period.
The occurrence of a major economic downturn, acts of corporate malfeasance,
widening credit risk spreads, or other events that adversely affect the issuers
or guarantors of securities we own or the underlying collateral of structured
securities we own could cause the estimated fair value of our fixed maturity
securities portfolio and corresponding earnings to decline and cause the
default rate of the fixed maturity securities in our investment portfolio to
increase. A ratings downgrade affecting issuers or guarantors of particular
securities we hold, or similar trends that could worsen the credit quality of
issuers, such as the corporate issuers of securities in our investment
portfolio, could also have a similar effect. With economic uncertainty, credit
quality of issuers or guarantors could be adversely affected. Similarly, a
ratings downgrade affecting a
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
security we hold could indicate the credit quality of that security has
deteriorated and could increase the capital we must hold to support that
security to maintain our RBC level. Levels of write-downs or impairments are
impacted by intent to sell, or our assessment of the likelihood that we will be
required to sell, fixed maturity securities. Realized losses or impairments on
these securities may have a material adverse effect on our business, results of
operations, liquidity or financial condition in, or at the end of, any
quarterly or annual period.
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 alternative investments. In the past, even some of our very
high-quality investments experienced reduced liquidity during periods of market
volatility or disruption. 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 or were required to post or return collateral, we may have
difficulty doing so and be forced to sell them for less than we otherwise would
have been able to realize.
The reported values of our relatively illiquid types of investments do not
necessarily reflect the current market price for the asset. If we were forced
to sell certain of our assets in the current market, there can be no assurance
that we would be able to sell them for the prices at which we have recorded
them and we might be forced to sell them at significantly lower prices, which
could have a material adverse effect on our business, results of operations,
liquidity or financial condition.
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 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 income. 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. For example, in the event that reinsurers, derivatives or other
counterparties or central clearinghouses do not pay balances due or do not post
the required amount of collateral as required under our agreements, we still
remain liable for the guaranteed benefits.
REINSURANCE. We use 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.
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.
We are continuing to use 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.
The premium rates and other fees that we charge are based, in part, on the
assumption that reinsurance will be available at a certain cost. Some of our
reinsurance contracts contain provisions that limit the reinsurer's ability to
increase rates on in-force business; however, some do not. If a reinsurer
raises the rates that it charges on a block of in-force business, in some
instances, we will not be able to pass the increased costs onto our customers
and our profitability will be negatively impacted. Additionally, such a rate
increase could result in our recapturing of the business, which may result in a
need to maintain additional reserves, reduce reinsurance receivables and expose
us to greater risks. While in recent years, we have faced a number of rate
increase actions on in-force business, to date they have not had a material
effect on our business, results of operations or financial condition. However,
there can be no assurance that the outcome of future rate increase actions
would have no material effect. In addition, market conditions beyond our
control determine the availability and cost of reinsurance for new business. If
reinsurers raise the rates that they charge on new business, we may be forced
to raise our premiums, which could have a negative impact on our competitive
position.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
HEDGING PROGRAMS. 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, 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, 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, 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 markets 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. Additionally, our strategies may result in under or
over-hedging our liability exposure, which could result in an increase in our
hedging losses and greater volatility in our earnings and have a material
adverse effect on our business, results of operations or financial condition.
For further discussion, see below " -- Risks Relating to Estimates, Assumptions
and Valuations -- 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
business, results of operations or financial condition."
OUR REINSURANCE ARRANGEMENTS MAY BE ADVERSELY IMPACTED BY CHANGES IN REGULATORY
REQUIREMENTS REGARDING THE USE OF CAPTIVES.
We had ceded to our affiliate, AXA RE Arizona Company, a captive reinsurance
company established by AXA Financial in 2003 ("AXA RE Arizona"), the no lapse
guarantee riders contained in certain variable and interest sensitive life
policies. On April 11, 2018, all of the business MLOA reinsured to AXA RE
Arizona was novated to EQ AZ Life Re Company ("EQ AZ Life Re"), a newly formed
captive insurance company organized under the laws of Arizona. EQ AZ Life Re is
an indirect, wholly owned subsidiary of Holdings.
In 2014, the NAIC considered a proposal to require states to apply NAIC
accreditation standards, applicable to traditional insurers, to captive
reinsurers. In 2015, the NAIC adopted such a proposal, in the form of a revised
preamble to the NAIC accreditation standards (the "Standard"), with an
effective date of January 1, 2016 for application of the Standard to captives
that assume level premium term life insurance ("XXX") business and universal
life with secondary guarantees ("AXXX") business. During 2014, the NAIC
approved a new regulatory framework, the XXX/AXXX Reinsurance Framework,
applicable to XXX/AXXX transactions. The framework requires more disclosure of
an insurer's use of captives in its statutory financial statements, and narrows
the types of assets permitted to back statutory reserves that are required to
support the insurer's future obligations. The NAIC implemented the framework
through an actuarial guideline ("AG 48"), which requires the actuary of the
ceding insurer that opines on the insurer's reserves to issue a qualified
opinion if the framework is not followed. AG 48 applies prospectively, so that
XXX/AXXX captives will not be subject to AG 48 if reinsured policies were
issued prior to January 1, 2015 and ceded so that they were part of a
reinsurance arrangement as of December 31, 2014, as is the case for the XXX
business and AXXX business reinsured by our current and future Arizona
captives. Regulation of XXX/AXXX captives is deemed to satisfy the Standard if
the applicable reinsurance transaction satisfies the XXX/AXXX Reinsurance
Framework requirements adopted by the NAIC. The NAIC also adopted a revised
Credit for Reinsurance Model Law in January 2016 and the Term and Universal
Life Insurance Reserving Financing Model Regulation in December 2016 to replace
AG 48. The model regulation will generally replace AG 48 in a state upon the
state's adoption of the model regulation. The NAIC left for future action the
application of the Standard to captives that assume variable annuity business.
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 this business 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"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS RELATING TO 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
ADVERSELY IMPACT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
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
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
others, state insurance regulators, state securities administrators, state
banking authorities, the SEC, the Financial Industry Regulatory Authority, Inc.
("FINRA"), the U.S. Department of Labor (the "DOL") and the Internal Revenue
Service (the "IRS").
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
of 1986, as amended (the "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 business,
results of operations or financial condition.
Many of our products and services are complex and are frequently sold through
intermediaries. In particular, we rely on intermediaries to describe and
explain our products to potential customers. The intentional or unintentional
misrepresentation of our products and services in advertising materials or
other external communications, or inappropriate activities by our personnel or
an intermediary, could adversely affect our reputation and business, as well as
lead to potential regulatory actions or litigation.
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 interest rates, changes
to existing RBC formulas, changes in reserves, the amount of additional capital
we must hold to support business growth, changes in equity market levels and
the value and credit rating of certain fixed income and equity securities in
our investment portfolio, including our investment in AB, which could in turn
reduce our statutory capital. 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.
Our failure to meet our RBC requirements or minimum capital and surplus
requirements could subject us to further examination or corrective action
imposed by insurance regulators, including limitations on our ability to write
additional business, supervision by regulators, rehabilitation, or seizure or
liquidation. Any corrective action imposed could have a material adverse effect
on our business, results of operations or financial condition. A decline in our
RBC ratio, whether or not it results in a failure to meet applicable RBC
requirements could result in a loss of customers or new business, and could be
a factor in causing ratings agencies to downgrade our financial strength
ratings, each of which could have a material adverse effect on our business,
results of operations or financial condition.
CHANGES IN STATUTORY RESERVE OR OTHER REQUIREMENTS OR THE IMPACT OF ADVERSE
MARKET CONDITIONS COULD RESULT IN CHANGES TO OUR PRODUCT OFFERINGS THAT COULD
MATERIALLY AND ADVERSELY IMPACT OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION.
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
A DOWNGRADE IN OUR FINANCIAL STRENGTH AND CLAIMS-PAYING RATINGS COULD ADVERSELY
AFFECT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
Claims-paying and financial strength ratings are important factors in
establishing the competitive position of insurance companies. They indicate the
rating agencies' opinions regarding an insurance company's ability to meet
policyholder obligations and are important to maintaining public confidence in
our products and our competitive position. A downgrade of our ratings or those
of Holdings or AXA Financial could adversely affect our business, results of
operations or financial condition 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. Upon announcement of AXA's
plan to pursue the Holdings IPO, MLOA's and AXA Financial's ratings were
downgraded by AM Best, Moody's and Fitch and AXA Financial's ratings were
downgraded by AM Best, S&P, Moody's and Fitch. We may face additional
downgrades as a result of the Holdings IPO or future sales of Holdings' common
stock by AXA.
As rating agencies continue to evaluate the financial services industry, it is
possible that rating agencies will heighten the level of scrutiny that they
apply to financial institutions, increase the frequency and scope of their
credit reviews, request additional information from the companies that they
rate and potentially adjust upward the capital and other requirements employed
in the rating agency models for maintenance of certain ratings levels. It is
possible that the outcome of any such review of us would have additional
adverse ratings consequences, which could have a material adverse effect on our
business, results of operations or financial condition. We may need to take
actions in response to changing standards or capital requirements set by any of
the rating agencies which could cause our business and operations to suffer. We
cannot predict what additional actions rating agencies may take, or what
actions we may take in response to the actions of rating agencies.
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 an indirect, 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.
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 are permitted to sell products from competing unaffiliated insurance
companies. If our competitors offer products that are more attractive than
ours, or pay higher commission rates to the sales representatives than we do,
these representatives may concentrate their efforts in selling our competitor's
products instead of ours. To the extent the financial professionals sell our
competitors' products rather than our products, we may experience reduced sales
and revenues.
A LOSS OF, OR SIGNIFICANT CHANGE IN, KEY PRODUCT DISTRIBUTION RELATIONSHIPS
COULD MATERIALLY AND ADVERSELY AFFECT SALES.
We distribute certain products under agreements with third-party distributors
and other members of the financial services industry that are not affiliated
with us. We compete with other financial institutions to attract and retain
commercial relationships in each of these channels, and our success in
competing for sales through these distribution intermediaries depends upon
factors such as the amount of sales commissions and fees we pay, the breadth of
our product offerings, the strength of our brand, our perceived stability and
financial strength ratings, and the marketing and services we provide to, and
the strength of the relationships we maintain with, individual third-party
distributors. An interruption or significant change in certain key
relationships could materially and adversely affect our ability to market our
products and could have a material adverse effect on our business, results of
operation or financial condition. Distributors may elect to alter, reduce or
terminate their distribution relationships with us, including for such reasons
as changes in our distribution strategy, adverse developments in our business,
adverse rating agency actions or concerns about market-related risks.
Alternatively, we may terminate one or more distribution agreements due to, for
example, a loss of confidence in, or a change in control of, one of the
third-party distributors, which could reduce sales.
Furthermore, an interruption in certain key relationships could materially and
adversely affect our ability to market our products and could have a material
adverse effect on our business, results of operations or financial condition.
The sale of shares by AXA in the Holdings IPO could prompt some third parties
to re-price, modify or terminate their distribution or vendor relationships
with us due to a perceived uncertainty related to the Holdings IPO or our
business. An interruption or significant change in certain key relationships
could materially and adversely affect our ability to market our products and
could have a material adverse effect on our business, results of operations or
financial
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
condition. Distributors may elect to suspend, alter, reduce or terminate their
distribution relationships with us for various reasons, including uncertainty
related to the Holdings IPO, changes in our distribution strategy, adverse
developments in our business, adverse rating agency actions or concerns about
market-related risks.
We are also at risk that key distribution partners may merge or change their
business models in ways that affect how our products are sold, either in
response to changing business priorities or as a result of shifts in regulatory
supervision or potential changes in state and federal laws and regulations
regarding standards of conduct applicable to third-party distributors when
providing investment advice to retail and other customers.
Because our products are distributed through unaffiliated firms, we may not be
able to monitor or control the manner of their distribution despite our
training and compliance programs. If our products are distributed by such firms
in an inappropriate manner, or to customers for whom they are unsuitable, we
may suffer reputational and other harm to our business.
CONSOLIDATION OF THIRD-PARTY 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 third-party distributors, result in greater
distribution expenses and impair our ability to market insurance products to
our current customer base or expand our customer base. We may also face
competition from new market entrants or non-traditional or online competitors,
which may have a material adverse effect on our business. Consolidation of
third-party distributors or other industry changes may also increase the
likelihood that third-party 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 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 BUSINESS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION.
Our policies and procedures, including hedging programs, 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
will not predict future exposures, which could be significantly greater than
the historical measures indicate, such as the risk of terrorism or pandemics
causing a large number of deaths. 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.
Management of operational, legal and regulatory risks requires, among other
things, policies and procedures to record and verify large numbers of
transactions and events. These policies and procedures may not be fully
effective.
We employ various strategies, including hedging and reinsurance, with the
objective of mitigating risks inherent in our business and operations. These
risks include current or future changes in the fair value of our assets and
liabilities, current or future changes in cash flows, the effect of interest
rates, equity markets and credit spread changes, the occurrence of credit
defaults and changes in mortality and longevity. We seek to control these risks
by, among other things, entering into reinsurance contracts and through our
various hedging programs. Developing an effective strategy for dealing with
these risks is complex, and no strategy can completely insulate us from such
risks. Our hedging strategies also rely on assumptions and projections
regarding our assets, liabilities, general market factors and the
creditworthiness of our counterparties that may prove to be incorrect or prove
to be inadequate. Accordingly, our hedging activities may not have the desired
beneficial impact on our business, results of operations or financial
condition. As U.S. GAAP accounting differs from the methods used to determine
regulatory reserves and rating agency capital requirements, our hedging program
tends to create earnings volatility in our U.S. GAAP financial statements.
Further, the nature, timing, design or execution of our hedging transactions
could actually increase our risks and losses. Our hedging strategies and the
derivatives that we use, or may use in the future, may not adequately mitigate
or offset the hedged risk and our hedging transactions may result in losses.
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, morbidity, longevity, interest
rates, future equity performance, reinvestment rates, persistency, claims
experience and policyholder
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 at least annually and update
assumptions 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 materially and
adversely impact our business, results of operations or financial condition.
OUR PROFITABILITY MAY DECLINE IF MORTALITY, LONGEVITY OR PERSISTENCY OR OTHER
EXPERIENCE DIFFER SIGNIFICANTLY FROM OUR PRICING EXPECTATIONS OR RESERVE
ASSUMPTIONS.
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, longevity and morbidity could emerge gradually over time,
due to changes in the natural environment, the health habits of the insured
population, technologies and treatments for disease or disability, the economic
environment or other factors. The long-term profitability of our insurance
products depends upon how our actual mortality rates, and to a lesser extent
actual morbidity rates, compare to our pricing assumptions. In addition,
prolonged or severe adverse mortality or morbidity experience could result in
increased reinsurance costs, and ultimately, reinsurers might not offer
coverage at all. If we are unable to maintain our current level of reinsurance
or purchase new reinsurance protection in amounts that we consider sufficient,
we would have to accept an increase in our net risk exposures, revise our
pricing to reflect higher reinsurance premiums, or otherwise modify our product
offering.
Pricing of our insurance products are also based in part upon expected
persistency of these products, which is the probability that a policy or
contract 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 and policyholder perception of us,
which may be negatively impacted by adverse publicity.
Significant deviations in actual experience from our pricing assumptions could
have an adverse effect on the profitability of our products. For example, if
policyholder elections differ from the assumptions we use in our pricing, our
profitability may decline. Actual persistency that is lower than our
persistency assumptions could have an adverse effect on profitability,
especially in the early years of a policy, primarily because we would be
required to accelerate the amortization of expenses we defer in connection with
the acquisition of the policy. Actual persistency that is higher than our
persistency assumptions could have an adverse effect on profitability in the
later years of a block of business because the anticipated claims experience is
higher in these later years. If actual persistency is significantly different
from that assumed in our current reserving assumptions, our reserves for future
policy benefits may prove to be inadequate. 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 or contract. Even if we are
permitted under the contract to increase premiums or adjust other charges and
credits, we may not be able to do so due to litigation, point of sale
disclosures, regulatory reputation and market risk or due to actions by our
competitors. In addition, 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.
WE MAY BE REQUIRED TO ACCELERATE THE AMORTIZATION OF DAC, WHICH COULD ADVERSELY
AFFECT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
DAC represents policy acquisition costs that have been capitalized. Capitalized
costs associated with DAC are amortized in proportion to actual and estimated
gross profits, gross premiums or gross revenues depending on the type of
contract. On an ongoing basis, we test the DAC recorded on our balance sheets
to determine if the amount is recoverable under current assumptions. In
addition, we regularly review the estimates and assumptions underlying DAC. The
projection of estimated gross profits, gross premiums or gross revenues
requires the use of certain assumptions, principally related to Separate
Account fund returns in excess of amounts credited to policyholders,
policyholder behavior such as surrender, lapse and annuitization rates,
interest margin, expense margin, mortality, future impairments and hedging
costs. Estimating future gross profits, gross premiums or gross revenues is a
complex process requiring considerable judgment and the forecasting of events
well into the future. If these assumptions prove to be inaccurate, if an
estimation technique used to estimate future gross profits, gross premiums or
gross revenues is changed, or if significant or sustained equity market
declines occur or persist, we could be required to accelerate the amortization
of DAC, which would result in a charge to earnings. Such adjustments could have
a material adverse effect on our business, results of operations or financial
condition.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 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. 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. Historical trends may not be indicative of future
impairments or allowances. Furthermore, additional impairments may need to be
taken or allowances provided for in the future that could have a material
adverse effect on our business, results of operations or financial condition.
We define fair value generally as the price that would be received to sell an
asset or paid to transfer a liability. 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, we estimate 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. Valuations may result in estimated fair
values which vary significantly from the amount at which the investments may
ultimately be sold. Further, rapidly changing and unprecedented credit and
equity market conditions could materially impact the valuation of securities as
reported within our financial statements and the period-to-period changes in
estimated fair value could vary significantly. Decreases in the estimated fair
value of securities we hold may have a material adverse effect on our business,
results of operations or financial condition.
LEGAL AND REGULATORY RISKS
WE MAY BE MATERIALLY AND ADVERSELY IMPACTED BY U.S. FEDERAL AND STATE
LEGISLATIVE AND REGULATORY ACTION AFFECTING FINANCIAL INSTITUTIONS.
Regulatory changes, and other reforms globally, could lead to business
disruptions, could adversely impact the value of assets we have invested on
behalf of clients and policyholders and could make it more difficult for us to
conduct certain business activities or distinguish ourselves from competitors.
Any of these factors could materially and adversely affect our business,
results of operations or financial condition.
DODD-FRANK ACT. The Dodd-Frank Act established the Financial Stability
Oversight Council ("FSOC"), which has the authority to designate non-bank
systemically important financial institutions ("SIFIs"), thereby subjecting
them to enhanced prudential standards and supervision by the Federal Reserve
Board, including enhanced risk-based capital requirements, leverage limits,
liquidity requirements, single counterparty exposure limits, governance
requirements for risk management, capital planning and stress test
requirements, special debt-to-equity limits for certain companies, early
remediation procedures and recovery and resolution planning. If the FSOC were
to determine that Holdings is a non-bank SIFI, we, as a subsidiary of Holdings,
would become subject to certain of these enhanced prudential standards. Other
regulators, such as state insurance regulators, may also determine to adopt new
or heightened regulatory safeguards as a result of actions taken by the Federal
Reserve Board in connection with its supervision of non-bank SIFIs. There can
be no assurance that Holdings will not be designated as a non-bank SIFI, that
such new or enhanced regulation will not apply to Holdings in the future, or,
to the extent such regulation is adopted, that it would not have a material
impact on our operations.
In addition, if Holdings were designated a SIFI, it could potentially be
subject to capital charges or other restrictions with respect to activities it
engages in that are limited by Section 619 of the Dodd-Frank Act, commonly
referred to as the "Volcker Rule," which places limitations on the ability of
banks and their affiliates to engage in proprietary trading and limits the
sponsorship of, and investment in, covered funds by banking entities and their
affiliates.
Title II of the Dodd-Frank Act provides that certain financial companies,
including Holdings, may be subject to a special resolution regime outside the
federal bankruptcy code, which is administered by the Federal Deposit Insurance
Corporation as receiver, and is applied to a covered financial company upon a
determination that the company presents a risk to U.S. financial stability.
U.S. insurance subsidiaries of any
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
such covered financial company, however, would be subject to rehabilitation and
liquidation proceedings under state insurance law. We cannot predict how rating
agencies, or our creditors, will evaluate this potential or whether it will
impact our financing or hedging costs.
The Dodd-Frank Act also established the Federal Insurance Office ("FIO") within
the U.S. Department of the Treasury, which has the authority, on behalf of the
United States, to participate in the negotiation of "covered agreements" with
foreign governments or regulators, as well as to collect information and
monitor about the insurance industry. While not having a general supervisory or
regulatory authority over the business of insurance, the director of the FIO
will perform various functions with respect to insurance, including serving as
a non-voting member of the FSOC and making recommendations to the FSOC
regarding insurers to be designated for more stringent regulation.
While the Trump administration has indicated its intent to modify various
aspects of the Dodd-Frank Act, it is unclear whether or how such modifications
will be implemented or the impact any such modifications would have on our
businesses.
Title VII of the Dodd-Frank Act creates a new framework for regulation of the
over-the-counter ("OTC") derivatives markets. As a result of the adoption of
final rules by federal banking regulators and the U.S. Commodity Futures
Trading Commission ("CFTC") in 2015 establishing margin requirements for
non-centrally cleared derivatives, the amount of collateral we may be required
to pledge in support of such transactions may increase under certain
circumstances and will increase as a result of the requirement to pledge
initial margin on non-centrally cleared derivatives commencing in 2020.
Notwithstanding the broad categories of non-cash collateral permitted under the
rules, higher capital charges on non-cash collateral applicable to our bank
counterparties may significantly increase pricing of derivatives and restrict
or eliminate certain types of eligible collateral that we have available to
pledge, which could significantly increase our hedging costs, adversely affect
the liquidity and yield of our investments, affect the profitability of our
products or their attractiveness to our customers, or cause us to alter our
hedging strategy or change the composition of the risks we do not hedge.
REGULATION OF BROKER-DEALERS. The Dodd-Frank Act provides that the SEC may
promulgate rules to provide that the standard of conduct for all
broker-dealers, when providing personalized investment advice about securities
to retail customers (and any other customers as the SEC may by rule provide),
will be the same as the standard of conduct applicable to an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Investment Advisers
Act").
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. 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 business,
results of operations or financial condition.
WE ARE HEAVILY REGULATED, AND CHANGES IN REGULATION AND IN SUPERVISORY AND
ENFORCEMENT POLICIES MAY LIMIT OUR GROWTH AND HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
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.
State insurance guaranty associations have the right to assess insurance
companies doing business in their state in order to help pay the obligations of
insolvent insurance companies to policyholders and claimants. Because the
amount and timing of an assessment is beyond our control, liabilities we have
currently established for these potential assessments may not be adequate.
State insurance regulators, the NAIC and other regulatory bodies regularly
reexamine existing laws and regulations applicable to insurance companies and
their products. For example, the NAIC as well as state regulators are currently
considering implementing regulations that would apply an impartial conduct
standard similar to the Department of Labor's fiduciary rule to recommendations
made in connection with certain annuities and life insurance policies. For
example, in December 2017, the New York Department of Financial Services
proposed regulations that would adopt a "best interest" standard for the sale
of life insurance and annuity products in New York. If the Arizona Department
of Insurance or other state insurance regulators were to propose and adopt
similar regulations, it could have significant adverse effects on our business
and results of operations. Generally, changes in 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 could materially and adversely affect our business, results of
operations or financial condition.
Insurance regulators have implemented, or begun to implement significant
changes in the way in which insurers must determine statutory reserves and
capital, particularly for products with contractual guarantees, such as
variable annuities and universal life policies, and are
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considering further potentially significant changes in these requirements. The
NAIC's principle-based reserves ("PBR") approach for life insurance policies
became effective on January 1, 2017, and has a three-year phase-in period. We
are currently assessing the impact of, and appropriate implementation plan for,
the PBR approach for life policies. The timing and extent of further changes to
statutory reserves and reporting requirements are uncertain.
THE TAX REFORM ACT COULD HAVE ADVERSE OR UNCERTAIN IMPACTS ON SOME ASPECTS OF
OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act
(the "Tax Reform Act"), a broad overhaul of the Code that changes long-standing
provisions governing the taxation of U.S. corporations, including life
insurance companies. While we expect the Tax Reform Act to have a net positive
economic impact on us, it contains measures which could have adverse or
uncertain impacts on some aspects of our business, results of operations or
financial condition.
The Tax Reform Act reduces the federal corporate income tax rate to 21%
beginning in 2018. On a U.S. GAAP basis, the reduction in the tax rate
generally should have a positive impact on our earnings, but resulted in a
reduction in the value of our deferred tax assets and an associated one-time
earnings impact in 2017.
On a statutory basis, we recorded a reduction in our admitted deferred tax
assets reported in 2017. The NAIC could also, as a result of the Tax Reform
Act, revise certain items indirectly linked to the federal corporate tax rate
in the RBC formula and CTE calculations. Such revisions could have a negative
impact on our RBC level and CTE calculations, depending on the implementation.
We continue to monitor potential regulatory changes following the Tax Reform
Act.
The Tax Reform Act includes provisions that modify the calculation of the
dividends received deduction ("DRD"), change how deductions are determined for
insurance reserves, increase the amount of policy acquisition expense (also
called tax "DAC") that must be capitalized and amortized for federal income tax
purposes, limit the use of net operating losses ("NOLs") and limit deductions
for net interest expense. These provisions could adversely affect our business,
results of operations or financial condition, notwithstanding the lower
corporate income tax rate. These provisions could also impact our investments
and investment strategies.
We are assessing the overall impact that the Tax Reform Act is expected to have
on our business, results of operations and financial condition.
FUTURE CHANGES IN U.S. TAX LAWS AND REGULATIONS OR INTERPRETATIONS THEREOF
COULD REDUCE OUR EARNINGS AND NEGATIVELY IMPACT OUR BUSINESS, RESULTS OF
OPERATIONS OR FINANCIAL CONDITION, INCLUDING BY MAKING OUR PRODUCTS LESS
ATTRACTIVE TO CONSUMERS.
Future changes in U.S. tax laws could have a material adverse effect on our
business, results of operations or financial condition. We anticipate that,
following the recently enacted Tax Reform Act, we will continue deriving tax
benefits from certain items, including but not limited to the DRD, tax credits,
insurance reserve deductions and interest expense deductions. However, there is
a risk that interpretations of the Tax Reform Act, regulations promulgated
thereunder, or future changes to federal, state or other tax laws could reduce
or eliminate the tax benefits from these or other items and result in our
incurring materially higher taxes.
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 contracts currently allow policyholders to defer the recognition of
taxable income earned within the contract. While the Tax Reform Act does not
change these rules, a future change in law that modifies or eliminates this
tax-favored status could reduce demand for our products. Such changes could
reduce our earnings and negatively impact our business.
LEGAL AND REGULATORY ACTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
REPUTATION, BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
A number of lawsuits, claims, assessments and regulatory inquiries have been
filed or commenced against life and health 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, discrimination, 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
We face a significant risk of, and from time to time we are involved in, such
actions and proceedings, including class action lawsuits. Our results of
operations or financial position could be materially and adversely 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. For information regarding certain
legal proceedings pending against us, see Note 12 of Notes to Financial
Statements.
In addition, examinations by federal and state regulators and other
governmental and self-regulatory agencies including, among others, the SEC,
FINRA, state attorneys general and other state insurance regulators and other
regulators 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. On March 30, 2018, we received a copy of an anonymous letter
containing general allegations relating to the preparation of our financial
statements. The audit committee of AXA Financial, with the assistance of
independent outside counsel, has reviewed these matters and concluded that the
allegations were not substantiated and accordingly did not present any issue
material to our financial statements. At this time, management cannot predict
what actions the SEC, FINRA and other regulators may take or what the impact of
such actions might be.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DESCRIPTION OF BUSINESS
As used herein, the terms "MLOA," "we," "our," "us" and the "Company" refer to
MONY Life Insurance Company of America, an Arizona stock life insurance
corporation. The term "AXA Financial" refers to AXA Financial, Inc., a Delaware
corporation. The term "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 "Holdings" refers
to AXA Equitable Holdings, Inc., a Delaware corporation. The term "AXA" refers
to AXA S.A., a societe anonyme organized under the laws of France. The term
"General Account" refers to the assets held in the general account of MLOA and
all of the investment assets held in certain of MLOA's separate accounts on
which MLOA bears the investment risk. 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.
OVERVIEW
MLOA, established in the state of Arizona in 1969, is a direct, wholly-owned
subsidiary of AXA Equitable Financial Services, LLC ("AEFS"). AEFS is a direct,
wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial," and
collectively with its consolidated subsidiaries, "AXA Financial Group"). AXA
Financial is a direct wholly-owned subsidiary of AXA Equitable Holdings, Inc.
("Holdings"). Holdings is an indirect wholly-owned subsidiary of AXA S.A.
("AXA"), a French holding company for the AXA Group, a worldwide leader in
life, property and casualty and health insurance and asset management.
Our primary business is to provide life insurance and employee benefit products
to individuals and small and medium-sized businesses. We are licensed to sell
our products in 49 states (not including New York), the District of Columbia
and Puerto Rico.
On May 10, 2017, AXA announced its intention to pursue the sale of a minority
stake in our indirect parent, Holdings, through a proposed initial public
offering (the "Holdings IPO") in the first half of 2018. On November 13, 2017,
Holdings filed a Form S-1 registration statement with the Securities and
Exchange Commission (the "SEC"). The completion of the proposed Holdings IPO
will depend on, among other things, the SEC filing and review process and
customary regulatory approvals, as well as market conditions. There can be no
assurance that the proposed Holdings IPO will occur on the anticipated timeline
or at all.
PRODUCTS
As part of AXA Financial's ongoing efforts to efficiently manage capital among
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 life insurance products are primarily designed to help individuals and
small and medium-sized businesses with protection, wealth accumulation and
transfer, as well as corporate planning solutions. We target select segments of
the life insurance market: permanent life insurance, including indexed
universal life ("IUL") and variable universal life ("VUL") products and term
insurance. As part of a strategic shift over the past several years, we evolved
our product design to be less capital-intensive and more accumulation-focused.
PERMANENT LIFE INSURANCE. Our permanent life insurance offerings are built on
the premise that all clients expect to receive a benefit from the policy. The
benefit may take the form of a life insurance death benefit paid at time of
death no matter the age or duration of the policy or the form of access to cash
that has accumulated in the policy on a tax-favored basis. In each case, the
value to the client comes from access to a broad spectrum of investments that
accumulate the policy value at attractive rates of return.
We have three permanent life insurance offerings built upon a universal life
("UL") insurance framework: IUL, VUL and corporate-owned life insurance
targeting the small and medium-sized business market, which is a subset of VUL
products. Universal life policies offer flexible premiums, and 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 AV. Our universal
life insurance products include single-life products and second-to-die (I.E.,
survivorship) products, which pay death benefits following the death of both
insureds.
IUL. IUL uses an equity-linked approach for generating policy investment
returns. The equity linked options provide upside return based on an external
equity based index (E.G., S&P 500) subject to a cap. In exchange for this cap
on investment returns, the policy provides downside protection in that annual
investment returns are guaranteed to never be less than zero, even if the
relevant index is down. In addition, there is
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an option to receive a higher cap on certain investment returns in exchange for
a fee. As noted above, the performance of any universal life insurance policy
also depends on the level of policy charges. For further discussion, see " --
Pricing and Fees."
VUL. VUL uses a series of investment options to generate the investment return
allocated to the cash value. The subaccounts are similar to retail mutual
funds: a policyholder can invest premiums in one or more underlying investment
options offering varying levels of risk and growth potential. These provide
long-term growth opportunities, tax-deferred earnings and the ability to make
tax-free transfers among the various subaccounts. In addition, the policyholder
can invest premiums in a guaranteed interest option, as well as an investment
option we call the Market Stabilizer Option ("MSO"), which provides downside
protection from losses in the index up to a specified percentage. We also offer
corporate-owned life insurance, which is a VUL insurance product tailored
specifically to support executive benefits in the small business market.
We work with our affiliate, AXA Equitable Funds Management Group, LLC ("AXA
Equitable FMG"), to identify and include appropriate underlying investment
options in our variable life products, as well as to control the costs of these
options. AXA Equitable FMG also offers our product designers access to initial
due diligence and contract negotiations for outside variable investment
portfolios that may be offered within the product.
TERM LIFE. Term life provides basic life insurance protection for a specified
period of time, and is typically a client's first life insurance purchase due
to its relatively low cost. Life insurance benefits are paid if death occurs
during the term period, as long as required premiums have been paid. The
required premiums are guaranteed not to increase during the term period,
otherwise known as a level pay or fixed premium. Our term products include
competitive conversion features that allow the policyholder to convert their
term life insurance policy to permanent life insurance within policy limits and
the ability to add certain riders. Our term life portfolio includes 1, 10, 15
and 20-year term products.
OTHER BENEFITS. We offer a portfolio of riders to provide clients with
additional flexibility to protect the value of their investments and overcome
challenges. Our Long Term Care Services Rider provides an acceleration of the
policy death benefit in the event of a chronic illness. The MSO, referred to
above and offered via a policy rider on our variable life products, provides
policyholders with the opportunity to manage volatility. The return of premium
rider provides a guarantee that the death benefit payable will be no less than
the amount invested in the policy.
EMPLOYEE BENEFITS
We currently offer a suite of insurance products to small and medium-sized
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 (a.k.a. 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 88% of total first year premiums in
2017.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MARKETS
We are focused on targeted segments of the market, particularly affluent and
high net worth individuals, as well as small and medium-sized businesses. We
focus on creating value for our customers through the differentiated features
and benefits we offer on our products. Our employee benefit product suite is
targeted to small and medium-sized businesses seeking simple, technology-driven
employee benefits management.
DISTRIBUTION
We primarily distribute life insurance through two channels: our affiliate, AXA
Advisors, LLC ("AXA Advisors"), and third-party firms. To supplement our sales
through AXA Advisors, distribution through third-party firms provides efficient
access to independent producers on a largely variable cost basis. Brokerage
general agencies, producer groups, banks, wirehouses, independent
broker-dealers and registered investment advisers are all important partners
who distribute our products today. We also have a competitive strength serving
specialty markets including professional athletes, entertainers and foreign
national residents.
We distribute our employee benefits products through AXA Advisors and through a
growing network of third-party firms, including private exchanges, health plans
and professional employer organizations.
COMPETITION
The life insurance industry consists of many companies with no single company
dominating the market for all products. We selectively compete with large,
well-established life insurance companies in a mature market, where product
features, price and service are key drivers. We primarily compete with others
based on these drivers as well as distribution channel relationships, brand
recognition, financial strength ratings and financial stability. We are
selective in our markets of interest and will continue to focus deeply in those
areas that align to our offering.
The employee benefits marketplace is a fast-moving, competitive environment.
The main factors of competition include price, quality of customer service and
claims management, technological capabilities, quality of distribution and
financial strength ratings. In this market, we compete with several companies
offering similar products. In addition, there is competition in attracting
brokers to actively market our products. Key competitive factors in attracting
brokers include product offerings and features, financial strength, support
services and compensation.
UNDERWRITING
Our life insurance underwriting process, built around extensive underwriting
guidelines, is designed to assign prospective insureds to risk classes in a
manner that is consistent with our business and financial objectives, including
our risk appetite and pricing expectations.
As part of making an underwriting decision, our underwriters evaluate
information disclosed as part of the application process as well as information
obtained from other sources after the application. This information includes,
but is not limited to, the insured's age and sex, results from medical exams
and financial information.
We continue to research and develop guideline changes to increase the
efficiency of our underwriting process (E.G., through the use of predictive
models), both from an internal cost perspective and our customer experience
perspective. We manage changes to our underwriting guidelines though a robust
governance process that ensures that our underwriting decisions continue to
align with our business and financial objectives, including risk appetite and
pricing expectations. We continuously monitor our underwriting decisions
through internal audits and other quality control processes, to ensure accurate
and consistent application of our underwriting guidelines.
We use reinsurance to manage our mortality risk and volatility. Our reinsurer
partners regularly review our underwriting practices and mortality and lapse
experience through audits and experience studies, the outcome of which have
consistently validated the high-quality underwriting process and decisions.
We manage the employee benefits underwriting process 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 to
achieve high standards of underwriting and consistency.
PRICING AND FEES
Life insurance products are priced based upon assumptions including, but not
limited to, expected future premium payments, surrender rates, mortality and
morbidity rates, investment returns, hedging costs, equity returns, expenses
and inflation and capital requirements. The primary
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
source of revenue from our life insurance business is premiums, investment
income, asset-based fees (including investment management and 12b-1 fees) and
policy charges (expense loads, surrender charges, mortality charges and other
policy charges).
Employee benefits pricing reflects the claims experience and the risk
characteristics of each group. We set appropriate plans for the group based on
demographic information and, for larger groups, also evaluate the experience of
the group. The claims experience is reviewed at time of policy issuance and
during the renewal timeframes, resulting in periodic pricing adjustments at the
group level.
RISK MANAGEMENT
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 use reinsurance to mitigate a portion of the risk and optimize the capital
efficiency and operating returns of our in-force life insurance portfolio. As
part of our risk management function, we continuously monitor the financial
condition of our reinsurers in an effort to minimize our exposure to
significant losses from reinsurer insolvencies.
NON-AFFILIATE REINSURANCE. In October 2013, we entered into a reinsurance
agreement (the "Reinsurance Agreement") with 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 7 and 8 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. We generally obtain reinsurance for the portion of a
life insurance policy that exceeds $4 million. For amounts in excess of our
retention limits, we use both affiliate and non-affiliate reinsurance.
For our employee benefits business, Group Reinsurance Plus provides reinsurance
on our short and long-term disability products. Our current arrangement
provides quota share reinsurance at 50% for disability products.
CAPTIVE REINSURANCE. In addition to non-affiliated reinsurance, we had ceded to
our affiliate, AXA RE Arizona, the no lapse guarantee riders contained in
certain variable and interest sensitive life insurance policies. On April 11,
2018, all of the business MLOA reinsured to AXA RE Arizona was novated to EQ AZ
Life Re, a newly formed captive insurance company organized under the laws of
Arizona. EQ AZ Life Re is an indirect, wholly owned subsidiary of Holdings.
For additional information, see "Risk Factors" and Notes 7 and 8 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 7 and 8 of Notes to Financial Statements.
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, 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, 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, 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 3, 7 and 8 of Notes to Financial Statements.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
AXA EQUITABLE FMG
AXA Equitable FMG oversees our variable funds and offers benefits throughout
our organization. AXA Equitable FMG helps add value and marketing appeal to our
products by bringing investment management expertise and specialized strategies
to the underlying investment lineup of each product. In addition, by advising
an attractive array of proprietary investment portfolios (each, a "Portfolio,"
and together, the "Portfolios"), AXA Equitable FMG brings investment acumen,
financial controls and economies of scale to the construction of high-quality,
economical underlying investment options for our products. Finally, AXA
Equitable FMG is able to negotiate favorable terms for investment services,
operations, trading and administrative function for the Portfolios.
AXA Equitable FMG provides investment management and administrative services to
proprietary investment vehicles sponsored by the Company, including investment
companies that are underlying investment options for our variable insurance
products. AXA Equitable FMG is registered as an investment adviser under the
Investment Advisers Act. AXA Equitable FMG serves as the investment adviser to
three investment companies that are registered under the Investment Company Act
of 1940, as amended -- EQ Advisors Trust ("EQAT"), AXA Premier VIP Trust ("VIP
Trust") and 1290 Funds (each, a "Trust" and collectively, the "Trusts") -- and
to two private investment trusts established in the Cayman Islands. Each of the
investment companies and private investment trusts is a "series" type of trust
with multiple Portfolios. AXA Equitable FMG provides discretionary investment
management services to the Portfolios, including, among other things,
(1) portfolio management services for the Portfolios; (2) selecting investment
sub-advisers and (3) developing and executing asset allocation strategies for
multi-advised Portfolios and Portfolios structured as funds-of-funds. AXA
Equitable FMG also provides administrative services to the Portfolios. AXA
Equitable FMG is further charged with ensuring that the other parts of the
Company that interact with the Trusts, such as product management, the
distribution system and the financial organization, have a specific point of
contact.
AXA Equitable FMG has a variety of responsibilities for the general management
and administration of its investment company clients. One of AXA Equitable
FMG's primary responsibilities is to provide clients with portfolio management
and investment advisory evaluation services, principally by reviewing whether
to appoint, dismiss or replace sub-advisers to each Portfolio, and thereafter
monitoring and reviewing each sub-adviser's performance through qualitative and
quantitative analysis, as well as periodic in-person, telephonic and written
consultations with the sub-advisers. Currently, AXA Equitable FMG has entered
into sub-advisory agreements with more than 40 different sub-advisers,
including AB and other AXA affiliates. Another primary responsibility of AXA
Equitable FMG is to develop and monitor the investment program of each
Portfolio, including Portfolio investment objectives, policies and asset
allocations for the Portfolios, select investments for Portfolios (or portions
thereof) for which it provides direct investment selection services, and ensure
that investments and asset allocations are consistent with the guidelines that
have been approved by clients. The administrative services that AXA Equitable
FMG provides to the Portfolios include, among others, coordination of each
Portfolio's audit, financial statements and tax returns; expense management and
budgeting; legal administrative services and compliance monitoring; portfolio
accounting services, including daily net asset value accounting; risk
management; and oversight of proxy voting procedures and anti-money laundering
program.
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, licensing companies to transact business, 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."
Supervisory agencies in each of the jurisdictions in which we do business may
conduct regular or targeted examinations of our operations and accounts, and
make requests for particular information from us. Periodic financial
examinations of the books, records, accounts and business practices of insurers
domiciled in their states are generally conducted by such supervisory agencies
every three to five years. From time to time, regulators raise issues during
examinations or audits of us that could, if determined adversely, have a
material adverse effect 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. 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
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
insurance, securities and other applicable laws. We have received and responded
to such inquiries from time to time. For additional information on legal and
regulatory risk, see "Risk Factors -- Legal and Regulatory Risks."
We are required to file detailed annual financial statements, prepared on a
statutory accounting basis or in accordance with other accounting practices
permitted by the applicable regulator, with supervisory agencies in each of the
jurisdictions in which we do business. The NAIC has approved a series of
uniform statutory accounting principles ("SAP") that have been adopted, in some
cases with minor modifications, by all state insurance regulators. As a basis
of accounting, SAP was developed to monitor and regulate the solvency of
insurance companies. In developing SAP, the insurance regulators were primarily
concerned with assuring an insurer's ability to pay all its current and future
obligations to policyholders. As a result, statutory accounting focuses on
conservatively valuing the assets and liabilities of insurers, generally in
accordance with standards specified by the insurer's domiciliary state. The
values for assets, liabilities and equity reflected in financial statements
prepared in accordance with U.S. GAAP are usually different from those
reflected in financial statements prepared under SAP.
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 that
all transactions affecting insurers within a holding company system be fair and
reasonable and, if material, typically require prior notice and approval or
non-disapproval by the state's insurance regulator.
The insurance holding company laws and regulations generally also 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. States generally require the
ultimate controlling person of a U.S. insurer to file an annual enterprise risk
report with the lead state of the insurance holding company system identifying
risks likely to have a material adverse effect upon the financial condition or
liquidity of the insurer or its insurance holding company system as a whole.
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."
State insurance holding company regulations also regulate changes in control.
State laws generally provide that no person, corporation or other entity may
acquire control of an insurance company, or a controlling interest in any
parent company of an insurance company, without the prior approval of such
insurance company's domiciliary state insurance regulator. Generally, any
person acquiring, directly or indirectly, 10% or more of the voting securities
of an insurance company is presumed to have acquired "control" of the company.
This statutory presumption may be rebutted by a showing that control does not
exist in fact. State insurance regulators, however, may find that "control"
exists in circumstances in which a person owns or controls less than 10% of
voting securities.
The laws and regulations regarding acquisition of control transactions may
discourage potential acquisition proposals and may delay or prevent a change of
control involving us, including through unsolicited transactions that some of
our shareholders might consider desirable.
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 have
been, or may be, modified by individual state laws, regulations and permitted
practices. Changes to the Manual or modifications by the various state
insurance departments may impact our statutory capital.
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
CAPTIVE REINSURER REGULATION. As described above, we use 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 offshore entities.
In 2014, the NAIC considered a proposal to require states to apply NAIC
accreditation standards, applicable to traditional insurers, to captive
reinsurers. In 2015, the NAIC adopted such a proposal, in the form of a revised
preamble to the NAIC accreditation standards (the "Standard"), with an
effective date of January 1, 2016 for application of the Standard to captives
that assume level premium term life insurance ("XXX") business and universal
life with secondary guarantees ("AXXX") business. During 2014, the NAIC
approved a new regulatory framework, the XXX/AXXX Reinsurance Framework,
applicable to XXX/AXXX transactions. The framework requires more disclosure of
an insurer's use of captives in its statutory financial statements, and narrows
the types of assets permitted to back statutory reserves that are required to
support the insurer's future obligations. The NAIC implemented the framework
through an actuarial guideline ("AG 48"), which requires the actuary of the
ceding insurer that opines on the insurer's reserves to issue a qualified
opinion if the framework is not followed. AG 48 applies prospectively, so that
XXX/AXXX captives will not be subject to AG 48 if reinsured policies were
issued prior to January 1, 2015 and ceded so that they were part of a
reinsurance arrangement as of December 31, 2014, as is the case for the XXX
business and AXXX business reinsured by our current and future Arizona
captives. Regulation of XXX/AXXX captives is deemed to satisfy the Standard if
the applicable reinsurance transaction satisfies the XXX/AXXX Reinsurance
Framework requirements adopted by the NAIC. The NAIC also adopted a revised
Credit for Reinsurance Model Law in January 2016 and the Term and Universal
Life Insurance Reserving Financing Model Regulation in December 2016 to replace
AG 48. The model regulation will generally replace AG 48 in a state upon the
state's adoption of the model regulation. The NAIC left for future action the
application of the Standard to captives that assume variable annuity business.
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 any captive reinsurer and
adjust the design of our risk mitigation programs. For additional information
on our use of a captive reinsurance company, see "Description of Business --
Risk Management -- Reinsurance," "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. The laws are
designed to protect policyholders from losses under insurance policies issued
by insurance companies that become impaired or insolvent. 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 and contracts offered by us are subject to regulation
under the Federal securities laws administered by the SEC, self-regulatory
organizations and under certain state securities laws. These regulators may
conduct regular examinations of our operations, and from time to time makes
requests for particular 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
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 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.
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 Dodd-Frank Act also established the
FSOC, which is authorized to subject non-bank financial companies, including
insurers, to supervision by the Federal Reserve and enhanced prudential
standards if the FSOC determines that a non-bank financial institution could
pose a threat to U.S. financial stability. 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 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 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 prohibiting 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 derivatives 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. For example, President Trump has issued an
executive order that calls for a comprehensive review of the Dodd-Frank Act and
requires the Secretary of the Treasury to consult with the heads of the member
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
agencies of FSOC to identify any laws, regulations or requirements that inhibit
federal regulation of the financial system in a manner consistent with the core
principles identified in the executive order. In addition, on June 8, 2017, the
U.S. House of Representatives passed the Financial CHOICE Act of 2017, which
proposes to amend or repeal various sections of the Dodd-Frank Act. There is
considerable uncertainty with respect to the impact the Trump administration
and Congressional majority may have, if any, on the Dodd-Frank Act 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.
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 July 18, 2013, the FSB published its initial list of nine GSIIs, which
included AXA. The GSII list is intended to be updated annually following
consultation with the IAIS and respective national supervisory authorities. AXA
remained on the list as updated in November 2014, 2015 and 2016. However, the
FSB announced in November 2017 that it, in connection with the IAIS and
national authorities, has decided not to publish a new list of GSIIs for 2017.
The policy measures for GSIIs, published by the IAIS in July 2013, include
(i) 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, (ii) greater regulatory
oversight over holding companies, (iii) 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 (iv) 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 at least 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. In addition,
the IAIS is in the process of developing an activities-based approach to
systemic risk in the insurance sector and published a consultation paper on
this approach in December 2017. The development of this activities-based
approach may have significant implications for the identification of GSIIs and
the policy measures to which they are expected to be subject.
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 2019 at the earliest, and is not expected to be fully
implemented, if at all, until at least five years thereafter. AXA currently
meets the parameters set forth to define an IAIG. 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 AXA in the event they are implemented by its group supervisors, which in
turn, to the extent we are deemed to be controlled by AXA at the time the
measures are implemented, or we independently meet the criteria for being an
IAIG and the measures are adopted by U.S. group supervisors, could materially
affect our competitive position, results of operations, financial condition,
liquidity and how we operate our business.
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.
F-29
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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. The recently enacted Tax Reform Act
reduced individual tax rates, which could reduce demand for our products. The
modification or elimination of this tax-favored status could reduce demand for
our products. In addition, if the treatment of earnings accrued inside an
annuity contract was changed prospectively, and the tax-favored status of
existing contracts was grandfathered, holders of existing contracts would be
less likely to surrender or rollover their contracts. These changes could
reduce our earnings and negatively impact our business.
THE TAX REFORM ACT. The Tax Reform Act is a broad overhaul of the U.S. Internal
Revenue Code that changes long-standing provisions governing the taxation of
U.S. corporations, including life insurance companies. While we expect the Tax
Reform Act to have a net positive economic impact on us, it contains measures
which could have adverse or uncertain impacts on some aspects of our business,
results of operations or financial condition. We are assessing the overall
impact that the Tax Reform Act is expected to have on our business, results of
operations and financial condition.
FUTURE CHANGES IN U.S. TAX LAWS. We anticipate that, following the recently
enacted Tax Reform Act, we will continue deriving tax benefits from certain
items, including but not limited to the DRD, tax credits, insurance reserve
deductions and interest expense deductions. However, there is a risk that
interpretations of the Tax Reform Act, regulations promulgated thereunder, or
future changes to federal, state or other tax laws could reduce or eliminate
the tax benefits from these or other items and result in our incurring
materially higher taxes.
REGULATORY AND OTHER ADMINISTRATIVE GUIDANCE FROM THE TREASURY DEPARTMENT AND
THE IRS. Regulatory and other administrative guidance from the Treasury
Department and the IRS 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 IRS to issue
guidance that changes the way that deductible insurance reserves are
determined, potentially reducing future tax deductions for us.
PRIVACY AND SECURITY OF CUSTOMER INFORMATION
We are subject to federal and state laws and regulations that 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.
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, 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. We cannot provide
assurance that unexpected environmental
F-30
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
liabilities will not arise. However, based on information currently available
to us, 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.
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.
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 8 of Notes to Financial Statements and
"Transactions with Related Persons, Promoters and Certain Control Persons."
F-31
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 8 of Notes to
Financial Statements and "Transactions with Related Persons, Promoters and
Certain Control Persons" included elsewhere herein.
F-32
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
LEGAL PROCEEDINGS
The matters set forth in Note 12 of Notes to Financial Statements for the year
ended December 31, 2017 are incorporated herein by reference.
F-33
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-35
Financial Statements:
Balance Sheets, December 31, 2017 and December 31, 2016................................. F-36
Statements of Income (Loss), Years Ended December 31, 2017, 2016 and 2015............... F-37
Statements of Comprehensive Income (Loss), Years Ended December 31, 2017, 2016 and 2015. F-38
Statements of Shareholder's Equity, Years Ended December 31, 2017, 2016 and 2015........ F-39
Statements of Cash Flows, Years Ended December 31, 2017, 2016 and 2015.................. F-40
Notes to Financial Statements........................................................... F-41
Note 1: Organization.................................................................. F-41
Note 2: Significant Accounting Policies............................................... F-43
Note 3: Investments................................................................... F-53
Note 4: Deferred Acquisition Cost and Value of Business Acquired...................... F-61
Note 5: Fair Value Disclosures........................................................ F-62
Note 6: Liabilities for Unpaid Claims and Claim Expenses.............................. F-67
Note 7: Reinsurance................................................................... F-68
Note 8: Related Party Transactions.................................................... F-69
Note 9: Share-based Compensation...................................................... F-70
Note 10: Income Taxes................................................................. F-70
Note 11: Accumulated Other Comprehensive Income....................................... F-72
Note 12: Litigation................................................................... F-72
Note 13: Statutory Financial Information.............................................. F-72
Note 14: Subsequent Events............................................................ F-73
Financial Statements Schedules:
Schedule I - Summary of Investments - Other than Investments in Related Parties....... F-74
Schedule IV - Reinsurance............................................................. F-75
F-34
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:
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying balance sheets of MONY Life Insurance Company
of America as of December 31, 2017 and 2016 and the related statements of
income (loss), comprehensive income (loss), shareholder's equity and cash flows
for each of the three years in the period ended December 31, 2017, including
the related notes and financial statement schedules listed in the accompanying
index (collectively referred to as the "financial statements"). In our opinion,
the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2017 in conformity with accounting principles
generally accepted in the United States of America.
BASIS FOR OPINION
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 23, 2018
We have served as the Company's auditor since at least 1998. We have not
determined the specific year we began serving as auditor of the Company.
F-35
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
2017 2016
-------- --------
(IN MILLIONS, EXCEPT
SHARE AMOUNTS)
ASSETS:
Investments:
Fixed maturities available for sale, at fair
value (amortized cost $1,425 and $1,099)....... $ 1,451 $ 1,109
Mortgage loans on real estate................... 17 17
Policy loans.................................... 185 176
Other invested assets........................... 63 68
-------- --------
Total investments.............................. 1,716 1,370
Cash and cash equivalents......................... 44 138
Amounts due from reinsurers....................... 1,325 1,390
Deferred policy acquisition costs................. 383 353
Deferred cost of reinsurance...................... 50 57
Current and deferred income tax receivables....... 22 24
Other assets...................................... 29 29
Separate Accounts assets.......................... 2,015 1,747
-------- --------
TOTAL ASSETS...................................... $ 5,584 $ 5,108
======== ========
LIABILITIES
Policyholders' account balances................... $ 2,631 $ 2,377
Future policy benefits and other
policyholders' liabilities...................... 358 347
Amounts due to reinsurers......................... 132 131
Other liabilities................................. 72 77
Separate Accounts liabilities..................... 2,015 1,747
-------- --------
Total liabilities.............................. 5,208 4,679
-------- --------
Commitments and contingent liabilities (Note 2,
5, 8, 9 and 12)
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.................... 326 323
Retained earnings................................. 36 97
Accumulated other comprehensive income (loss)..... 12 7
-------- --------
Total shareholder's equity..................... 376 429
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $ 5,584 $ 5,108
======== ========
See Notes to Financial Statements.
F-36
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 2016 2015
------ ------ ------
(IN MILLIONS)
REVENUES
Policy charges and fee income..................... $ 180 $ 188 $ 153
Premiums.......................................... 23 4 1
Net derivative gains (losses)..................... (6) (2) (3)
Net investment income (loss)...................... 48 42 38
Investment gains (losses), net:
Total other-than-temporary impairment losses.... -- (3) (1)
Other investment gains (losses), net............ -- (1) --
------ ------ ------
Total investment gains (losses), net............ -- (4) (1)
------ ------ ------
Equity in income (loss) of AllianceBernstein...... 6 6 5
Other income (loss)............................... 7 8 9
------ ------ ------
Total revenues............................... 258 242 202
------ ------ ------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits........................... 54 29 41
Interest credited to policyholders'
account balances................................ 41 43 35
Compensation and benefits......................... 51 59 36
Commissions....................................... 120 114 121
Amortization of deferred policy acquisition
costs, net...................................... (38) (2) (76)
Amortization of deferred cost of reinsurance...... 7 7 8
Other operating costs and expenses................ 91 86 58
------ ------ ------
Total benefits and other deductions.......... 326 336 223
------ ------ ------
Income (loss) from operations, before income taxes (68) (94) (21)
Income tax (expense) benefit...................... 7 35 10
------ ------ ------
Net Income (Loss)................................. $ (61) $ (59) $ (11)
====== ====== ======
See Notes to Financial Statements.
F-37
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 2016 2015
------ ------ ------
(IN MILLIONS)
COMPREHENSIVE INCOME (LOSS)
Net Income (Loss)................................... $ (61) $ (59) $ (11)
------ ------ ------
Other comprehensive income (loss), net of
income taxes:
Change in unrealized gains (losses), net of
reclassification adjustments (Note 11)......... 5 2 (12)
------ ------ ------
Total other comprehensive income (loss),
net of income taxes.......................... 5 2 (12)
------ ------ ------
Comprehensive Income (Loss)........................... $ (56) $ (57) $ (23)
====== ====== ======
See Notes to Financial Statements.
F-38
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 2016 2015
------ ------ ------
(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........................................ 323 320 317
Changes in capital in excess of par value....... 3 3 3
------ ------ ------
Capital in excess of par value, end of year..... 326 323 320
------ ------ ------
Retained earnings, beginning of year............ 97 156 167
Net income (loss)............................... (61) (59) (11)
------ ------ ------
Retained earnings, end of year.................. 36 97 156
------ ------ ------
Accumulated other comprehensive income (loss),
beginning of year.............................. 7 5 17
Other comprehensive income (loss)............... 5 2 (12)
------ ------ ------
Accumulated other comprehensive income (loss),
end of year.................................... 12 7 5
------ ------ ------
TOTAL SHAREHOLDER'S EQUITY, END OF YEAR........... $ 376 $ 429 $ 483
====== ====== ======
See Notes to Financial Statements.
F-39
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
2017 2016 2015
------ ------ ------
(IN MILLIONS)
Net income (loss)............................ $ (61) $ (59) $ (11)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Interest credited to policyholders'
account balances.......................... 41 43 35
Policy charges and fee income.............. (180) (188) (153)
Net derivative gains (losses).............. 6 2 3
Investment (gains) losses, net............. -- 4 1
Dividends from AB Units.................... 6 5 5
Equity in (income ) loss from AB........... (6) (6) (5)
Amortization of deferred reinsurance costs. 7 7 8
Changes in:
Deferred policy acquisition costs, net..... (38) (2) (76)
Future policy benefits..................... 10 (9) 12
Current and deferred income taxes.......... 2 (28) (10)
Other, net................................. 67 40 --
------ ------ ------
Net cash provided by (used in)
operating activities....................... (146) (191) (191)
------ ------ ------
Cash flows from investing activities:
Proceeds from the
sale/maturity/prepayment of:
Fixed maturities, available for sale....... 388 128 105
Payment for the purchase/origination of:...
Fixed maturities, available for sale....... (714) (333) (153)
Mortgage loans on real estate.............. -- (17) --
Cash settlement related to
derivative instruments.................... 28 (13) (7)
Change in policy loans..................... (9) (17) (9)
Other, net................................. -- (3) (3)
------ ------ ------
Net cash provided by (used in)
investing activities....................... (307) (255) (67)
------ ------ ------
Cash flows from financing activities:
Policyholders' account balances:
Deposits................................... 599 455 445
Withdrawals................................ (199) (59) (20)
Transfers (to) from Separate Accounts...... (80) (20) (38)
Change in collateralized
pledged liabilities....................... 39 32 --
------ ------ ------
Net cash provided by (used in)
financing activities....................... 359 408 387
------ ------ ------
Change in cash and cash equivalents.......... (94) (38) 129
Cash and cash equivalents, beginning of year. 138 176 47
------ ------ ------
Cash and Cash Equivalents, End of Year....... $ 44 $ 138 $ 176
====== ====== ======
Schedule of non-cash financing activities:
Non-cash asset acquisition................. $ -- $ 7 $ --
====== ====== ======
Share-based Programs (Note 9).............. $ 3 $ 3 $ 3
====== ====== ======
Income taxes refunded (paid)............... $ 8 $ 7 $ (1)
====== ====== ======
See Notes to Financial Statements.
F-40
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
direct, wholly-owned subsidiary of AXA Equitable Financial Services, LLC
("AEFS"). AEFS is a direct, wholly-owned subsidiary of AXA Financial, Inc.
("AXA Financial," and collectively with its consolidated subsidiaries, "AXA
Financial Group"). AXA Financial is a direct wholly-owned subsidiary of AXA
Equitable Holdings, Inc. ("Holdings"). Holdings is an indirect wholly-owned
subsidiary of AXA S.A. ("AXA"), a French holding company for the AXA Group,
a worldwide leader in life, property and casualty and health insurance and
asset management.
On May 10, 2017, AXA announced its intention to pursue the sale of a
minority stake in our indirect parent, Holdings, through a proposed initial
public offering (the "Holdings IPO") in the first half of 2018. On November
13, 2017, Holdings filed a Form S-1 registration statement with the
Securities and Exchange Commission (the "SEC"). The completion of the
proposed Holdings IPO will depend on, among other things, the SEC filing and
review process and customary regulatory approvals, as well as market
conditions. There can be no assurance that the proposed Holdings IPO will
occur on the anticipated timeline or at all.
Revision of Prior Period Financial Statements
In 2017, management identified errors in its previous financial statements.
These errors primarily related to the calculation of policyholders' benefit
reserves, interest credited to policyholders' account balances and deferred
policy acquisition costs ("DAC") amortization for certain variable and
interest sensitive life products and misclassification of an intangible
asset for business acquired from a third party. Management evaluated the
impact of these errors and concluded they were not material to any
previously reported annual financial statements. In order to improve the
consistency and comparability of the financial statements, management
revised the balance sheet as of December 31, 2016 and the related statements
of income (loss), comprehensive income (loss), shareholder's equity and cash
flows for the years ended December 31, 2016 and 2015 to include the
revisions presented below.
IMPACT OF
AS PREVIOUSLY REPORTED REVISIONS AS REVISED
---------------------- ------------- --------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------- ------------- --------------
2016 2016 2016
---------------------- ------------- --------------
(IN MILLIONS)
ASSETS
INVESTMENTS:
Other invested assets....................... $ 75 $ (7) $ 68
-------------
Total investments........................... 1,377 (7) 1,370
Deferred policy acquisition costs........... 374 (21) 353
Current and deferred income tax receivables. 27 (3) 24
Other assets................................ 22 7 29
-------------
Total Assets................................ $ 5,132 $ (24) $ 5,108
-------------
LIABILITIES:
Policyholders' account balances............. $ 2,403 $ (26) $ 2,377
Future policy benefits and other
policyholders' liabilities................. 351 (4) 347
-------------
Total Liabilities............................. 4,709 (30) 4,679
EQUITY:
Retained earnings........................... 91 6 97
Total shareholder's equity.................. 423 6 429
-------------
Total Liabilities and Shareholder's Equity.. $ 5,132 $ (24) $ 5,108
-------------
F-41
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
AS PREVIOUSLY IMPACT OF
REPORTED REVISIONS AS REVISED
---------------- ------------ ----------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ------------ ----------------
2016 2015 2016 2015 2016 2015
------- ------- ----- ----- ------- -------
(IN MILLIONS)
STATEMENTS OF INCOME (LOSS):
Revenues:
Policy charges and fee income.............. $ 196 $ 152 $ (8) $ 1 $ 188 $ 153
----- -----
Total revenues........................... 250 201 (8) 1 242 202
----- -----
Benefits and other deductions:
Policyholders' benefits.................... 34 39 (5) 2 29 41
Interest credited to policyholders'
account balances......................... 49 42 (6) (7) 43 35
Amortization of deferred policy
acquisition costs, net................... (10) (73) 8 (3) (2) (76)
----- -----
Total benefits and other deductions...... 339 231 (3) (8) 336 223
Income (loss) from operations, before
income taxes............................... (89) (30) (5) 9 (94) (21)
Income tax (expense) benefit................ 33 13 2 (3) 35 10
----- -----
Net Income (Loss)........................... $ (56) $ (17) $ (3) $ 6 $ (59) $ (11)
----- -----
STATEMENTS OF COMPREHENSIVE INCOME (LOSS):
Net Income (loss)........................... $ (56) $ (17) $ (3) $ 6 $ (59) $ (11)
----- -----
Comprehensive Income (Loss)................. $ (54) $ (29) $ (3) $ 6 $ (57) $ (23)
----- -----
AS PREVIOUSLY IMPACT OF
REPORTED REVISIONS AS REVISED
---------------- ------------ ----------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ------------ ----------------
2016 2015 2016 2015 2016 2015
------- ------- ----- ----- ------- -------
(IN MILLIONS)
STATEMENTS OF SHAREHOLDER'S EQUITY:
Retained earnings, beginning of year........ $ 147 $ 164 $ 9 $ 3 $ 156 $ 167
Net income (loss)........................... (56) (17) (3) 6 (59) (11)
----- -----
Retained earnings, end of year.............. 91 147 6 9 97 156
----- -----
Total Shareholder's Equity, End of Year..... $ 423 $ 474 $ 6 $ 9 $ 429 $ 483
----- -----
STATEMENTS OF CASH FLOWS:
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (56) $ (17) $ (3) $ 6 $ (59) $ (11)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:................
Interest credited to policyholders'
account balances......................... 49 42 (6) (7) 43 35
Policy charges and fee income.............. (196) (152) 8 (1) (188) (153)
Changes in:
Deferred policy acquisition costs, net..... (10) (73) 8 (3) (2) (76)
Future policy benefits..................... (4) 10 (5) 2 (9) 12
Current and deferred income taxes.......... (26) (13) (2) 3 (28) (10)
----- -----
Net cash provided by (used in) operating
activities............................... $ (191) $ (191) $ -- $ -- $ (191) $ (191)
----- -----
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 "2017" , "2016" and "2015" refer to the years ended December 31,
2017, 2016 and 2015, respectively. Certain reclassifications have been made
in the amounts presented for prior periods to conform those periods to the
current presentation. Reclassifications primarily relate to our presentation
of embedded derivatives, value of business acquired ("VOBA") and ceded
policy loan balances. The reclassifications impacted the Net derivative
gains (losses), Interest credited to policyholders' account balances,
Amortization of DAC, net and Other operating costs and expenses on the
statements of income (loss) and Amounts due from reinsurers and Amounts due
to reinsurers on the balance sheets.
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 ended
December 31, 2018. MLOA elected to early adopt the new guidance for the year
ended December 31, 2016. Adoption of this guidance did not have a material
impact on MLOA's financial statements.
In October 2016, the FASB issued updated guidance on consolidation of
interests held through related parties that are under common control, which
alters how a decision maker needs to consider indirect interests in a VIE
held through an entity under common control. The guidance amends the
recently adopted consolidation guidance analysis. Under the new guidance, if
a decision maker is required to evaluate whether it is the primary
beneficiary of a VIE, it will need to consider only its proportionate
indirect interest in the VIE held through a common control party. MLOA
adopted the revised guidance effective January 1, 2017. Adoption of this
guidance did not have a material impact 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
for an investor to retroactively adjust the basis of a previously held
interest in an investment that subsequently qualifies for use of the equity
method. Additionally, the amendment requires any unrealized holding gain or
loss recognized in Accumulated Other Comprehensive Income ("AOCI") to be
realized in earnings at the date an available-for-sale ("AFS") security
qualifies for use of the equity method. MLOA adopted the revised guidance
effective January 1, 2017. Adoption of this guidance did not have a material
impact on MLOA's financial statements.
In March 2016, the FASB issued new guidance on improvements to employee
share-based payment accounting. The amendment includes provisions intended
to simplify various aspects related to how share-based payments are
accounted for and presented in the financial statements, including income
tax effects of share-based payments, minimum statutory tax withholding
requirements and forfeitures. MLOA adopted the revised guidance effective
January 1, 2017. Adoption of this guidance did not have a material impact on
MLOA's financial statements.
In February 2015, the FASB issued a new consolidation standard that makes
targeted amendments to the VIE assessment, including guidance specific to
the analysis of fee arrangements and related party relationships, modifies
the guidance for the evaluation of limited partnerships and similar entities
for consolidation to eliminate the presumption of general partner control,
and ends the deferral that had been granted to certain investment companies
for applying previous VIE guidance. MLOA adopted this guidance beginning
January 1, 2016 and continuously updates its analysis as circumstances
change or new entities are formed. Adoption of this guidance did not have a
material impact on MLOA's financial statements.
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. MLOA adopted the guidance effective December 31, 2016.
Adoption of this guidance did not have a material impact on MLOA's financial
statements.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Future Adoption of New Accounting Pronouncements
In February 2018, the FASB issued new guidance that will permit, but not
require, entities to reclassify to retained earnings tax effects "stranded"
in AOCI resulting from the change in federal tax rate enacted by the Tax
Cuts and Jobs Act (the "Act") on December 22, 2017. An entity that elects
this option must reclassify these stranded tax effects for all items in
AOCI, including, but not limited to, AFS securities and employee benefits.
Tax effects stranded in AOCI for other reasons, such as prior changes in tax
law, may not be reclassified. While the new guidance provides entities the
option to reclassify these amounts, new disclosures are required regardless
of whether entities elect to do so. The new guidance is effective for fiscal
years beginning after December 15, 2018, and interim periods within those
fiscal years. Early adoption is permitted for periods for which financial
statements have not yet been issued or made available for issuance,
including in the period the Act was signed into law (i.e., the reporting
period including December 22, 2017). Election can be made either to apply
the new guidance retrospectively to each period in which the effect of the
Act is recognized or in the period of adoption. Management currently is
evaluating the options provided for adopting this guidance and the potential
impacts on MLOA's financial statements.
In August 2017, the FASB issued new guidance on accounting for hedging
activities, intended to more closely align the financial statement reporting
of hedging relationships to the economic results of an entity's risk
management activities. In addition, the new guidance makes certain targeted
modifications to simplify the application of current hedge accounting
guidance. The new guidance is effective for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years, with early
application permitted. The effect of adoption should be reflected as of the
beginning of the fiscal year of adoption (that is, the initial application
date). All transition requirements and elections should be applied to
derivatives positions and hedging relationships existing on the date of
adoption. Management currently is evaluating the impact that adoption of
this guidance will have on MLOA's financial statements.
In May 2017, the FASB issued guidance on share-based payments. The amendment
provides clarity intended to reduce diversity in practice and the cost and
complexity of accounting for changes to the terms or conditions of
share-based payment awards. The new guidance is effective for interim and
annual periods beginning after December 15, 2017, requires prospective
application to awards modified on or after the date of adoption, and permits
early adoption. This amendment is not expected to have a material impact on
MLOA's financial statements.
In March 2017, the FASB issued guidance that requires certain premiums on
callable debt securities to be amortized to the earliest call date and is
intended to better align interest income recognition with the manner in
which market participants price these instruments. The new guidance is
effective for interim and annual periods beginning after December 15, 2018
with early adoption permitted and is to be applied on a modified
retrospective basis. Management currently is evaluating the impact that
adoption of this guidance will have on MLOA's financial statements.
In March 2017, the FASB issued new guidance on the presentation of net
periodic pension and post-retirement benefit costs that requires
disaggregation of the service cost component from the other components of
net benefit costs on the income statement. The service cost component will
be presented with other employee compensation costs in "income from
operations," and the remaining components will be reported separately
outside of income from operations. While this standard does not change the
rules for how benefits costs are measured, it limits the amount eligible for
capitalization to the service cost component and, therefore, may require
insurers and other entities that establish deferred assets related to the
acquisition of new contracts to align its capitalization policies/practices
with that limitation. The new guidance is effective for interim and annual
periods beginning after December 15, 2017 with early adoption permitted and
is to be applied retrospectively for changes in the income statement
presentation of net benefit cost and prospectively for changes in
capitalization eligibility. The guidance permits the use of amounts
previously disclosed for the various components of net benefits cost as the
basis for the retrospective change in the income statement presentation, and
use of that approach must be disclosed as a "practical expedient" to
determining how much of the various components of net benefits costs
actually was reflected in historical income statements a result of
capitalization and subsequent amortization. MLOA expects to utilize the
practical expedient for adopting the retrospective change in its income
statement presentation of net benefits costs. Based on the assessments
performed to-date, adoption of this new guidance in first quarter 2018 is
not expected to have a material impact on MLOA's financial statements.
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. Adoption of this new guidance in first
quarter 2018 is not expected to have a material impact on MLOA's financial
condition or results of operations.
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
In January 2016, the FASB issued new guidance related to the recognition and
measurement of financial assets and financial liabilities. The new guidance
primarily affects the accounting for equity investments, financial
liabilities under the fair value option, and presentation and disclosure
requirements for financial instruments. In addition, the FASB clarified
guidance related to the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on AFS debt securities.
The new guidance will require equity investments in unconsolidated entities,
except those accounted for under the equity method, to be measured at fair
value through earnings, thereby eliminating the AFS classification for
equity securities with readily determinable fair values for which changes in
fair value currently are reported in AOCI. Adoption of this new guidance is
required in interim and annual periods beginning after December 15, 2017 and
is to be applied on a modified retrospective basis. At December 31, 2017,
MLOA has no common stock securities designated as AFS for which a cumulative
effect adjustment to opening retained earnings would be required at
January 1, 2018 to reclassify from AOCI the related net unrealized
investment gains/(losses), net of income tax. MLOA's investment assets held
in the form of equity interests in unconsolidated entities, such as limited
partnerships and limited liability companies, including hedge funds, private
equity funds, and real estate-related funds, generally are accounted for
under the equity method and will not be impacted by this new guidance. MLOA
does not currently report any of its financial liabilities under the fair
value option. Adoption of this new guidance in first quarter 2018 is not
expected to have a material impact on MLOA's financial condition or results
of operations.
In May 2014, the FASB issued new guidance that revises the recognition
criteria for revenue arising from contracts with customers to provide goods
or services, except when those revenue streams are from insurance contracts,
leases, rights and obligations that are in the scope of certain financial
instruments (i.e., derivative contracts) and guarantees other than product
or service warranties. The new standard's core principle is that revenue
should be recognized when "control" of promised goods or services is
transferred to customers and in an amount that reflects the consideration to
which it expects to be entitled in exchange. Applying the new revenue
recognition criteria generally will require more judgments and estimates
than under current guidance in order to identify contractual performance
obligations to customers, assess the roles of intermediaries in fulfilling
those obligations, determine the amount of variable consideration to include
in the transaction price, and allocate the transaction price to distinct
performance obligations in bundled contracts. The new guidance is effective
for interim and annual periods, beginning after December 15, 2017, with
early adoption permitted. Transition to the new standard requires a
retrospective approach but application is permitted either on a full or
modified basis, the latter by recognition of a cumulative-effect adjustment
to opening equity in the period of initial adoption. Revenues within the
scope of this standard and subject to MLOA's analysis largely relate to
ceded commission and fees from the business reinsured with Protective Life.
MLOA will adopt the new revenue recognition guidance on a modified
retrospective basis beginning January 1, 2018, and its future financial
statements will include required additional disclosures. Based on the
assessments performed to-date, MLOA does not expect adoption of this new
guidance to have a material impact on its financial condition or results of
operations.
Investments
The carrying values of fixed maturities classified as AFS are reported at
fair value. Changes in fair value are reported in Other comprehensive income
("OCI"). 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 income (loss) and the remainder of the fair
value loss is recognized in 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
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
value is calculated by discounting management's best estimate of projected
future cash flows at the effective interest rate implicit in the debt
security at the date of acquisition. 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 represent funds loaned to policyholders up to the cash
surrender value of the associated insurance policies and are carried at the
unpaid principal balances due to MLOA from the policyholders. Interest
income on policy loans is recognized in net investment income at the
contract interest rate when earned. Policy loans are fully collateralized by
the cash surrender value of the associated insurance policies.
Equity 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 Holdings, 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 would be included in Other invested assets.
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.
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.
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 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 Net
derivative gains (losses) 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 income (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, MLOA instead may elect to carry the entire instrument at fair
value.
Commercial Mortgage Loans on Real Estate:
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
. Debt service coverage ratio -- Derived from actual operating earnings
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.
Mortgage loans also are individually evaluated quarterly by MLOA's IUS
Committee for impairment, including an assessment of related collateral
value. Commercial mortgages 60 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 are also identified, consisting of mortgage
loans not currently classified as problem mortgages 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 mortgage 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 MLOA's assessment as
to ultimate collectability of loan principal 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.
Impaired mortgage loans without provision for losses are mortgage loans
where the fair value of the collateral or the net present value of the
expected future cash flows related to the loan equals or exceeds the
recorded investment. Interest income earned on mortgage loans where the
collateral value is used to measure impairment is recorded on a cash basis.
Interest income on mortgage loans where the present value method is used to
measure impairment is accrued on the net carrying value amount of the loan
at the interest rate used to discount the cash flows. Changes in the present
value attributable to changes in the amount or timing of expected cash flows
are reported as investment gains or losses.
Mortgage loans are placed on nonaccrual status once management believes the
collection of accrued interest is doubtful. Once mortgage loans are
classified as nonaccrual mortgage loans, interest income is recognized under
the cash basis of accounting and the resumption of the interest accrual
would commence only after all past due interest has been collected or the
mortgage loan has been restructured to where the collection of interest is
considered likely.
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.
Unrealized investment gains (losses) on fixed maturities and equity
securities designated as AFS held by MLOA are accounted for as a separate
component of AOCI, net of related deferred income taxes and amounts
attributable to DAC and 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 universal life ("UL"), variable universal 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.
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.
Premiums from individual health contracts are recognized as income over the
period to which the premiums relate in proportion to the amount of insurance
protection provided.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 income.
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 was 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. Amortization of VOBA is reported
in Other operating costs and expenses in the statements of income (loss).
AMORTIZATION POLICY. For 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 net income (loss) 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 asset 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 dates.
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 ("RTM") 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. Based upon management's current expectations of interest rates
and future fund growth, MLOA updated its 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,
2017, 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
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 amortization.
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
F-49
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
future periods from that currently projected would result in future
deceleration of DAC. Conversely, deterioration of life mortality in future
periods from that currently projected would result in future acceleration of
DAC amortization.
Other significant assumptions underlying gross profit estimates for UL and
investment-type products relate to contract persistency and General Account
investment spread.
For some products, policyholders can elect to modify product benefits,
features, rights or coverages that occur by the exchange of a contract for a
new contract, or by amendment, endorsement, or rider to a contract, or by
election or coverage within a contract. These transactions are known as
internal replacements. If such modification substantially changes the
contract, the associated DAC is written off immediately through income and
any new deferrable costs associated with the replacement contract are
deferred. If the modification does not substantially change the contract,
the DAC amortization on the original contract will continue and any
acquisition costs associated with the related modification are expensed.
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
MLOA uses actuarial methods and assumptions that are consistently applied
each reporting period and recognizes the best estimate of the ultimate
liability.
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 RTM 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.
Individual health benefit liabilities for active lives are estimated using
the net level premium method and assumptions as to future morbidity,
withdrawals and interest.
Reinsurance recoverable balances were calculated using methodologies and
assumptions that are consistent with those used to calculate the direct
liabilities.
F-50
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 policyholders' fund balances and, after
annuitization, are equal to the present value of expected future payments.
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 income.
Liabilities for unpaid claims and claim adjustment expenses are established
for MLOA's employee benefits products which includes the following Group
products: long-term and short-term disability, life insurance, vision, and
dental. Unpaid claim and claim adjustment expenses consist of (1) claim
reserves for known claims that are unpaid as of the balance sheet date;
(2) Incurred But Not Reported reserves for claims where the insured event
occurred but has not yet been reported to MLOA or the insured has not yet
satisfied elimination period to be eligible for the benefits; and (3) claim
adjustment expense reserves for settling these claims. MLOA determines
Incurred But Not Reported reserves using loss ratio and completion factors
methods. The claim reserves for the long-term disability claims are provided
by a third party managing the claims on MLOA's behalf and the claim reserves
methodology is a present value of future benefits over the expected
disability period determined using actuarial assumptions. The claim
adjustment expense reserves are set based on the anticipated cost associated
with claim administration expenses on the run-out of business. Interest is
accreted and recognized in Policyholders' benefits in MLOA's statement of
income.
. For long-term disability ("LTD") the claim reserves for the reported
claims are calculated as the present value of the net monthly LTD
benefits (Social Security and other offsets may be estimated if
unknown) and the best estimate probabilities of the claimant
remaining disabled for a given benefit payment which are based on a
termination rates table adjusted for experience. Should the offsets
be estimated, they are estimated using the claimant's salary,
duration of disability and the probability of the offset award.
The disability termination rates vary based on the insured's age at
disability, gender, elimination period, the duration of disability,
social security status and the number of months remaining in the benefit
period. The rates account for the probabilities of both recovery and
death. The reserves vary with plan provisions such as monthly benefit,
offsets, own occupation period, benefit duration, cost of living
adjustment ("COLA"), and minimum and maximum benefits. The discount rate
assumptions for these liabilities are set annually and are based on
projected investment returns for the asset portfolios. The interest rate
is locked in for each claimant based on the year of disability.
. For short-term and long-term disability and group life liabilities
the incurred but not reported reserves are determined using the
expected loss ratio method, where the expected loss ratio is applied
to the underwritten premiums to determine ultimate liabilities.
. For dental and vision this liability is primarily calculated using
completion factors, where these factors complete paid-to-date claims
to the ultimate liability based on past experience. For short-term
and long-term disability and group life liabilities the incurred but
not reported reserves are determined using the expected loss ratio
method, where the expected loss ratio is applied to the underwritten
premiums to determine ultimate liabilities.
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 income (loss) less fees, held primarily for
the benefit of policyholders, 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 policyholders of such Separate Accounts are offset
within the same line in the statements of income (loss). For 2017, 2016 and
2015, investment results of such Separate Accounts were gains (losses) of
$308 million, $52 million and $(12) 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.
F-51
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
As required under accounting for income taxes, MLOA determined reasonable
estimates for certain effects of the Tax Cuts and Jobs Act enacted on
December 22, 2017 and recorded those estimates as provisional amounts in the
2017 MLOA financial statements. In accordance with SEC Staff Accounting
Bulletin No. 118 ("SAB 118"), MLOA may make additional adjustments during
2018 (the measurement period) to the income tax balance sheet and income
statement accounts as the U.S. Department of the Treasury issues further
guidance and interpretations.
Assumption Updates and Model Changes
In 2017, MLOA made several assumption updates and model changes, including
the following: (1) updated premium funding assumptions for certain UL and
variable UL products with secondary guarantees; (2) completed its periodic
review and updated its long term mortality assumption for universal,
variable universal and traditional life products; (3) updated the assumption
for long term General Account spread and yield assumptions in the DAC
amortization and loss recognition testing calculations for UL, variable UL
and deferred annuity business lines; (4) updated our maintenance expense
assumption for UL and variable UL products; and (5) refined our calculation
used to estimate the future costs of certain long term care benefit
acceleration riders on our UL and variable UL products. The net impact of
assumption changes in 2017 decreased policyholders' benefits by $7 million,
increased the amortization of DAC by $21 million, and increased policy
charges and fee income by $4 million. This resulted in an increase in Loss
from operations, before income taxes of $10 million and increased Net loss
by $7 million.
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 variable interest-sensitive life ("VISL") products as a result of
unfavorable mortality experience; and (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 $15 million, increased the amortization
of DAC by $67 million and increased policy charges and fee income by
$30 million, resulting in a net increase to the 2016 Loss from operations,
before income taxes and Net loss of approximately $22 million and
$14 million, respectively.
In 2015, based upon management's then 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-52
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 FAIR OTTI
COST GAINS LOSSES VALUE IN AOCI/(1)/
---------- ---------- ---------- --------- -----------
(IN MILLIONS)
DECEMBER 31, 2017:
------------------
Fixed Maturity Securities:
Public corporate........................... $ 888 $ 21 $ 2 $ 907 $ --
Private corporate.......................... 284 8 1 291 --
U.S. Treasury, government and agency....... 232 1 1 232 --
States and political subdivisions.......... 5 -- -- 5 --
Commercial mortgage-backed................. -- -- -- -- --
Residential mortgage-backed................ -- -- -- --
Asset-backed/(2)/.......................... 12 -- -- 12
Redeemable preferred stock................. 4 -- -- 4 --
---------- --------- --------- --------- ---------
Total at December 31, 2017................... $ 1,425 $ 30 $ 4 $ 1,451 $ --
========== ========= ========= ========= =========
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
========== ========= ========= ========= =========
/(1)/Amounts represent OTTI losses in AOCI, which were not included in income
(loss) in accordance with current accounting guidance.
/(2)/Includes credit-tranched securities collateralized by sub-prime
mortgages and other asset types and credit tenant loans.
The contractual maturities of AFS fixed maturities at December 31, 2017 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, 2017
AMORTIZED
COST FAIR VALUE
--------- ----------
(IN MILLIONS)
Due in one year or less...................... $ 19 $ 19
Due in years two through five................ 228 235
Due in years six through ten................. 798 813
Due after ten years.......................... 364 368
--------- ---------
Subtotal.................................. 1,409 1,435
Asset-backed................................. 12 12
Redeemable preferred stock................... 4 4
--------- ---------
Total........................................ $ 1,425 $ 1,451
========= =========
F-53
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table shows proceeds from sales, gross gains (losses) from
sales and OTTI for AFS fixed maturities during 2017, 2016 and 2015:
December 31,
--------------------
2017 2016 2015
------ ----- -----
(IN MILLIONS)
Proceeds from sales.......................... $ 325 $ 49 $ 19
====== ===== =====
Gross gains on sales......................... $ 10 $ 1 $ --
====== ===== =====
Gross losses on sales........................ $ (7) $ -- $ --
====== ===== =====
Total OTTI................................... $ -- $ (3) $ (1)
------ ----- -----
Credit losses recognized in net income (loss) $ -- $ (3) $ (1)
====== ===== =====
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
2017 2016
----- ------
(IN MILLIONS)
Balances at January 1,....................... $ (32) $ (42)
Previously recognized impairments on
securities that matured, paid, prepaid or
sold....................................... 28 13
Impairments recognized this period on
securities not previously impaired......... -- (3)
----- ------
Balances at December 31,..................... $ (4) $ (32)
===== ======
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,
-------------
2017 2016
----- -----
(IN MILLIONS)
AFS Securities:
Fixed maturity securities:
With OTTI loss............................. $ -- $ 4
All other.................................. 26 6
----- -----
Net Unrealized (Gains) Losses................. $ 26 $ 10
===== =====
F-54
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Changes in net unrealized investment gains (losses) recognized in AOCI
include reclassification adjustments to reflect amounts realized in Net
income (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, 2017..................... $ 4 $ (2) $ 2
Net investment gains (losses) arising during
the period................................. (4) -- (4)
Reclassification adjustment for OTTI losses:
Included in Net income (loss)............. -- -- --
Impact of net unrealized investment gains
(losses) on:
Deferred income taxes..................... -- -- --
---------------- ------------ ---------------
BALANCE, DECEMBER 31, 2017................... $ -- $ (2) $ (2)
================ ============ ===============
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 income (loss)............. 1 -- 1
Impact of net unrealized investment gains
(losses) on:
Deferred income taxes..................... -- -- --
---------------- ------------ ---------------
BALANCE, DECEMBER 31, 2016................... $ 4 $ (2) $ 2
================ ============ ===============
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 GAINS
INVESTMENTS DAC (LIABILITY) (LOSSES)
-------------- ---- ----------- ----------------
(IN MILLIONS)
BALANCE, JANUARY 1, 2017..................... $ 6 $ -- $ (1) $ 5
Net investment gains (losses) arising during
the period................................. 20 -- -- 20
Reclassification adjustment for OTTI losses:
Included in Net income (loss)............. -- -- -- --
Impact of net unrealized investment gains
(losses) on:
DAC....................................... -- (8) -- (8)
Deferred income taxes..................... -- -- (4) (4)
------------- ---- --------- ---------------
BALANCE, DECEMBER 31, 2017................... $ 26 $ (8) $ (5) $ 13
============= ==== ========= ===============
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 income (loss)............. 3 -- -- 3
Impact of net unrealized investment gains
(losses) on:
DAC....................................... -- 2 -- 2
Deferred income taxes..................... -- -- (1) (1)
------------- ---- --------- ---------------
BALANCE, DECEMBER 31, 2016................... $ 6 $ -- $ (1) $ 5
============= ==== ========= ===============
F-55
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following tables disclose the fair values and gross unrealized losses of
the 112 issues at December 31, 2017 and the 168 issues at December 31, 2016
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, 2017
-----------------
Fixed Maturity Securities:
Public corporate........................... $ 135 $ 1 $ 29 $ 1 $ 164 $ 2
Private corporate.......................... 45 -- 23 1 68 1
U.S. Treasury, government and agency....... 50 1 6 -- 56 1
Asset-backed............................... 7 -- -- -- 7 --
Redeemable preferred stock................. 2 -- -- -- 2 --
--------- --------- -------- --------- --------- ---------
Total........................................ $ 239 $ 2 $ 58 $ 2 $ 297 $ 4
========= ========= ======== ========= ========= =========
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
========= ========= ======== ========= ========= =========
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 2.1% of total investments. The largest exposures to a
single issuer of corporate securities held at December 31, 2017 and 2016
were $25 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, 2017 and 2016,
respectively, approximately $20 million and $37 million, or 1.4% and 3.4%,
of the $1,425 million and $1,099 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 $0 million at
December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016,
respectively, the $2 million and $7 million of gross unrealized losses of
twelve months or more were concentrated in corporate and commercial
mortgage-backed securities. In accordance with the policy described in Note
2, MLOA concluded that an adjustment to income for OTTI for these securities
was not warranted at either December 31, 2017 or 2016. At December 31, 2017,
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, 2017, the carrying value of fixed maturities that were
non-income producing for the twelve months preceding that date was
$0 million.
MORTGAGE LOANS
In 2016, MLOA issued $17 million of commercial mortgage loans, representing
approximately 1.0% of 2017 invested assets. These mortgage loans were issued
for apartment complex properties located in the Mid-Atlantic region. At
December 31, 2017 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. There are no valuation allowances for
commercial mortgage loans for 2017, 2016, and 2015.
F-56
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 $65 million and
$61 million at December 31, 2017 and 2016, respectively. MLOA's investment
in AB, an affiliate, is included in Other invested assets:
2017 2016
----- -----
(IN MILLIONS)
Balance at January 1,........................ $ 64 $ 63
Equity in net income (loss).................. 6 6
Dividends received........................... (6) (5)
----- -----
Balance at December 31,...................... $ 64 $ 64
===== =====
The tables below detail the condensed balance sheets and statements of
income (loss) of AB and MLOA's equity investment and equity in income (loss)
of AB.
DECEMBER 31,
-----------------
2017 2016
-------- --------
(IN MILLIONS)
BALANCE SHEETS:
Total Assets................................. $ 9,295 $ 8,740
======== ========
Total Liabilities............................ 4,630 4,279
Redeemable non-controlling interest.......... 602 393
Total Partners' Capital...................... 4,063 4,068
-------- --------
Total Liabilities and Partners' Capital.... $ 9,295 $ 8,740
======== ========
MLOA's Equity investment in AB............... $ 64 $ 64
======== ========
2017 2016 2015
-------- -------- --------
(IN MILLIONS)
STATEMENTS OF INCOME (LOSS):
Total Revenues............................... $ 3,299 $ 3,029 $ 3,021
-------- -------- --------
Total Expenses............................... 2,525 2,306 2,390
-------- -------- --------
Net Income (Loss).......................... $ 721 $ 695 $ 587
======== ======== ========
MLOA's Equity in income (loss) of AB......... $ 6 $ 6 $ 5
======== ======== ========
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, up to a cap for a set
period of time, while MLOA absorbs, up to a certain percentage, the loss of
value in an index, which varies by product segment. In order to support the
returns associated with these products and features, MLOA enters into
derivative contracts whose payouts, in combination with fixed income
investments, emulate those of the index, subject to caps and buffers.
F-57
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 INCOME (LOSS)
-------- ------------ ------------ --------------
AT OR FOR THE YEAR ENDED, DECEMBER 31, 2017: (IN MILLIONS)
FREESTANDING DERIVATIVES:
Equity contracts:/(1)/
Options.................................... $ 1,058 $ 119 $ 30 $ 66
Collateral................................. -- -- 90 --
NET INVESTMENT INCOME (LOSS)................. 66
--------------
EMBEDDED DERIVATIVES:
MSO and IUL indexed features/(2) (3)/........ -- -- 88 (72)
-------- ------------ ------------ --------------
Balances, December 31, 2017.................. $ 1,058 $ 119 $ 208 $ (6)
======== ============ ============ ==============
At or For the Year Ended, December 31, 2016:
Freestanding derivatives:
Equity contracts:/(1)/
Options.................................... $ 776 $ 76 $ 20 $ 18
Collateral................................. -- -- 58 --
Net investment income (loss)................. 18
Embedded derivatives:
MSO and IUL indexed features/(2) (3)/........ -- -- 53 (20)
-------- ------------ ------------ --------------
Balances, December 31, 2016.................. $ 776 $ 76 $ 131 $ (2)
======== ============ ============ ==============
/(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.
/(3)/Reported in Net derivative gains (losses) in the statements of income
(loss)
For 2017, 2016 and 2015 Net derivative gains (losses) included $42 million,
$(2) million and $6 million of realized gains (losses) on contracts closed
during those periods and $24 million, $20 million and $(15) million of
unrealized gains (losses) on derivative positions at year end.
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
F-58
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
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 balance sheets and are reported either as
assets in Other invested assets, except for embedded insurance-related
derivatives as described above. 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, 2017 and 2016, respectively, MLOA held $90 million and
$58 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, 2017 and 2016
was not material.
The following table presents information about MLOA's offsetting of
financial assets and liabilities and derivative instruments at December 31,
2017.
OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES AND DERIVATIVE INSTRUMENTS
AT DECEMBER 31, 2017
GROSS GROSS AMOUNTS NET AMOUNTS
AMOUNTS OFFSET IN THE PRESENTED IN THE
RECOGNIZED BALANCE SHEETS BALANCE SHEETS
---------- -------------- ----------------
(IN MILLIONS)
ASSETS
DESCRIPTION
Derivatives:
Equity contracts............................. $ 119 $ 30 $ 89
Collateral................................... -- 90 (90)
---------- -------------- ----------------
Total Derivatives, subject to an ISDA
Master Agreement/(1)/..................... 119 120 (1)
Other financial assets....................... 64 -- 64
---------- -------------- ----------------
Other invested assets...................... $ 183 $ 120 $ 63
========== ============== ================
LIABILITIES
DESCRIPTION
Derivatives:
Equity contracts............................. $ 30 $ 30 $ --
Collateral................................... 90 90 --
---------- -------------- ----------------
Total Derivatives, subject to an ISDA
Master Agreement/(1)/..................... 120 120 --
Other financial liabilities.................. 72 -- 72
---------- -------------- ----------------
Other liabilities.......................... $ 192 $ 120 $ 72
========== ============== ================
/(1)/All derivatives were subject to ISDA Master Agreements at December 31,
2017.
F-59
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, 2017.
COLLATERAL AMOUNTS OFFSET IN THE BALANCE SHEETS
AT DECEMBER 31, 2017
COLLATERAL (RECEIVED)/HELD
--------------------------
FAIR VALUE OF FINANCIAL NET
ASSETS INSTRUMENTS CASH AMOUNTS
------------- ----------- ------ -------
(IN MILLIONS)
ASSETS
Total derivatives.......................... $ 89 $ -- $ (90) $ (1)
Other financial assets....................... 64 -- -- 64
------ ----- ------ -----
OTHER INVESTED ASSETS...................... $ 153 $ -- $ (90) $ 63
====== ===== ====== =====
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.................. 70 -- 70
------ ----- -----
Other invested assets...................... $ 146 $ 78 $ 68
====== ===== =====
LIABILITIES
Description
Derivatives:
Equity contracts............................. $ 20 $ 20 $ --
------ ----- -----
Total Derivatives, subject to an ISDA Master
Agreement/(1)/............................. 78 78 --
Other financial liabilities.................. 77 -- 77
------ ----- -----
Other liabilities.......................... $ 155 $ 78 $ 77
====== ===== =====
/(1)/All derivatives were subject to ISDA Master Agreements at December 31,
2016.
F-60
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.
Gross Collateral Amounts Not Offset in the Balance Sheets
At December 31, 2016
Collateral (Received)/Held
-------------------------
Fair Value of Financial
Assets Instruments Cash Net Amounts
------------- ----------- ------------- ------------
(in millions)
ASSETS
Total derivatives.......................... $ 56 $ -- $ (58) $ (2)
Other financial assets....................... 70 -- -- 70
------------- ----------- ------------- ------------
Other invested assets...................... $ 126 $ -- $ (58) $ 68
============= =========== ============= ============
Net Investment Income (Loss)
The following table breaks out Net investment income (loss) by asset
category:
2017 2016 2015
----- ----- -----
(IN MILLIONS)
Fixed maturities............................. $ 49 $ 43 $ 40
Mortgage loans on real estate................ 1 1 --
Policy loans................................. 1 1 1
----- ----- -----
Gross investment income (loss)............... 51 45 41
Investment expenses.......................... (3) (3) (3)
----- ----- -----
Net Investment Income (Loss)............... $ 48 $ 42 $ 38
===== ===== =====
Investment Gains (Losses), Net
Investment gains (losses), net including changes in the valuation allowances
and OTTI are as follows:
2017 2016 2015
----- ------ ------
(IN MILLIONS)
Fixed maturities............................. $ -- $ (4) $ (1)
----- ------ ------
Investment Gains (Losses), Net............... $ -- $ (4) $ (1)
===== ====== ======
4) DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
DAC
Changes in deferred policy acquisition costs at December 31, 2017 and 2016
were as follows:
DECEMBER 31,
--------------
2017 2016
------ ------
(IN MILLIONS)
Balance, beginning of year................... $ 353 $ 351
Capitalization of commissions, sales and
issue expenses............................. 109 103
Amortization................................. (71) (101)
Change in unrealized investment gains and
losses..................................... (8) --
------ ------
Balance, End of Year......................... $ 383 $ 353
====== ======
F-61
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
VOBA
MLOA's VOBA asset amortized to $0 million in 2016. For 2017, 2016 and 2015,
amortization expense related to VOBA was $0 million, $9 million and
$0 million, respectively and reported in Other operating costs and expenses.
5) FAIR VALUE DISCLOSURES
Assets and liabilities measured at fair value on a recurring basis are
summarized below. At December 31, 2017 and 2016, 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. MLOA recognizes transfers between
valuation levels at the beginning of the reporting period.
FAIR VALUE MEASUREMENTS
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------- --------- ------- ---------
(IN MILLIONS)
DECEMBER 31, 2017
-----------------
ASSETS:
Investments:
Fixed maturity securities,
available-for-sale:
Public corporate........................... $ -- $ 907 $ -- $ 907
Private corporate.......................... -- 285 6 291
U.S. Treasury, government and agency....... -- 232 -- 232
States and political subdivisions.......... -- 5 -- 5
Asset-backed............................... -- 12 -- 12
Redeemable preferred stock................. 4 -- -- 4
--------- --------- ----- ---------
Subtotal................................. 4 1,441 6 1,451
--------- --------- ----- ---------
Trading securities.......................... 1 -- -- 1
Options..................................... -- 89 -- 89
Cash equivalents.............................. 44 -- -- 44
Separate Accounts assets...................... 1,999 14 -- 2,013
--------- --------- ----- ---------
Total Assets............................... $ 2,048 $ 1,544 $ 6 $ 3,598
========= ========= ===== =========
LIABILITIES:
Contingent payment arrangements............... $ -- $ -- $ 4 $ 4
MSO and IUL indexed features' liability....... -- 88 -- 88
--------- --------- ----- ---------
Total Liabilities.......................... $ -- $ 88 $ 4 $ 92
========= ========= ===== =========
F-62
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
-------- -------- -------- --------
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
======== ======== ======== ========
At December 31, 2017 and 2016, respectively, the fair value of public fixed
maturities is approximately $1,149 million and $888 million or approximately
31.9% and 29.4% 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 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, 2017 and 2016, respectively, the fair value of private fixed
maturities is approximately $302 million and $221 million or approximately
8.4% 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, 2017 and 2016, respectively, investments classified as
Level 1 comprise approximately 56.9% and 61.3% of assets measured at fair
value on a recurring basis and primarily include redeemable preferred stock,
cash equivalents and Separate Account assets.
F-63
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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, 2017 and 2016, respectively, investments classified as
Level 2 comprise approximately 42.9% and 37.7% 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. 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, price movements 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. 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, 2017 and 2016, respectively, investments classified as
Level 3 comprise approximately 0.2% and 1.0% 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, 2017 and 2016, 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
$0 million and $24 million of mortgage- and asset-backed securities,
including CMBS, are classified as Level 3 at December 31, 2017 and 2016,
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 "Renewal Rights Agreement")
that transitions certain group employee benefits policies beginning
January 1, 2017 from an insurer exiting such business to MLOA. The fair
value 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, 2017) to the resulting cash flows.
In 2017 and 2016, there were no AFS fixed maturities were transferred from
Level 2 into the Level 3 classification.
F-64
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The table below presents a reconciliation for all Level 3 assets and
liabilities at December 31, 2017, 2016 and 2015 respectively.
LEVEL 3 INSTRUMENTS
FAIR VALUE MEASUREMENTS
COMMERCIAL CONTINGENT
MORTGAGE- PAYMENT
CORPORATE BACKED ARRANGEMENT
------------ ----------- -----------
(IN MILLIONS)
BALANCE, JANUARY 1, 2017....................... $ 7 $ 24 $ 7
Total gains (losses), realized and
unrealized included in:
Income (loss) as:
Investment gains (losses), net............ -- 1 --
Other comprehensive income (loss).............. -- -- --
Purchases...................................... -- -- --
Sales.......................................... (1) (25) --
Change in estimate............................. -- -- (3)
------------ ----------- -----------
BALANCE, DECEMBER 31, 2017..................... $ 6 $ -- $ 4
============ =========== ===========
BALANCE, JANUARY 1, 2016....................... $ 8 $ 31 $ --
Total gains (losses), realized and
unrealized included in:
Income (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:
Income (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 $ --
============ =========== ===========
/(1)/Transfers into/out of Level 3 classification are reflected at
beginning-of-period fair values.
F-65
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The table below details changes in unrealized gains (losses) for 2017, 2016
and 2015 by category for Level 3 assets still held at December 31, 2017,
2016 and 2015, respectively.
OCI
-------------
(IN MILLIONS)
HELD AS OF DECEMBER 31, 2017:
Change in unrealized gains (losses):
Fixed maturity securities,
available-for-sale:
Commercial mortgage-backed................ $ --
------------
Total................................... $ --
============
Held as of December 31, 2016:
Change in unrealized gains (losses):
Fixed maturity securities,
available-for-sale:
Commercial mortgage-backed................ $ 1
------------
Total................................... $ 1
============
Held as of 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, 2017 and 2016, MLOA had $6 million and $31 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, 2017 and 2016 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, 2017
-----------------
Mortgage loans on real estate................ $ 17 $ -- $ -- $ 17 $ 17
Policy Loans................................. 185 -- -- 224 224
Policyholders liabilities: Investment
contracts.................................. 153 -- -- 156 156
December 31, 2016
-----------------
Mortgage loans on real estate................ $ 17 $ -- $ -- $ 16 $ 16
Policy Loans................................. 176 -- -- 210 210
Policyholders liabilities: Investment
contracts.................................. 168 -- -- 170 170
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.
F-66
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 and 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.
6) LIABILITIES FOR UNPAID CLAIMS AND CLAIM EXPENSES
The liability for unpaid claims and claim expenses as of December 31, 2017
is as follows, the liability for unpaid claims and claim expenses as of
December 31, 2016 was not material. The liability for unpaid claims and
claim expenses is recorded in Future policy benefits and other
policyholders' liabilities in MLOA's balance sheet:
2017
-------------
(IN MILLIONS)
Group Employee Benefits...................... $ 9.9
The following table shows a rollforward of the liability for unpaid claims
and claim expenses:
2017
-------------
(IN MILLIONS)
Gross Balance at January 1, 2017............. $ 1.1
Less Reinsurance............................. 0.1
------------
Net Balance at January 1, 2017............... $ 1.0
============
Incurred Claims (net) Related to:
Current Year............................... $ 18.5
Prior Year................................. (0.7)
------------
Total Incurred............................... $ 17.8
============
Paid Claims (net) Related to:
Current Year............................... $ 12.1
Prior Year................................. 0.2
------------
Total Paid................................... $ 12.3
============
Net Balance at December 31, 2017............. $ 6.5
Add Reinsurance.............................. 3.4
------------
Gross Balance at December 31, 2017........... $ 9.9
============
Reinsurance in the table above reflects amounts due from reinsurer for the
long-term and short-term disability unpaid claims and claim expenses
liabilities.
LONG-TERM DISABILITY DEVELOPMENT TABLES
The table below presents information about incurred and paid claims
development as of December 31, 2017, net of reinsurance, cumulative claims
frequency, and total incurred but not reported liabilities ("IBNR") for
MLOA's long-term disability business.
CUMULATIVE PAID CLAIMS, NET OF REINSURANCE
2017
-------------
INCURRAL YEAR (IN MILLIONS)
2017......................................... $ 0.1
------------
Cumulative long-term disability paid claims.. $ 0.1
============
F-67
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
INCURRED CLAIMS (UNDISCOUNTED RUNOUT, NET OF REINSURANCE)
CLAIM
2017 IBNR FREQUENCY
------ ------ ---------
INCURRAL YEAR (IN MILLIONS)
2017......................................... $ 2.1 $ 0.7 56
------ ------
Cumulative long-term disability
incurred claims........................... $ 2.1 $ 0.7
====== ======
The claim frequency for long-term disability represents the number of unique
claim events for which benefit payments have been made. Claim events are
identified using a unique claimant identifier and incurral date (claim event
date). Thus, if an individual has multiple claims for different disabling
events (and thus different disability dates), each will be reported as a
unique claim event. However, if an individual receives multiple benefits
under more than one policy (for example, supplementary disability benefits
in addition to the base policy), we treat it as a single claim occurrence
because they are related to a single claim event. Claim frequency is
expected to be lower for the most recent incurral year because claimants
have to satisfy elimination period before being eligible for benefits.
The historical claim payout pattern for the long-term disability for the
years presented in the development table is not available because this is a
relatively new line of business.
MLOA discounts long-term disability liabilities as benefit payments are made
over extended periods. Discount rate assumptions for these liabilities are
based on projected investment returns for the asset portfolios. The discount
rate is 3.6%.
The following table reconciles the long-term disability net incurred and
paid claims development table to the liability for unpaid claims and claim
expenses in MLOA's balance sheet as of December 31, 2017.
2017
-------------
(IN MILLIONS)
LONG-TERM DISABILITY CLAIM DEVELOPMENT
TABLE, NET OF REINSURANCE
Undiscounted Incurred Claims, net
of reinsurance............................ $ 2.1
Subtract Cumulative Paid Claims, net
of reinsurance............................ (0.1)
Subtract Impact of Discounting, net
of reinsurance............................ (0.3)
------------
Liabilities for unpaid claim and claim
expense, net of reinsurance................ $ 1.7
------------
UNPAID CLAIMS AND CLAIM EXPENSES, NET OF
REINSURANCE
Liabilities for unpaid claim and claim
expense, net
of reinsurance............................ $ 1.7
Other short-duration contracts, net of
reinsurance................................ 4.8
------------
Total liabilities for unpaid claim and claim
expense, net
of reinsurance............................ $ 6.5
------------
REINSURANCE RECOVERABLE ON UNPAID CLAIMS
Long-term disability......................... $ 2.1
Other short-duration contracts............... 1.3
------------
Total Reinsurance Recoverable................ $ 3.4
------------
TOTAL LIABILITY FOR UNPAID CLAIM AND CLAIM
EXPENSE.................................... $ 9.9
============
The other short duration contracts include group life, short-term
disability, dental, and vision. Liabilities for these products are typically
complete within one year. Claim development on these liabilities are largely
driven by completion factors and loss ratio assumptions.
7) 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table summarizes the effect of reinsurance:
2017 2016 2015
-------- -------- --------
(IN MILLIONS)
Direct policy charges and fee income......... $ 243 $ 249 $ 207
Reinsurance assumed.......................... -- -- --
Reinsurance ceded............................ (63) (61) (54)
-------- -------- --------
Policy charges and fee income................ $ 180 $ 188 $ 153
======== ======== ========
Direct premiums.............................. $ 59 $ 38 $ 39
Reinsurance assumed.......................... 3 3 1
Reinsurance ceded............................ (39) (37) (39)
-------- -------- --------
Premiums..................................... $ 23 $ 4 $ 1
======== ======== ========
Direct policyholders' benefits............... $ 163 $ 139 $ 189
Reinsurance assumed.......................... 1 2 1
Reinsurance ceded............................ (110) (112) (149)
-------- -------- --------
Policyholders' benefits...................... $ 54 $ 29 $ 41
======== ======== ========
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, 2017 and 2016 included in MLOA's
balance sheet were Amounts due from reinsurers of $1,287 million and
$1,157 million, respectively, including $1,041 million and $1,092 million of
Policyholder's account balances relating to the reinsurance agreement with
Protective Life. During 2017, 2016 and 2015, respectively, total premiums
ceded to Protective Life were $21 million, $20 million and $21 million and
policyholder benefits ceded were $82 million, $79 million and $102 million.
As of December 31, 2017, 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 $5 million and $1 million at
December 31, 2017, respectively and $6 million and $2 million at
December 31, 2016, 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 indirect wholly-owned subsidiary
of Holdings, 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, 2017 and 2016, respectively, amounts due from reinsurers
related to insurance contracts amounted to $1,325 million and
$1,390 million, of which $22 million and $27 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.
At December 31, 2017 and 2016, respectively, amounts due to reinsurers
related to insurance contracts amounted to $132 million and $131 million,
all related to ceded policy loans to Protective Life.
For affiliated reinsurance agreements see Note 8, "Related Party
Transactions."
8) 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 costs of
$131 million, $129 million and $88 million for 2017, 2016 and 2015,
respectively. At December 31, 2017, 2016, and 2015, respectively, MLOA
reported a $42 million, $21 million, and $15 million payable to AXA
Equitable in connection with its service agreement, recorded in other
liabilities on the MLOA balance sheet.
Various AXA affiliates cede a portion of their life, health and catastrophic
insurance business through reinsurance agreements to AXA Global Life, an
affiliate. In 2008, AXA Global Life in turn, began retroceding a quota share
portion of these risks to MLOA on a one-year term basis.
F-69
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Premiums assumed by MLOA from this reinsurance transaction during 2017, 2016
and 2015, were $2 million, $2 million and $1 million, respectively. Claims
and expenses assumed under these agreements during 2017, 2016 and 2015 were
$1 million, $2 million and $1 million, respectively.
MLOA cedes a portion of its life business through excess of retention
treaties to AXA Equitable on a yearly renewable term basis, and, through
April 10, 2018, reinsured the no lapse guarantee riders through AXA RE
Arizona Company, an affiliate ("AXA RE Arizona"). On April 11, 2018, all of
the business MLOA reinsured to AXA RE Arizona was novated to EQ AZ Life Re
Company ("EQ AZ Life Re"), a newly formed captive insurance company
organized under the laws of Arizona. EQ AZ Life Re is an indirect, wholly
owned subsidiary of Holdings. Premiums earned from the above mentioned
affiliated reinsurance transactions during 2017, 2016 and 2015, were
$3 million, $3 million and $2 million, respectively. There were no claims
and expenses assumed under these agreements during 2017, 2016 and 2015.
In 2017, 2016 and 2015, respectively, MLOA paid AXA Distribution Holding
Corporation ("AXA Distribution") and its subsidiaries $103 million,
$93 million and $84 million of commissions and fees for sales of insurance
products.
MLOA paid $43 million, $43 million and $57 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
2017, 2016 and 2015, 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,
$2 million and $1 million for 2017, 2016 and 2015, respectively.
9) 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 of compensation costs, included in
Compensation and benefits in the statement of income (loss), for share-based
payment arrangements during each year 2017, 2016 and 2015.
10)INCOME TAXES
A summary of the income tax (expense) benefit in the statements of income
(loss) follows:
2017 2016 2015
------ ------ ------
(IN MILLIONS)
Income tax (expense) benefit:
Current (expense) benefit.................. $ (1) $ 9 $ 5
Deferred (expense) benefit................. 8 26 5
------ ------ ------
Total........................................ $ 7 $ 35 $ 10
====== ====== ======
At December 31, 2017 and 2016, MLOA had current taxes payable of $8 million
and current taxes receivable of $1 million, respectively.
The Federal income taxes attributable to operations are different from the
amounts determined by multiplying the Income (loss) from operations, before
income taxes by the expected Federal income tax rate of 35%. The sources of
the difference and their tax effects are as follows:
2017 2016 2015
------- ------ ------
(IN MILLIONS)
Expected income tax (expense) benefit........ $ 23 $ 33 $ 9
Dividends received deduction................. 2 2 1
Change in tax law............................ (18) -- --
------- ------ ------
Income Tax (Expense) Benefit................. $ 7 $ 35 $ 10
======= ====== ======
F-70
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted on December 22,
2017. The SEC issued SAB 118 to address the application of U.S. GAAP in
situations where a company does not have the necessary information available
to complete its accounting for certain income tax effects of the Tax Reform
Act. In accordance with SAB 118, MLOA determined reasonable estimates for
certain effects of the Tax Reform Act and recorded those estimates as
provisional amounts in the 2017 financial statements due to the need for
further analysis, collection and preparation of the relevant data necessary
to complete the accounting. These amounts are subject to change as the
information necessary to complete the calculations is obtained and as tax
authorities issue further guidance.
The following provisional amounts related to the impact of the Tax Reform
Act are included in MLOA's financial statements:
. An income tax expense of $18 million from the reduction of deferred
tax assets due to lower corporate tax rates. MLOA will recognize
changes to this estimate as the calculation of cumulative temporary
differences is refined.
. An income tax expense of $0.2 million to account for the deemed
repatriation of foreign earnings. The determination of this tax
requires further analysis regarding the amount and composition of
historical foreign earnings.
The components of the net deferred income taxes are as follows:
DECEMBER 31, 2017 December 31, 2016
------------------ -------------------
ASSETS LIABILITIES Assets Liabilities
------ ----------- ------- -----------
(IN MILLIONS)
Reserves and reinsurance..................... $ 64 $ -- $ 101 $ --
DAC.......................................... -- 49 -- 81
Investments.................................. 5 -- -- 11
Other........................................ 9 -- 13 --
------ ------ ------- ------
Total........................................ $ 78 $ 49 $ 114 $ 92
====== ====== ======= ======
As of December 31, 2017, MLOA had $2 million of AMT credits which do not
expire.
At December 31, 2017 and 2016 of the total amount of unrecognized tax
benefits, $4 million and $4 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, 2017 and 2016 were
$0.3 million and $0.3 million respectively. Tax expense for 2017 reflected a
benefit of $0.0 million in interest expense related to unrecognized tax
benefits.
A reconciliation of unrecognized tax benefits (excluding interest and
penalties) follows:
2017 2016 2015
----- ------ -----
(IN MILLIONS)
Balance, beginning of year................... $ 4 $ 7 $ 6
Additions/(Subtraction) for tax positions of
prior years................................ -- (3) 1
----- ------ -----
Balance, End of Year......................... $ 4 $ 4 $ 7
===== ====== =====
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, MLOA 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. The impact on MLOA's 2016 statement of income (loss) is an
income tax benefit of $0.2 million. In 2017, the IRS commenced their
examination of the 2010 through 2013 tax years.
F-71
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
11)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
AOCI represents cumulative gains (losses) on investments that are not
reflected in income (loss). The balances for the past three years follow:
DECEMBER 31,
------------------
2017 2016 2015
------ ----- -----
(IN MILLIONS)
Unrealized gains (losses) on investments,
net of adjustments......................... $ 12 $ 7 $ 5
------ ----- -----
Total Accumulated Other Comprehensive Income
(Loss)..................................... $ 12 $ 7 $ 5
====== ===== =====
The components of OCI for the past three years follow:
DECEMBER 31,
-----------------------
2017 2016 2015
------ ------ -------
(IN MILLIONS)
Change in net unrealized gains (losses) on
investments:
Net unrealized gains (losses) arising
during the year........................... $ 12 $ (1) $ (13)
(Gains) losses reclassified into net
income (loss) during the year/(1)/........ -- 3 --
------ ------ -------
Change in net unrealized gains (losses) on
investments................................ 12 2 (13)
Adjustments for DAC and Other................ (7) -- 1
------ ------ -------
Other Comprehensive Income (Loss), net of
adjustments and (net of deferred income
tax expense (benefit) of $1, $1 and $(6)... $ 5 $ 2 $ (12)
====== ====== =======
/(1)/See "Reclassification adjustments" in Note 3. Reclassification amounts
presented net of income tax expense (benefit) of $0 million, $1 million
and $0 million for 2017, 2016 and 2015, respectively.
Investment gains and losses reclassified from AOCI to net income (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 income (loss). Amounts presented in the table above are net of
tax.
12)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.
13)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 2017,
2016 and 2015, MLOA's statutory net income (loss) was $(12) million, $(14)
million and $(4) million, respectively. Statutory surplus, capital stock and
Asset Valuation Reserve ("AVR") totaled $318 million and $331 million at
December 31, 2017 and 2016, respectively. There were no shareholder
dividends paid to its parent by MLOA in 2017, 2016 and 2015.
At December 31, 2017, MLOA, in accordance with various government and state
regulations, had $7 million of securities on deposit with such government or
state agencies.
F-72
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
At December 31, 2017 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, 2017.
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 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 AB 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) certain
assets, primarily pre-paid assets, are not admissible under SAP but are
admissible under U.S. GAAP (h) the fair valuing of all acquired assets and
liabilities including VOBA assets required for U.S. GAAP purchase accounting
and (i) 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 2017 of any other new insolvency material to
MLOA's financial results of operations or financial condition.
14)SUBSEQUENT EVENTS
On April 11, 2018, all of the business MLOA reinsured to AXA RE Arizona was
novated to EQ AZ Life Re, a newly formed captive insurance company organized
under the laws of Arizona. EQ AZ Life Re is an indirect, wholly owned
subsidiary of Holdings.
In February 2018, MLOA joined the membership for Federal Home Loan Bank of
San Francisco ("FHLBSF"), which provides us with access to collateralized
borrowings and other FHLBSF products. MLOA currently does not have any
outstanding borrowing amount from FHLBSF.
F-73
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2017
CARRYING
COST/(1)/ FAIR VALUE VALUE
-------- ---------- --------
(IN MILLIONS)
Fixed Maturities
U.S. government, agencies and authorities.. 232 232 232
State, municipalities and political
subdivisions.............................. 5 5 5
Public utilities........................... 209 212 212
All other corporate bonds.................. 963 986 986
Asset-backed............................... 12 12 12
Redeemable preferred stocks................ 4 4 4
----- ----- -----
Total fixed maturities....................... 1,425 1,451 1,451
----- ----- -----
Mortgage loans on real estate................ 17 17 17
Policy loans................................. 185 224 185
Other invested assets........................ 63 63 63
----- ----- -----
Total Investments.......................... 1,690 1,755 1,716
===== ===== =====
/(1)/Cost for fixed maturities represents original cost, reduced by
repayments and writedowns and adjusted for amortization of premiums or
accretion of discount.
F-74
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MONY LIFE INSURANCE COMPANY OF AMERICA
SCHEDULE IV
REINSURANCE
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- ---------- --------- ---------- ----------
(IN MILLIONS)
2017
----
Life Insurance In-Force....... $ 59,722 $ 26,880 $ 1,194 $ 34,036 3.5%
========== ========== ========= ========== =========
Premiums:
Life insurance and annuities.. $ 48 $ 36 $ 3 $ 15 20.0%
Accident and health........... 11 3 -- 8 --%
---------- ---------- --------- ---------- ---------
Total Premiums................ $ 59 $ 39 $ 3 $ 23 13.0%
========== ========== ========= ========== =========
2016
----
Life Insurance In-Force....... $ 53,508 $ 27,802 $ 637 $ 26,343 2.4%
========== ========== ========= ========== =========
Premiums:
Life insurance and annuities.. $ 37 $ 37 $ 3 $ 3 100.0%
Accident and health........... 1 -- -- 1 --%
---------- ---------- --------- ---------- ---------
Total Premiums................ $ 38 $ 37 $ 3 $ 4 75.0%
========== ========== ========= ========== =========
2015
----
Life Insurance In-Force....... $ 49,744 $ 28,474 $ 661 $ 21,931 3.0%
========== ========== ========= ========== =========
Premiums:
Life insurance and annuities.. $ 39 $ 39 $ 1 $ 1 100.0%
Accident and health........... -- -- -- -- --%
---------- ---------- --------- ---------- ---------
Total Premiums................ $ 39 $ 39 $ 1 $ 1 100.0%
========== ========== ========= ========== =========
F-75
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 income (loss) for the years ended
December 31, 2017, 2016 and 2015, and the balance sheet data at December 31,
2017 and 2016 have been derived from MLOA's audited financial statements
included elsewhere herein. The statements of income (loss) for the years
ended December 31, 2014 and 2013, and the balance sheet data at December 31,
2015, 2014 and 2013 have been revised 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.
Management identified errors in its previously issued financial statements
related primarily to the calculation of policyholders' benefit reserves,
interest credited to policyholders' account balances and the calculation of
DAC amortization for certain variable and interest sensitive life products.
Based on quantitative and qualitative factors, management determined that
the impact of the errors. The impact of these errors to the financial
statements as of and for the years ended December 31, 2016, 2015, 2014, and
2013 was not considered to be material either individually or in the
aggregate. In order to improve the consistency and comparability of the
financial statements, management revised the statements of income (loss),
statements of comprehensive income (loss), statements of equity and
statements of cash flows for the years ended December 31, 2016, 2015, 2014,
and 2013 to include the revisions discussed herein.
YEARS ENDED DECEMBER 31,
-------------------------------------
2017 2016 2015 2014 2013
------ ------ ------ ----- ------
(IN MILLIONS)
STATEMENTS OF INCOME (LOSS) DATA:
---------------------------------
REVENUES:
Policy charges and fee income.............. $ 180 $ 188 $ 153 $ 97 $ 136
Premiums................................... 23 4 1 1 25
Net derivative gains (losses).............. (6) (2) (3) (1) (7)
Net investment income (loss) 48 42 38 37 84
Investment gains (losses), net:............
Total other-than-temporary
impairment losses......................... -- (3) (1) (10) (6)
Other investment gains (losses), net....... -- (1) -- 4 74
------ ------ ------ ----- ------
Total investment gains (losses), net...... -- (4) (1) (6) 68
Equity in income (loss) of AB.............. 6 6 5 1 5
Other income (loss)........................ 7 8 9 8 5
------ ------ ------ ----- ------
Total revenues........................ 258 242 202 137 316
------ ------ ------ ----- ------
BENEFITS AND OTHER DEDUCTIONS:
Policyholders' benefits.................... 54 29 41 41 81
Interest credited to policyholders'
account balances.......................... 41 43 35 22 53
Compensation and benefits.................. 51 59 36 29 32
Commissions................................ 120 114 121 73 80
Amortization of deferred policy
acquisition costs, net.................... (38) (2) (76) (72) (77)
Amortization of deferred cost
of reinsurance............................ 7 7 8 8 4
Other operating costs and expenses......... 91 86 58 49 87
------ ------ ------ ----- ------
Total benefits and other deductions....... 326 336 223 150 260
------ ------ ------ ----- ------
Income (loss) from operations, before income
taxes...................................... (68) (94) (21) (13) 56
Income tax benefit (expense)................. 7 35 10 6 (20)
------ ------ ------ ----- ------
Net income (loss)............................ $ (61) $ (59) $ (11) $ (7) $ 36
====== ====== ====== ===== ======
DECEMBER 31,
------------------------------------------
2017 2016 2015 2014 2013
-------- -------- -------- -------- ------
(IN MILLIONS)
BALANCE SHEET DATA:
-------------------
Total investments............................ $ 1,716 $ 1,370 $ 1,154 $ 1,119 $ 967
Separate Accounts assets..................... 2,015 1,747 1,701 1,810 1,839
Total assets................................. 5,584 5,108 4,894 4,812 4,714
Policyholders' account balances.............. 2,631 2,377 2,138 1,906 1,767
Future policy benefits and other
policyholders liabilities.................. 358 347 382 380 313
Separate Accounts liabilities................ 2,015 1,747 1,701 1,810 1,839
Total liabilities............................ 5,208 4,679 4,411 4,309 4,214
Total shareholder's equity................... $ 376 $ 429 $ 483 $ 503 $ 500
F-76
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. IN ADDITION TO HISTORICAL DATA, THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS ABOUT OUR BUSINESS, OPERATIONS AND
FINANCIAL PERFORMANCE BASED ON CURRENT EXPECTATIONS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
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.
EXECUTIVE SUMMARY
OVERVIEW.
MLOA, established in the state of Arizona in 1969. is a direct, wholly-owned
subsidiary of AXA Equitable Financial Services, LLC ("AEFS"). AEFS is a direct,
wholly-owned subsidiary of AXA Financial, Inc. ("AXA Financial," and
collectively with its consolidated subsidiaries, "AXA Financial Group"). AXA
Financial is a direct wholly-owned subsidiary of AXA Equitable Holdings, Inc.
("Holdings"). Holdings is an indirect wholly-owned subsidiary of AXA S.A.
("AXA"), a French holding company for the AXA Group, a worldwide leader in
life, property and casualty and health insurance and asset management.
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.
EARNINGS.
MLOA's net loss for 2017 was $61 million, a $2 million increase from the Net
loss of $59 million for 2016. Both 2017 and 2016 results were impacted from
various one-time events which included actuarial assumption updates, model
changes, discussed below. Although pre-tax losses decreased $26 million in 2017
they were more than offset by an $18 million income tax expense from a change
in the tax law and the lower tax benefit on lower pre-tax losses. See " --
Results of Operations" below for a discussion of MLOA's Net loss.
SALES. Life insurance first year premiums and deposits by MLOA increased by
$11 million, or 4.0% from 2016, primarily due to an increase in sales of
employee benefits products and an increase in sales of variable universal life
insurance products partially offset by 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.
ASSUMPTION UPDATES AND MODEL CHANGES.
In 2017, MLOA made several assumption updates and model changes, including the
following: (1) updated premium funding assumptions for certain universal life
("UL") and variable UL products with secondary guarantees; (2) completed its
periodic review and updated its long term mortality assumption for universal,
variable universal and traditional life products; (3) updated the assumption
for long term General Account spread and yield assumptions in the DAC
amortization and loss recognition testing calculations for UL, variable UL and
deferred annuity business lines; (4) updated our maintenance expense assumption
for UL and variable UL products; and (5) refined our calculation used to
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estimate the future costs of certain long term care benefit acceleration riders
on our UL and variable UL products. The net impact of assumption changes in
2017 decreased policyholders' benefits by $7 million, increased the
amortization of DAC by $21 million, and increased policy charges and fee income
by $4 million. This resulted in an increase in Loss from operations, before
income taxes of $10 million and increased Net loss by $7 million.
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
variable interest-sensitive life ("VISL") products as a result of unfavorable
mortality experience; and (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 $15 million, increased the amortization of DAC by
$67 million and increased policy charges and fee income by $30 million,
resulting in a net increase to the 2016 Loss from operations, before income
taxes and Net loss of approximately $22 million and $14 million, respectively.
In 2015, based upon management's then current expectations of interest rates
and future fund growth, MLOA updated its reversion to the mean ("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.
CRITICAL ACCOUNTING POLICIES
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:
. Liability for Future Policy Benefits
. DAC and VOBA
. Benefit plan costs
. Share-based and Other Compensation Programs
. Investments -- Impairments, valuation allowance and Fair Value
Measurements
. Income Taxes
LIABILITY FOR FUTURE POLICY 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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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 contract holder 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."
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 Notes to 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 was the actuarially determined present value of estimated
future gross profits from insurance contracts in force at the date of the
acquisition. MLOA's VOBA asset was fully amortized at December 31, 2016. VOBA
amortization was $0 million, $9 million and $0 million in 2017, 2016 and 2015,
respectively, and is reported in Other operating costs and expenses in the
statements of income (loss). 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.
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
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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 income (loss) in the period such estimated gross
profits or assessments are revised. A decrease in expected gross profits or
assessments would accelerate DAC amortization. Conversely, an increase in
expected gross profits or assessments would slow DAC amortization. The effect
on the DAC asset 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 dates.
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 balance is 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 MLOA'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 periodically
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
income (loss).
SENSITIVITY OF DAC TO CHANGES IN FUTURE MORTALITY ASSUMPTIONS
The variable and UL policies DAC balance was $383 million at December 31, 2017.
The following table demonstrates the sensitivity of the DAC 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 balance and not changes in any other
assumptions used in the measurement of the DAC balance and does not assume
changes in reserves.
DAC SENSITIVITY -- MORTALITY
DECEMBER 31, 2017
INCREASE/(REDUCTION) IN DAC
(IN MILLIONS)
---------------------------
Decrease in future mortality by 1%................ $ 3
Increase in future mortality by 1%................ (3)
SENSITIVITY OF DAC TO CHANGES IN FUTURE RATE OF RETURN ASSUMPTIONS
A significant assumption in the amortization of DAC 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 an RTM approach, a commonly used
industry practice. This future
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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.
Based upon management's current expectations of interest rates and future fund
growth, MLOA utilizes a long term separate account return assumption of 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, 2017, 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% 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 amortization.
Conversely, actual market returns resulting in assumed future market returns of
0% for more than 5 years would result in a required deceleration of DAC
amortization. At December 31, 2017, current projections of future average gross
market returns assume a 6.32% annualized return for one quarter and then revert
back to a 7.0% annualized return thereafter.
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 balance
relative to future return assumptions by quantifying the adjustments to the DAC
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 balance.
DAC SENSITIVITY -- RATE OF RETURN
DECEMBER 31, 2017
INCREASE/(REDUCTION) IN DAC
---------------------------
(IN MILLIONS)
Decrease in future rate of return by 1%........... $ (5)
Increase in future rate of return by 1%........... 5
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 8 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.
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 9 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 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 Operating Earnings
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.
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. 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
the lenders annual site inspections.
. Other -- Any other factors such as current economic conditions may call
into question the performance of the loan.
Mortgage loans also are individually evaluated quarterly by MLOA's IUS
Committee for impairment, including an assessment of related collateral value.
Commercial mortgages 60 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 are
also identified, consisting of mortgage loans not currently classified as
problem mortgages 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 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.
Impaired mortgage loans without provision for losses are mortgage loans where
the fair value of the collateral or the net present value of the expected
future cash flows related to the loan equals or exceeds the recorded
investment. Interest income earned on mortgage loans where the collateral value
is used to measure impairment is recorded on a cash basis. Interest income on
mortgage loans where the present value method is used to measure impairment is
accrued on the net carrying value amount of the loan at the interest rate used
to discount the cash flows. Changes in the present value attributable to
changes in the amount or timing of expected cash flows are reported as
investment gains or losses.
Mortgage loans are placed on nonaccrual status once management believes the
collection of accrued interest is doubtful. Once mortgage loans are classified
as nonaccrual mortgage loans, interest income is recognized under the cash
basis of accounting and the resumption of the interest accrual would commence
only after all past due interest has been collected or the mortgage loan on
real estate has been restructured to where the collection of interest is
considered likely.
See Notes 2 and 3 of Notes to Financial Statements for additional information
relating to our determination of the amount of allowances and impairments.
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 of Notes
to Financial Statements -- Fair Value Disclosures.
F-83
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
RESULTS OF OPERATIONS
The earnings narratives that follow discuss the results for 2017 compared to
2016's results, followed by the results for 2016 compared to 2015's results.
MONY LIFE INSURANCE COMPANY OF AMERICA
RESULTS OF OPERATIONS
2017 2016 2015
------- ------- -------
(IN MILLIONS)
REVENUES
Policy charges and fee income..................... $ 180 $ 188 $ 153
Premiums.......................................... 23 4 1
Net derivative gains (losses)..................... (6) (2) (3)
Net investment income (loss)...................... 48 42 38
Investment gains (losses), net:...................
Total other-than-temporary impairment losses.... -- (3) (1)
Other investment gains (losses), net............ -- (1) --
------- ------- -------
Total investment gains (losses), net........... -- (4) (1)
------- ------- -------
Equity in income (loss) of AllianceBernstein...... 6 6 5
Other income (loss)............................... 7 8 9
------- ------- -------
Total revenues................................. 258 242 202
------- ------- -------
BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits........................... 54 29 41
Interest credited to policyholders' account
balances........................................ 41 43 35
Compensation and benefits......................... 51 59 36
Commissions....................................... 120 114 121
Amortization of deferred policy acquisition
costs, net...................................... (38) (2) (76)
Amortization of deferred cost of reinsurance...... 7 7 8
Other operating costs and expenses................ 91 86 58
------- ------- -------
Total benefits and other deductions............ 326 336 223
------- ------- -------
Income (loss) from operations, before income taxes (68) (94) (21)
Income tax (expense) benefit...................... 7 35 10
------- ------- -------
NET INCOME (LOSS)................................. $ (61) $ (59) $ (11)
======= ======= =======
F-84
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
The following table presents our in-force face amounts for the periods
indicated, respectively, for our individual life insurance products:
YEARS ENDED DECEMBER 31,
-----------------------------
2017 2016 2015
--------- --------- ---------
(IN BILLIONS)
IN-FORCE FACE AMOUNT BY PRODUCT:/(1)/
Indexed universal life............................ $ 14.1 $ 11.2 $ 8.5
Variable universal life/(2)/...................... 19.6 17.5 15.9
--------- --------- ---------
TOTAL IN-FORCE FACE AMOUNT..................... $ 33.7 $ 28.7 $ 24.4
========= ========= =========
/(1)/Includes direct individual life insurance and does not include the group
life component of the employee benefits business as it is a start-up
business and therefore has immaterial in-force and the direct portion of
the 100% business ceded to Protective Life.
/(2)/Variable Universal Life includes VL and COLI.
YEAR ENDED DECEMBER 31, 2017 COMPARED TO YEAR ENDED DECEMBER 31, 2016
The $2 million increase in net loss attributable to MLOA, to $61 million in
2017, an increase from the net loss of $59 million in 2016, was primarily
driven by the following notable items:
. $25 million higher policyholder benefits due to higher death benefits
and increases in reserves.
. Commissions increased $6 million in 2017 to $120 million from
$114 million in 2016 due to an increase in first year commissions
reflecting higher sales of life insurance products.
. Other operating costs and expenses, totaled $91 million in 2017, an
increase of $5 million from the $86 million reported in 2016. The
increase is primarily attributable to higher allocated expenses.
. Policy charges and fee income decreased $8 million in 2017 to
$180 million from $188 million in 2016 primarily due to higher initial
fee liabilities driven by the impact of balance true-ups and unlockings
for certain VISL and IUL products, which increased the initial fee
liability.
. Income tax benefit was $7 million in 2017 as compared to the income tax
benefit of $35 million in 2016. The $28 million lower income tax benefit
was primarily related to an $18 million income tax expense from a change
in the tax law and from $26 million lower pre-tax losses from operations
in 2017 compared 2016.
Partially offsetting this increase were the following notable items:
. $19 million higher premiums from higher sales of employee benefit
products.
. $6 million higher net investment income was partially offset by
$4 million in net derivative losses, principally due to higher asset
balances partly offset by an increase in derivative losses.
. Compensation and benefits expense decreased $8 million to $51 million in
2017 from $59 million in 2016 due to lower salary and stock option
expenses primarily as the launch of the employee benefits business in
late 2015 impacted 2016 expenses.
. Amortization of DAC, net in 2017 was $38 million, mainly reflecting
baseline amortization and the net impact of assumption updates, model
changes and balance true-ups for VISL and IUL products. Also, 2017
amortization of DAC, net included $80 million of capitalization of
commissions or $4 million higher than 2016, and deferrable expenses of
$29 million or $3 million higher than 2016.
YEAR ENDED DECEMBER 31, 2016 COMPARED TO YEAR ENDED DECEMBER 31, 2015
The $48 million increase in net loss attributable to MLOA, to $59 million in
2016, an increase from the net loss of $11 million in 2015, was primarily
driven by the following notable items:
. Amortization of DAC, net in 2016 was $2 million, as net favorable
assumption updates, model changes and balance true-ups, primarily for
VISL and IUL products, offset baseline amortization. Also, 2016
amortization of DAC, net included $76 million of capitalization of
commissions or $6 million lower than 2015, and deferrable expenses of
$26 million or $1 million higher than 2015.
. Other operating costs and expenses, totaled $86 million in 2016, an
increase of $28 million from the $58 million reported in 2015. The
increase is primarily attributable to higher consulting expenses,
primarily related to consulting projects invested to launch
F-85
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MLOA's new employee benefits business, higher general and administrative
expenses, higher commission expense allowance expenses and higher
premium taxes and other insurance taxes, licenses and fee expenses. In
addition $9 million higher VOBA amortization was reflected in other
operating costs and expenses.
. 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.
. $8 million higher interest credited to policyholders' account balances
primarily due to higher account values in MLOA's IUL product.
Partially offsetting this increase were the following notable items:
. Income tax benefit was $35 million in 2016 as compared to the income tax
benefit of $10 million in 2015. The $25 million higher income tax
benefit was primarily related to $73 million higher pre-tax in 2016
compared to 2015.
. Policy charges and fee income increased $35 million in 2016 to
$188 million from $153 million in 2015 primarily due to $35 million
increase 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.
Additionally, higher policy fee income of $20 million earned on fee
based products contributed to the increase in policy charges and fee
income in 2016.
. Policyholders' benefits decreased $12 million in 2016 to $29 million
from $41 million in 2015 primarily due to lower reserves and benefits
paid. The 2016 increase in reserves includes a decrease in reserves
resulting from assumption updates, model updates and balance true-ups
primarily on VISL and IUL products.
. Commissions decreased $7 million in 2016 to $114 million from
$121 million in 2015 due to lower first year indexed universal life
insurance sales.
. 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 $4 million in 2016 to $42 million from
$38 million in 2015 due to higher investment income from fixed
maturities.
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, 2017
BALANCE
GAIA OTHER/(1)/ SHEET TOTAL
BALANCE SHEET CAPTIONS: ---------- ---------- -----------
(IN MILLIONS)
Fixed maturities, available for sale, at fair
value........................................... $ 1,425 $ 26 $ 1,451
Mortgages on Real Estate.......................... 17 -- 17
Policy Loans...................................... 57 128 185
Other invested assets............................. -- 63 63
---------- ---------- -----------
Total investments............................... $ 1,499 $ 217 $ 1,716
Cash and cash equivalents......................... 44 -- 44
---------- ---------- -----------
Total............................................. $ 1,543 $ 217 $ 1,760
========== ========== ===========
/(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). Included in other are ceded
policy loans to Protective Life, Derivatives and AB investments. The
"Other" category is deducted in arriving at GAIA.
F-86
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
GENERAL ACCOUNT INVESTMENT ASSETS
DECEMBER 31, 2016
Balance
GAIA Other/(1)/ Sheet Total
Balance Sheet Captions: ---------- ---------- -----------
(in millions)
Fixed maturities, available for sale, at fair
value........................................... $ 1,108 $ 1 $ 1,109
Mortgages on Real Estate.......................... 17 -- 17
Policy Loans...................................... 46 130 176
Other invested assets............................. -- 68 68
---------- ---------- -----------
Total investments............................... $ 1,171 $ 199 $ 1,370
Cash and cash equivalents......................... 111 27 138
---------- ---------- -----------
Total............................................. $ 1,282 $ 226 $ 1,508
========== ========== ===========
/(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). Included in other are ceded
policy loans to Protective Life, Derivatives and AB investments. The
"Other" category is deducted in arriving at GAIA.
INVESTMENT RESULTS OF GENERAL ACCOUNT INVESTMENT ASSETS
The following table summarizes investment results by asset category for the
periods indicated.
2017 2016 2015
----------------------- ----------------------- ---------------------
YIELD AMOUNT Yield Amount Yield Amount
--------- ----------- --------- ----------- --------- ---------
(DOLLARS IN MILLIONS)
FIXED MATURITIES/(1)/:
Investment grade
Income (loss).................................. 3.59% $ 45 3.93% $ 39 4.42% $ 36
Ending assets.................................. 1,405 1,071 863
Below investment grade
Income......................................... 12.10% 4 9.82% 4 9.34% 4
Ending assets.................................. 20 37 43
MORTGAGES:
Income (loss).................................. 3.62% 1 4.13% 1 --% --
Ending assets.................................. 17 17 --
POLICY LOANS:
Income......................................... 2.98% 1 2.92% 1 3.25% 1
Ending assets.................................. 57 46 29
CASH AND SHORT-TERM INVESTMENTS:
Income......................................... 0 0 0
Ending assets.................................. 44 111 172
TOTAL:
----------- ----------- ---------
Investment income.............................. 3.56% $ 51 3.83% $ 45 4.09% $ 41
Less: investment fees.......................... (0.09)% (1) (0.09)% (1) (0.09)% (1)
--------- =========== --------- =========== --------- =========
Investment Income, Net......................... 3.47% $ 50 3.74% $ 44 4.00% $ 40
=========== =========== =========
ENDING NET ASSETS................................. $ 1,543 $ 1,282 $ 1,107
=========== =========== =========
/(1)/Fixed Maturities Investment Grade and Below Investment Grade are based on
Moody's Equivalent ratings.
F-87
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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, 2017, 79.2% of the fixed maturity portfolio was
publicly traded. At December 31, 2017, the General Account had $0.3 million
exposure to the sovereign debt of Puerto Rico, and no exposure to the sovereign
debt of Italy, Greece, Portugal, Spain and the Republic of Ireland.
FIXED MATURITIES BY INDUSTRY
The General Account's fixed maturities portfolios include publicly-traded and
privately-placed corporate debt securities across an array of industry
categories.
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, 2017:
Corporate Securities:
Finance......................................... $ 216 $ 6 $ 1 $ 221
Manufacturing................................... 347 9 1 355
Utilities....................................... 209 4 1 212
Services........................................ 183 6 -- 189
Energy.......................................... 88 2 -- 90
Retail and wholesale............................ 79 1 -- 80
Transportation.................................. 50 1 -- 51
------------ ----------- ---------- ------------
Total corporate securities..................... $ 1,172 $ 29 $ 3 $ 1,198
------------ ----------- ---------- ------------
U.S. government................................... 232 1 1 232
Commercial mortgage-backed........................ -- -- -- --
Preferred stock................................... 4 -- -- 4
State & municipal................................. 5 -- -- 5
Asset-backed securities........................... 12 -- -- 12
Residential mortgage-backed....................... -- -- -- --
------------ ----------- ---------- ------------
Total............................................. $ 1,425 $ 30 $ 4 $ 1,451
============ =========== ========== ============
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
Residential mortgage-backed....................... -- -- -- --
------------ ----------- ---------- ------------
Total............................................. $ 1,099 $ 28 $ 18 $ 1,109
============ =========== ========== ============
/(1)/Investment data has been classified based on standard industry
categorizations for domestic public holdings and similar classifications
by industry for all other holdings.
F-88
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 Account's public and private below investment
grade fixed maturities totaled $12 million , or 0.8%, of the total fixed
maturities at December 31, 2017 and $12 million, or 1.1%, of the total fixed
maturities at December 31, 2016. Gross unrealized losses on public and private
fixed maturities decreased from $18 million in 2016 to $4 million in 2017.
Below investment grade fixed maturities represented 0.0% and 16.7% of the gross
unrealized losses at December 31, 2017 and 2016, respectively. For public,
private and corporate fixed maturity categories, gross unrealized gains and
gross unrealized losses were lower in 2017 than in the prior year.
PUBLIC FIXED MATURITIES CREDIT QUALITY. The following table sets forth the
General Account's 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, 2017:
1 Aaa, Aa, A.............. $ 685 $ 12 $ 2 $ 695
2 Baa..................... 443 11 1 453
--------- ------------ ------------ ------------
Investment grade........ $ 1,128 $ 23 $ 3 $ 1,148
--------- ------------ ------------ ------------
3 Ba...................... -- -- -- --
4 B....................... -- -- -- --
5 C and lower............. -- -- -- --
6 In or near default...... 1 -- -- 1
--------- ------------ ------------ ------------
Below investment grade.. $ 1 $ -- $ -- $ 1
--------- ------------ ------------ ------------
Total.......................................... $ 1,129 $ 23 $ 3 $ 1,149
========= ============ ============ ============
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
========= ============ ============ ============
/(1)/At December 31, 2017 and 2016, no securities had been categorized based on
expected NAIC designation pending receipt of SVO ratings.
F-89
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
PRIVATE FIXED MATURITIES CREDIT QUALITY. The following table sets forth the
General Account's 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, 2017:
1 Aaa, Aa, A.............. $ 123 $ 3 $ 1 $ 125
2 Baa..................... 162 4 -- 166
---------- ---------- ---------- ----------
Investment grade........ $ 285 $ 7 $ 1 $ 291
---------- ---------- ---------- ----------
3 Ba...................... 6 -- -- 6
4 B....................... -- -- -- --
5 C and lower............. 5 -- -- 5
6 In or near default...... -- -- -- --
---------- ---------- ---------- ----------
Below investment grade.. $ 11 $ -- $ -- $ 11
---------- ---------- ---------- ----------
Total.......................................... $ 296 $ 7 $ 1 $ 302
========== ========== ========== ==========
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
========== ========== ========== ==========
/(1)/Includes, seven securities with amortized cost of $35 million (fair value,
$35 million) as of December 31, 2017 and one security with amortized cost
of $5 million (fair value, $5 million) as of December 31, 2016.
F-90
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, 2017:
1 Aaa, Aa, A.............. $ 571 $ 14 $ 2 $ 583
2 Baa..................... 589 15 1 603
----------- ----------- ----------- -----------
Investment grade........ $ 1,160 $ 29 $ 3 $ 1,186
----------- ----------- ----------- -----------
3 Ba...................... 6 -- -- 6
4 B....................... -- -- -- --
5 C and lower............. 6 -- -- 6
6 In or near default...... -- -- -- --
----------- ----------- ----------- -----------
Below investment grade.. $ 12 $ -- $ -- $ 12
----------- ----------- ----------- -----------
Total.......................................... $ 1,172 $ 29 $ 3 $ 1,198
=========== =========== =========== ===========
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
=========== =========== =========== ===========
/(1)/Includes, six securities with amortized cost of $30 million (fair value,
$30 million) as of December 31, 2017 and one security with amortized cost
of $5 million (fair value, $5 million) as of December 31, 2016.
COMMERCIAL MORTGAGE-BACKED SECURITIES
At December 31, 2017 there were no General Account commercial mortgage-backed
securities outstanding. At December 31, 2016, the amortized cost and fair value
of the General Account's commercial mortgage-backed securities were $24 million
and $24 million.
MORTGAGE LOANS
In 2016, MLOA issued $17 million of commercial mortgage loans, representing
approximately 1.0% of 2017 invested assets. These mortgage loans were issued
for apartment complex properties located in the Mid-Atlantic region. At
December 31, 2017 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. There are no valuation allowances for commercial mortgage
loans for 2017 and 2016.
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 products permit the contract owner to participate in
the performance of an index, up to a cap for a set period of time, while MLOA
absorbs, up to a certain percentage, the loss of value in an index, which
varies by product segment. In order to support the returns associated with
these products and features, MLOA enters into derivative contracts whose
payouts, in combination with fixed income investments, emulate those of the
index, subject to caps and buffers.
F-91
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 INCOME (LOSS)
------------- ------------ ------------ --------------
AT OR FOR THE YEAR ENDED, DECEMBER 31, 2017: (IN MILLIONS)
FREESTANDING DERIVATIVES:
Equity contracts:/(1)/
Options......................................... $ 1,058 $ 119 $ 30 $ 66
Collateral...................................... -- -- 90 --
------------- ------------ ------------ --------------
NET INVESTMENT INCOME (LOSS)...................... 66
--------------
EMBEDDED DERIVATIVES:
MSO and IUL indexed features/(2)(3)/.............. -- -- 88 (72)
------------- ------------ ------------ --------------
Balance, December 31, 2017........................ $ 1,058 $ 119 $ 208 $ (6)
============= ============ ============ ==============
At or For the Year Ended, December 31, 2016:
Freestanding derivatives:
Equity contracts:/(1)/
Options......................................... $ 776 $ 76 $ 20 $ 18
Collateral...................................... $ -- $ -- $ 58 $ --
--------------
Net investment income (loss)...................... 18
--------------
Embedded derivatives:
MSO and IUL indexed features/(2)(3)/.............. -- -- 53 (20)
------------- ------------ ------------ --------------
Balance, December 31, 2016........................ $ 776 $ 76 $ 131 $ (2)
============= ============ ============ ==============
/(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.
/(3)/Reported in Net derivative gains (losses) in the statements of income
(loss).
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
2017 2016 2015
------ ------ ------
(IN MILLIONS)
Fixed maturities.................................. $ -- $ (4) $ (1)
------ ------ ------
Total............................................. $ -- $ (4) $ (1)
====== ====== ======
F-92
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
2017 2016 2015
------- ------- -------
(IN MILLIONS)
Gross realized investment gains:
Gross gains on sales and maturities............. $ 10 $ 1 $ 1
------- ------- -------
Total gross realized investment gains.......... 10 1 1
------- ------- -------
Gross realized investment losses:
Other-than-temporary impairments recognized in
income (loss).................................. -- (3) (1)
Gross losses on sales and maturities............ (10) (2) (1)
------- ------- -------
Total gross realized investment losses......... (10) (5) (2)
------- ------- -------
Total............................................. $ -- $ (4) $ (1)
======= ======= =======
The following table sets forth, for the periods indicated, the composition of
other-than-temporary impairments recorded in Net income (loss) by asset type.
OTHER-THAN-TEMPORARY IMPAIRMENTS RECORDED IN INCOME (LOSS)
2017 2016 2015
------ ------ ------
(IN MILLIONS)
Fixed Maturities:
Public fixed maturities......................... $ -- $ (1) $ --
Private fixed maturities........................ -- (2) (1)
------ ------ ------
Total fixed maturities securities.............. $ -- $ (3) $ (1)
====== ====== ======
OTTI on fixed maturities recorded in income in 2017, 2016 and 2015 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 income (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
Liquidity refers to our ability to generate adequate amounts of cash from our
operating, investment and financing activities to meet our cash requirements
with a prudent margin of safety. Capital refers to our long-term financial
resources available to support business operations and future growth. Our
ability to generate and maintain sufficient liquidity and capital is dependent
on the profitability of our businesses, timing of cash flows related to our
investments and products, our ability to access the capital markets, general
economic conditions and the alternative sources of liquidity and capital
described herein.
SOURCES AND USES OF LIQUIDITY OF MLOA
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 its parent company if needed. 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 February 2018, MLOA joined the membership for Federal Home Loan Bank of San
Francisco ("FHLBSF"), which provides us with access to collateralized
borrowings and other FHLBSF products. MLOA currently does not have any
outstanding borrowing amount from FHLBSF.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
CAPITAL MANAGEMENT POLICIES
Historically, as a wholly owned subsidiary of AXA, we adopted and abided by
capital management policies determined by AXA and managed by AXA on a worldwide
basis. Currently, our Board and senior management are directly involved in
developing our future capital management policies to be adopted prior to the
Holdings IPO. Following the Holdings IPO, capital actions, including proposed
changes to the annual capital plan, capital targets and capital policies, will
be approved by our Board of Directors.
CAPITAL POSITION AND STRUCTURE
We manage our capital position to maintain financial strength and credit
ratings that facilitate the distribution of our products and provide our
desired level of access to the bank and public financing markets.
Our capital structure has historically reflected our status as a wholly owned
subsidiary of AXA, including relying on financing provided or guaranteed by AXA
and its affiliates. To meet our target independent capitalization level
following the Holdings IPO, MLOA's indirect parent company, Holdings, has set
up its independent financing plan in February 2018, MLOA could indirectly
utilize these credit facilities by borrowing or getting capital contribution
from its parent company.
CASH FLOW ANALYSIS
We believe that cash flows from our operations are adequate to satisfy current
liquidity requirements. The continued adequacy of our liquidity will depend
upon factors such as future market conditions, changes in interest rate levels,
policyholder perceptions of our financial strength, policyholder behavior, the
effectiveness of our hedging programs, catastrophic events and the relative
safety and attractiveness of competing products. Changes in any of these
factors may result in reduced or increased cash outflows. Our cash flows from
investment activities result from repayments of principal, proceeds from
maturities and sales of invested assets and investment income, net of amounts
reinvested. The primary liquidity risks with respect to these cash flows are
the risk of default by debtors or bond insurers, our counterparties'
willingness to extend repurchase agreements, commitments to invest and market
volatility. We closely manage these risks through our asset/liability
management process and regular monitoring of our liquidity position.
YEARS ENDED DECEMBER 31,
-------------------------
2017 2016 2015
------- ------- -------
(IN MILLION)
Cash and Cash Equivalents, beginning of period.... $ 138 $ 176 $ 47
Net cash provided by (used in) operating
activities...................................... (146) (191) (191)
Net cash provided by (used in) investing
activities...................................... (307) (255) (67)
Net cash provided by (used in) financing
activities...................................... 359 408 387
------- ------- -------
Cash and Cash Equivalents, end of period.......... $ 44 $ 138 $ 176
======= ======= =======
YEARS ENDED DECEMBER 31, 2017 AND 2016
Cash and cash equivalents were $44 million at December 31, 2017 a decrease of
$94 million from $138 million at December 31, 2016.
Cash flows used in operating activities were $146 million in 2017 as compared
to $191 million in 2016. 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.
Cash flows used in investing activities were $307 million in 2017 as compared
to net cash used in investing activities of $255 million in 2016. The change
was principally due to higher net investment purchases of $52 million in 2017
as compared to 2016.
Net cash provided by financing activities was $359 million in 2017 as compared
to $408 million in 2016. The impact of the net deposits to policyholders'
account balances was $320 million in 2017 as compared to net deposits to
policyholders' account balances of $376 million in 2016. Change collateralized
pledged liabilities were $39 million and $32 million in 2017 and 2016
respectively.
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 $188 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.
OUR STATUTORY CAPITAL
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, 2017, the total adjusted capital of MLOA was in excess of
Arizona's regulatory capital requirements.
RBC requirements are used as minimum capital requirements by the NAIC and the
state insurance departments to evaluate the capital condition of regulated
insurance companies. RBC is based on a formula calculated by applying factors
to various asset, premium, claim, expense and statutory reserve items. The
formula takes into account the risk characteristics of the insurer, including
asset risk, insurance risk, interest rate risk, market risk and business risk
and is calculated on a quarterly basis and made public on an annual basis. The
formula is used as an early warning 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 total adjusted capital does not meet or
exceed certain RBC levels. At the date of most recent annual statutory
financial statement filed with insurance regulators, our total adjusted capital
subject to these requirements was in excess of each of those RBC levels.
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 2018.
CAPTIVE REINSURANCE
Through April 10, 2018, MLOA reinsured to AXA RE Arizona, an affiliate and
indirect, wholly owned subsidiary of Holdings, the no lapse guarantee riders
contained in certain variable and interest sensitive life policies MLOA
received statutory reserve credits for reinsurance treaties with AXA RE Arizona
to the extent AXA RE Arizona held assets in an irrevocable trust (none at
December 31, 2017) and/or letters of credit ($45 million at December 31, 2017).
These letters of credit were guaranteed by AXA. On April 11,/ /2018, all of the
business MLOA reinsured to AXA RE Arizona was novated to EQ AZ Life Re, a newly
formed captive insurance company organized under the laws of Arizona. EQ AZ
Life Re is an indirect, wholly owned subsidiary of Holdings.
DESCRIPTION OF CERTAIN INDEBTEDNESS
MLOA currently has no debt on the balance sheet.
RATINGS
Financial strength ratings (which are sometimes referred to as "claims-paying"
ratings) and credit ratings are important factors affecting public confidence
in an insurer and its competitive position in marketing products. Our credit
ratings are also important for our ability to raise capital through the
issuance of debt and for the cost of such financing.
A downgrade of these ratings could make it more difficult to raise capital to
refinance any maturing debt obligations, to support business growth and to
maintain or improve our current financial strength ratings. Upon announcement
of AXA's plan to pursue the Holdings IPO and the filing of the initial Form S-1
on November 13, 2017, MLOA's ratings were downgraded by S&P and Moody's. The
downgrades reflected the removal of the uplift associated with assumed
financial support from AXA.
F-95
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Financial strength ratings represent the opinions of rating agencies regarding
the financial ability of an insurance company to meet its obligations under an
insurance policy.
A.M. BEST S&P MOODY'S
--------- -------- ---------
LAST REVIEW DATE 3/7/2018 3/6/2018 4/11/2018
FINANCIAL STRENGTH RATINGS:
MONY Life Insurance Company of America............ A/(1)/ A+ A2
/(1)/Rating under review with developing implications.
SUPPLEMENTARY INFORMATION
A schedule of future payments under certain of MLOA's contractual obligations
follows:
CONTRACTUAL OBLIGATIONS -- DECEMBER 31, 2017
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)/............ $ 3,735 $ 76 $ 129 $ 146 $ 3,384
-------- ---------- ------- ------- --------
Total Contractual Obligations.................. $ 3,735 $ 76 $ 129 $ 146 $ 3,384
======== ========== ======= ======= ========
/(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.
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.
OFF-BALANCE SHEET TRANSACTIONS
At December 31, 2017 and 2016, MLOA was not a party to any off-balance sheet
transactions.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
F-97
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 available-for-sale fixed maturities and mortgage loans that
make up 83% and 74% of the carrying value of General Account Investment Assets
at December 31, 2017 and December 31, 2016, respectively. 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 1% increase/decrease in
interest rates at December 31, 2017 and December 31, 2016 would have on the
fair value of fixed maturities and mortgage loans:
DECEMBER 31, 2017 December 31, 2016
---------------------------- -----------------------------
IMPACT IMPACT Impact Impact of
OF +1% OF -1% of+1% -1%
FAIR VALUE CHANGE CHANGE Fair Value Change Change
---------- -------- ------- ---------- ------- ---------
(IN MILLIONS)
FIXED INCOME INVESTMENTS:
-------------------------
AVAILABLE-FOR-SALE:
Fixed rate............ $ 1,446 $ (115) $ 133 $ 1,104 $ (61) $ 69
Floating rate......... 5 -- -- 5 -- --
Mortgage loans........... 17 (1) 1 16 (1) 1
A 1% increase/decrease 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.
F-98
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 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, 2017 and 2016, the net fair values of MLOA's derivatives were
$89 million and $55 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 -10% EQUITY
AMOUNT FAIR VALUE PRICE SHIFT
------------- ---------- -------------
(IN MILLIONS)
DECEMBER 31, 2017
Options............................... $ 1,058 $ 89 $ 47
December 31, 2016
Options............................... $ 776 $ 56 $ 27
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 $88 million and $53 million at December 31, 2017 and 2016,
respectively. The potential fair value exposure to an immediate 10% drop in
equity prices from those prevailing at December 31, 2017 and 2016, would be to
decrease the liability balance to $44 million and $24 million respectively.
F-99
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
BOARD OF DIRECTORS
The Board of Directors of MLOA (the "Board") 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 2017.
The current members of the Board are as follows:
MARK PEARSON
Mr. Pearson, age 59, has been a director of MLOA since January 2011 and
currently serves as our Chairman of the Board, President and Chief Executive
Officer. Mr. Pearson also serves as the President and Chief Executive Officer
of Holdings and AXA Financial and is a member of the Executive Committee of
AXA. From February 2011 through September 2013, Mr. Pearson served as AXA
Equitable's Chairman of the Board and Chief Executive Officer and currently
serves as AXA Equitable's Chairman of the Board, President and Chief Executive
Officer. From 2008 to 2011, he was the President and Chief Executive Officer of
AXA Japan Holding Co. Ltd. ("AXA Japan"). 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. 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. Mr. Pearson has been a director of Holdings, AXA Financial
and 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
Holdings, AXA Financial, AXA Japan and other AXA affiliates.
THOMAS BUBERL
Mr. Buberl, age 44, 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 (DIRECTEUR
GENERAL ADJOINT) 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 has been
a director of Holdings since September 2016 and its Chairman since November
2017, a director of AXA Financial and AXA Equitable since May 2016 and is also
a director of various other subsidiaries and affiliates of AXA.
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 AXA's Management Committee.
RAMON DE OLIVEIRA
Mr. de Oliveira, age 63, 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 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 and AllianceBernstein
Corporation since May 2017.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
BARBARA FALLON-WALSH
Ms. Fallon-Walsh, age 65, 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 formerly served
as a member of the Boards of Directors of AXA Investment Managers S.A., AXA IM
Inc. and AXA Rosenberg Group LLC. Ms. Fallon-Walsh is a director of AXA
Financial and AXA Equitable since May 2012 and AllianceBernstein Corporation
since May 2017.
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 AllianceBernstein Corporation. The Board also benefits from her
extensive knowledge of the retirement business.
DANIEL G. KAYE
Mr. Kaye, age 63, 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, AllianceBernstein Corporation
since May 2017 and AXA Insurance Company since April 2017. Mr. Kaye currently
serves as the Chairman of the Audit Committee of AllianceBernstein Corporation.
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, AllianceBernstein
Corporation and AXA Insurance Company.
KRISTI A. MATUS
Ms. Matus, age 49 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 66, 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, 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
GEORGE STANSFIELD
Mr. Stansfield, age 57, has been a director of MLOA since May 2017. Since
December 1, 2017, Mr. Stansfield has been Deputy Chief Executive Officer
(DIRECTEUR GENERAL ADJOINT) of AXA. Since July 1, 2016, Mr. Stansfield has been
Group General Secretary and a member of AXA's Management Committee.
Mr. Stansfield was previously Head of AXA's Group Human Resources from 2010 to
2016 and was AXA's Group General Counsel from 2004 to 2016. Prior to 2004,
Mr. Stansfield was an attorney in the legal department of AXA Equitable for 11
years. Mr. Stansfield holds various directorships within AXA: Chairman of the
Supervisory Board of AXA Liabilities Managers (France), GIE AXA (France) and
Kamet (France), Chairman of the Management Committee of AXA Venture Partners
(France) and director or Management Committee member of AXA ASIA (France) and
AXA Life Insurance Co Ltd. (Japan). Mr. Stansfield is also AXA's permanent
representative to the board of AXA Millesimes Finance, Chateau Petit Village,
Chateau Pichon Longueville, SCI de L'Arlot and Societe Belle Helene.
Mr. Stansfield has also served as a director of Holdings since November 2017
and of AXA Financial and AXA Equitable since May 2017.
Mr. Stansfield brings to the Board his extensive experience and knowledge and
key leadership skills developed through his service as an executive, including
his experience as Deputy Chief Executive Officer of AXA, Group General
Secretary and his perspective as a member of AXA's Management Committee.
CHARLES G.T. STONEHILL
Mr. Stonehill, age 59, has been a director of MLOA since November 2017.
Mr. Stonehill is Founding Partner of Green & Blue Advisors LLC. He also serves
as nonexecutive Vice Chairman of the Board of Directors of Julius Baer Group
Ltd. Mr. Stonehill is a member of the Board of Directors of CommonBond, LLC,
and of PlayMagnus A/S. During his financial services career, Mr. Stonehill
served as the Managing Director of Lazard Freres & Co., LLC, and global head of
Lazard Capital Markets from 2002 to 2004. He served as Head of Investment
Banking for the Americas of Credit Suisse First Boston from 1997 to 2002 and as
Head of European Equities and Equity Capital Markets at Morgan Stanley & Co.,
Inc., from 1984 to 1997. Mr. Stonehill began his career at JP Morgan in the oil
and gas investment banking group, where he worked from 1978 to 1984.
Mr. Stonehill is also a director of AXA Financial and AXA Equitable since
November 2017.
Mr. Stonehill brings to the Board his expertise and distinguished track record
of success in the financial services industry and over 30 years' experience in
energy markets, investment banking and capital markets.
RICHARD C. VAUGHAN
Mr. Vaughan, age 68, 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:
SETH BERNSTEIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF ALLIANCEBERNSTEIN
CORPORATION
Mr. Bernstein, age 55, has been the President and Chief Executive Officer of
AllianceBernstein Corporation since May 2017. Mr. Bernstein is also a director
of AllianceBernstein Corporation. From 2014 to 2017, Mr. Bernstein was Managing
Director and Global Head of Managed Solutions and Strategy at JPMorgan Asset
Management. In this role, he was responsible for the management of all
discretionary assets within the Private Banking client segment. From 2012 to
2014, Mr. Bernstein was Managing Director and Global Head of Asset Management
Solutions for JPMorgan Chase & Co. Among other roles, Mr. Bernstein was
Managing Director and Global Head of Fixed Income & Currency from 2002 to 2012.
Previously, Mr. Bernstein served as Chief Financial Officer at JPMorgan Chase's
investment management and private banking division. He is a member of the Board
of Managers of Haverford College.
DAVE S. HATTEM, SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
Mr. Hattem, age 61, joined AXA Financial Group in 1994 and currently serves as
Senior Executive Vice President and General Counsel of AXA Financial, MLOA and
Holdings 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
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oversight of the Law Department, including the compliance, government relations
and corporate secretary's functions, helping the Company navigate the legal and
regulatory environment to achieve its strategic 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.
JEFFREY J. HURD, SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Hurd, age 51, is responsible for overseeing the human resources,
information technology and transformation office functions. The transformation
office encompasses operations, data and analytics, procurement and oversight of
strategic task forces. Mr. Hurd has served as Senior Executive Director and
Chief Operations Officer of AXA Equitable since January 2018. Mr. Hurd is also
the Senior Executive Vice President and Chief Operating Officer of Holdings.
Prior to joining AXA Financial Group, Mr. Hurd held various positions at
American International Group, Inc. ("AIG"), where he most recently served as
executive vice president and chief operating officer. Mr. Hurd joined AIG in
1998 and served in various leadership positions there, including AIG deputy
general counsel, senior vice president and AIG chief administrative officer,
head of asset management restructuring and executive vice president and chief
human resources officer.
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, MLOA and Holdings 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 management. 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 45, 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") from 2008 to 2016.
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. Prior to joining Crump, Mr. Winikoff was Vice
President of Finance for LoudCloud, Inc. and an investment banking analyst at
Salomon Brothers.
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 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 2017.
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 eleven times in 2017.
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 2017.
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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 2018 meeting, applying these
standards, the Board of Directors determined that each of Mr. de Oliveira,
Ms. Fallon-Walsh, Mr. Kaye, Ms. Matus, Mr. Scott, Mr. Stonehill 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 complies with Section 406 of the Sarbanes-Oxley Act of 2002
and is available on our website at www.axa.com. We intend to satisfy the
disclosure requirements under Item 5.05 of Form 8-K regarding certain
amendments to or waivers from provisions of the Code of Ethics that apply to
our chief executive officer, chief financial officer and chief accounting
officer by posting such information on our website at the above address. To
date, there have been no such amendments or waivers.
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EXECUTIVE COMPENSATION
NAMED EXECUTIVE OFFICERS
For 2017, the Named Executive Officers of MLOA were:
. Mark Pearson, Chairman of the Board, President and Chief Executive
Officer
. Anders B. Malmstrom, Senior Executive Vice President and Chief Financial
Officer
. Brian Winikoff, Senior Executive Vice President and Head of U.S. Life,
Retirement and Wealth Management
. Dave Hattem, Senior Executive Vice President, Secretary and General
Counsel
. Seth Bernstein, Chief Executive Officer of AB
During 2017, all of the Named Executive Officers of MLOA other than
Mr. Bernstein (the "EQ Named Executive Officers") participated in AXA
Equitable's executive compensation program. The EQ Named Executive Officers
were employees of AXA Equitable and received no compensation directly from
MLOA. Rather, a portion of their compensation from AXA Equitable was allocated
to MLOA under the Amended Services Agreement between AXA Equitable and MLOA,
effective as of February 1, 2005 (the "Services Agreement"). Mr. Bernstein
participated in AB's executive compensation program, and no part of his
compensation was allocated to MLOA.
Decisions regarding the 2017 compensation of the EQ Named Executive Officers
were made by the AXA Equitable Board of Directors and its Organization and
Compensation Committee with the input of AXA as discussed in greater detail
below in "Compensation Discussion and Analysis -- EQ Named Executive Officers."
Similarly, decisions regarding the 2017 compensation of the Chief Executive
Officer of AB were made by the AB Board of Directors and its Compensation
Committee with the input of AXA as discussed in greater detail below in
"Compensation Discussion and Analysis -- Mr. Bernstein."
This section provides an overview of how the compensation of the "Named
Executive Officers" is determined. 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.
COMPENSATION DISCUSSION AND ANALYSIS -- EQ NAMED EXECUTIVE OFFICERS
COMPENSATION PROGRAM OVERVIEW
GOAL
The overriding goal of AXA Equitable's 2017 executive compensation program was
to attract, retain and motivate top-performing executive officers dedicated to
the long-term financial and operational success of AXA Equitable, AXA Financial
and AXA Financial Group's retirement and protection related businesses ("AXA
Financial R&P Operations") as well as AXA. Accordingly, as further described
below, the program incorporated metrics to measure that success.
PHILOSOPHY AND STRATEGY
To achieve its goal, AXA Equitable's 2017 executive compensation program was
structured to foster a pay-for-performance management culture by:
. providing total compensation opportunities competitive with the levels
of total compensation available at the large diversified financial
services companies with which 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 R&P Operations and AXA;
. setting performance objectives and targets for variable compensation
arrangements that provided individual executives with the opportunity to
earn above-median compensation by achieving above-target results;
. establishing equity-based arrangements that aligned the executives'
financial interests with those of AXA by ensuring the executives had 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, AXA Equitable's 2017 Total
Compensation Program provided a mix of fixed and variable compensation
components that based the majority of each executive's compensation on the
success of AXA Financial R&P Operations and AXA as well as an assessment of
each executive's overall contribution to that success.
The fixed and variable components provided a mix of cash and non-cash
compensation and short-term and long-term incentive compensation awards. The
particular mix of cash and non-cash and short-term and long-term compensation
was based on market practice determined in accordance with AXA Equitable's
benchmarking practices described below in " -- Use of Competitive Compensation
Data."
Fixed Component
The fixed compensation component of AXA Equitable's 2017 Total Compensation
Program, base salary, fell within the market median of the large diversified
financial services companies that are the AXA Financial Group's major
competitors and was meant to fairly and competitively compensate executives for
their positions and the scope of their responsibilities.
Variable Components
The variable compensation components of AXA Equitable's 2017 Total Compensation
Program, the short-term incentive compensation program and equity-based awards,
gave executives the opportunity to receive compensation at the median of the
market if they met various corporate and individual financial and operational
goals and to receive compensation above the median if they exceeded their
goals. The variable compensation components measured and rewarded performance
with short-term and long-term focuses.
The short-term incentive compensation program focused executives on annual
corporate and business unit goals that, when attained, drive AXA's global
success. It also served 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 were structured to reward long-term value creation. AXA
performance share awards granted in 2017 will vest after four years. AXA stock
options awarded in 2017 were intended to focus executives on a longer time
horizon. They were granted with vesting schedules of five years and terms of 10
years to effectively align a portion of each executive's compensation with the
long-term financial success of AXA. AXA Equitable granted these awards because
it was 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, would promote executive
retention, focus executives on gearing their performances to long-term
value-creation strategies and discourage excessive risk-taking.
HOW 2017 COMPENSATION DECISIONS WERE MADE
ROLE OF THE AXA BOARD OF DIRECTORS
The global framework governing the 2017 executive compensation policies for AXA
and its U.S. subsidiaries, including AXA Equitable, were set and administered
at the AXA level by AXA's Board of Directors. The AXA Board of Directors
(i) reviewed the compensation policies applicable to executives of AXA
worldwide, which were then adapted to local law, conditions and practices by
the boards of directors and compensation committees of AXA's subsidiaries,
(ii) reviewed and approved all AXA equity-based compensation programs prior to
their implementation and (iii) approved individual grants of equity-based
awards.
The Compensation and Governance Committee of the AXA Board of Directors reviews
annually the compensation of members of the AXA Management Committee, including
Mr. Pearson. The Compensation and Governance Committee also recommended to the
AXA Board of Directors the amount of equity-based awards to be granted to the
AXA Management Committee members in 2017. 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.
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
established, direct responsibility for overseeing the development and
administration of the 2017 executive compensation program for AXA Equitable
fell to the Organization and Compensation Committee of the AXA Equitable Board
of Directors (the "EQ OCC"). The EQ OCC consists of three members, all of whom
were determined to be independent directors by the AXA Equitable Board of
Directors under New York Stock Exchange standards as of February 15, 2018. In
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implementing AXA's global compensation program at the entity level, the EQ OCC
was aided by the Chief Executive Officer of AXA who, while not a formal member
of the EQ OCC, is a member of the AXA Equitable Board of Directors and
participates in the EQ OCC's deliberations related to compensation issues and
assists in ensuring coordination with AXA's global compensation policies.
The EQ 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 EQ 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 of AXA
Equitable for its discussion and approval. As of February 15, 2018,
Mr. Pearson, Mr. Malmstrom and Mr. Winikoff were principal officers and
Mr. Hattem was a comparably paid employee.
The EQ OCC is also responsible for:
. reviewing all other AXA Equitable senior executive compensation
arrangements;
. receiving reports on succession planning for AXA Equitable executive
management;
. supervising the policies relating to compensation of AXA Equitable
officers and employees; and
. reviewing and approving corporate goals and objectives included in
variable compensation arrangements and evaluating AXA Equitable
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 assisted the EQ OCC in
its review of the 2017 total compensation of all the EQ Named Executive
Officers except himself. Mr. Pearson provided the EQ OCC with his assessment of
the performance of each EQ Named Executive Officer relative to the corporate
and individual goals and other expectations set for the EQ Named Executive
Officer for 2017. Based on these assessments, he then provided his
recommendations for each EQ Named Executive Officer's total compensation and
the appropriate goals for each in 2018. However, the EQ OCC was not be bound by
his recommendations.
Other than the Chief Executive Officer, no Named Executive Officer played or
will play a decision-making role in determining the 2017 compensation of any
other Named Executive Officer.
ROLE OF AXA EQUITABLE HUMAN RESOURCES
AXA Equitable Human Resources supports the EQ 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 in
2017 included, among other things:
. evaluating the compensation data from peer groups, national executive
pay surveys and other sources for the EQ Named Executive Officers and
other officers as appropriate;
. gathering and correlating performance ratings and reviews for individual
executive officers, including the EQ 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 EQ OCC.
Human Resources officers also coordinate and share information with their
counterparts at AXA, and will take part in its comprehensive review of the 2017
total compensation of AXA's executives worldwide.
ROLE OF COMPENSATION CONSULTANT
Towers Watson was retained by AXA Equitable to serve as an executive
compensation consultant in 2017. Towers Watson provided 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 AXA Equitable's Total
Compensation Program.
During 2017, Towers Watson performed the following specific services for AXA
Equitable management:
. provided periodic updates on legal, accounting and other developments
and trends affecting compensation and benefits generally and executive
compensation specifically;
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. 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; and
. assisted in analyzing general reports published by third-party national
compensation consultants on corporate compensation and benefits.
Also, during 2016, Towers Watson prepared a comparative review of the total
compensation of Mr. Pearson against that received by chief executive officers
at peer companies that was used in determining his 2017 target compensation.
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 EQ OCC reviewed the services to
be provided by Towers Watson in 2017 as well as the related fees. The total
amount of fees paid to Towers Watson by AXA Equitable in 2017 for executive
compensation services was approximately $11,958. We may also pay fees to Towers
Watson from time to time for actuarial or other services unrelated to our
compensation programs. During 2017, these fees totaled $1,457,407. 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 comprehensive
review of executive officer compensation.
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 its 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.
PRIMARY COMPENSATION DATA SOURCE
For all executives, AXA Equitable relies primarily on the Towers Watson U.S.
Diversified Insurance Study of Executive Compensation (the "DIS") for
information to compare their total compensation to the total compensation
reported for equivalent executive officer positions at peer companies. For the
2016 study (which was used in determining 2017 target compensation), the
companies included:
Aflac Lincoln Financial Principal Financial Group
Allstate Massachusetts Mutual Prudential Financial
AXA Equitable MetLife Securian Financial Group
CIGNA Nationwide Thrivent Financial for Lutherans
CNO Financial New York Life TIAA-CREF
Genworth Financial Northwestern Mutual Transamerica
Guardian Life OneAmerica Financial Partners Unum Group
Hartford Financial Services Pacific Life Voya Financial Services
John Hancock Phoenix Companies
OTHER COMPENSATION DATA SOURCES
The information in the DIS 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 its 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 EQ 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 executive 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 executive's
position as compared to similarly situated executives at peer companies.
Differences in the amounts of total compensation for the EQ Named Executive
Officers in 2017 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.
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COMPONENTS OF THE TOTAL REWARDS PROGRAM
AXA Equitable's Total Rewards Program for executives in 2017 consisted of six
components. These components included 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
For executives, AXA Equitable believes that the primary purpose of base salary
is to compensate the executives fairly based on the position held, the
executive's career experience, the scope of the position's responsibilities and
the executive'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 an executive's experience and tenure warrant a lower
initial salary with an adjustment to market over time. Once set, base salaries
for executives 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 an executive whose initial base salary was set below
the 50th percentile.
Mr. Pearson is the only EQ 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.
Other than Mr. Winikoff, none of the EQ Named Executive Officers received an
increase in their annual rate of base salary in 2017. Mr. Winikoff received a
salary increase of $40,000 to reflect the elimination of a fringe benefit.
The base salaries earned by the EQ Named Executive Officers in 2017, 2016 and
2015 are reported in the Summary Compensation Table included in this section.
SHORT-TERM INCENTIVE COMPENSATION PROGRAM
Variable cash awards were available in 2017 for executives 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;
. 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 R&P Operations, as measured by the performance objectives under the
STIC Program, 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.
Individual Targets
Initially, individual award targets of fixed dollar amounts 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.
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Individual Payout Calculation
The amount of an EQ Named Executive Officer's individual award under the 2017
STIC Program was determined by multiplying his STIC Program award target by a
funding percentage based on the performance of both AXA and AXA Financial R&P
Operations (the "Funding Percentage") and by his "Individual Assessment
Percentage" as further described below. The calculation is as follows:
Award Target * Funding Percentage * Individual Assessment Percentage = 2017
STIC Program Award
FUNDING PERCENTAGE -- The Funding Percentage is determined by combining the
individual performance percentages for AXA Financial R&P Operations and AXA
which measure their performance against certain financial and other targets.
For all of the EQ Named Executive Officers other than Mr. Pearson, the
performance percentage for AXA Financial R&P Operations is weighted 90% and the
performance percentage for AXA is weighted 10%. For Mr. Pearson, the
performance percentage for AXA Financial R&P Operations is weighted 70% and the
performance percentage for AXA is weighted 30%, reflecting his broader range of
performance responsibilities within AXA worldwide as a member of the AXA
Management Committee.
AXA Financial R&P Operations -- To determine the performance percentage for AXA
Financial R&P Operations, various performance objectives are established for
AXA Financial R&P Operations, and a target is set for each one. Other than
underlying earnings, 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 R&P Operations, 15% will be added to the overall
performance percentage for AXA Financial R&P Operations if that target is met,
regardless of AXA Financial R&P 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 R&P
Operations will be increased up to a maximum of 22.5% (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 R&P Operations' overall performance percentage.
Underlying earnings is subject to a 175% cap and 25% cliff, allowing for a
wider range of results before hitting the cliff or cap. The performance
objectives and targets are approved by the EQ OCC.
The following grid presents the targets for each of the performance objectives
used to measure the performance of AXA Financial R&P Operations in 2017, along
with their relative weightings. The performance objectives for AXA Financial
R&P Operations and their relative weightings are standardized for AXA R&P
companies in mature markets worldwide and, accordingly, are not measures
calculated and presented in accordance with U.S. GAAP.
AXA FINANCIAL R&P OPERATIONS PERFORMANCE
OBJECTIVES WEIGHTING TARGET/(1)/
------------------------------------------------- --------- ----------
Underlying Earnings/(2)/ 25.0% $ 936
Gross Written Premiums/(3)/ 20.0% $ 3,317
New Business Value/(4)/ 20.0% $ 426
Gross Expenses/(5)/ 20.0% $ 1,276
Net Promoter Score Gap/(6)/
Retirement 7.5% 13.8%
Life 7.5% 6.5%
/(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 stockholders. "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 R&P
Operations, this performance objective also includes the underlying
earnings of ACS Life (since it is managed by AXA Equitable personnel) and
AXA Financial.
/(3)/"Gross Written Premiums" means gross premiums (first-year premiums plus
renewal premiums) for pure life insurance protection business.
/(4)/"New Business Value" means the value of new contracts issued during 2017.
It consists of the present value of future profits after the costs of
acquiring the business, after allowing for the time value of financial
options and guarantees and the cost of capital and non-financial risks. It
is calculated net of tax.
/(5)/"Gross Expenses" means the total operating expenses of AXA Financial and
AXA Financial R&P Operations excluding deferred acquisition costs,
commissions and restructuring/exception items. Operating expenses include
compensation (including equity plans), benefits and other expenses
necessary to manage the business.
/(6)/"Net Promoter Score Gap" means the excess of the Net Promoter Score for
our retirement and life insurance businesses over the average Net Promoter
Score of seven main competitors. Net Promoter Score is an industry
standard metric established by a leading management consulting firm and is
determined based on customer surveys that classify customers as
"promoters" or "detractors" based on their answer to a question asking how
likely they are to recommend their current provider to friends or family
on a scale of 0-10.
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Since the performance objectives under the STIC Program 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.
Once set, the targets for each performance objective may not change during the
course of the year except for exceptional circumstances, as determined by the
AXA Management Committee. No adjustments will be made for large losses related
to terrorist attacks or natural catastrophes or for market and regulatory
changes. No changes were made with respect to the 2017 targets.
For 2017, actual Underlying Earnings and New Business Value exceeded target
while actual Gross Written Premiums were slightly below target and actual Net
Promoter Score Gap equaled target. Actual Gross Expenses were less than target,
resulting in an increase to the overall performance percentage for AXA
Financial R&P Operations of more than its target weighting.
AXA -- AXA'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
stockholder's equity excluding undated subordinated debt and other
comprehensive income.
INDIVIDUAL ASSESSMENT PERCENTAGE -- An EQ Named Executive Officer's Individual
Assessment Percentage is based on his 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.
The EQ OCC reviewed the performance of each EQ Named Executive Officer as well
as Management's recommendations for each EQ Named Executive Officer's
Individual Assessment Percentage and STIC Program award. Based on its
subjective determination of each EQ Named Executive Officer's performance, the
EQ OCC made its recommendations as to the final Individual Assessment
Percentage and the maximum STIC Program award for each EQ Named Executive
Officer to the AXA Equitable Board of Directors. The AXA Equitable Board of
Directors approved the final maximum award amounts for the EQ 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 amounts for the other EQ Named Executive Officers.
In making its recommendations, the EQ OCC took into account the factors that it
deemed relevant, including the accomplishments achieved in 2017 by the EQ Named
Executive Officers and the Funding Percentage. Since the EQ Named Executive
Officers are responsible for the success of each of AXA Equitable, AXA
Financial and AXA Financial R&P Operations, the EQ OCC considered all related
2017 accomplishments. The EQ OCC also considered the EQ Named Executive
Officers' contributions to AXA worldwide. The accomplishments and contributions
considered include:
NAMED EXECUTIVE OFFICER ACCOMPLISHMENTS
Mark Pearson Provided overall leadership for company strategy and activities related to the
Holdings IPO.
Delivered on key financial goals, including earnings and productivity savings
while continuing to set strong tone at the top for disciplined risk management.
Drove favorable outcomes regarding industry regulatory matters including
federal taxation, the DOL Rule and capital adequacy through service on Board of
Directors of American Council of Life Insurers.
Restructured Management governance framework and implemented executive
management changes, including addition of the Implementation Management Office
to oversee investments and strategic projects.
Led company efforts to achieve customer satisfaction of 4.4 out of 5.0 across
all business segments, resulting in the company's receipt of the DALBAR Annuity
Service Award in recognition of superior service for the seventh consecutive
year.
Continued to build a culture of inclusion, professional excellence and
continuous learning, resulting in external recognitions for consecutive years
from the Great Place to Work Institute, Human Rights Campaign and the
Disability Equality Index.
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NAMED EXECUTIVE OFFICER ACCOMPLISHMENTS
Anders Malmstrom Provided leadership for Finance strategy and activities related to the Holdings
IPO, including overseeing the preparation of historical and pro forma GAAP
financials for Holdings and the development of non-GAAP reporting measures and
serving as liaison to underwriters, ratings agencies and other external parties.
Supervised several key initiatives to enhance existing Finance practices,
including the development of a new hedging strategy, economic model and risk
framework and the creation of new investment income, expense and equity
allocation methodologies to better reflect business performance.
Played key role in company's efforts related to regulatory initiatives such as
tax reform and the NAIC reserve and capital framework as well as efforts
related to closing significant regulatory exams.
Led by example with respect to Finance efficiency efforts, exceeding 2017
budget target and relocating positions as appropriate.
Successfully led the strategic planning process in 2017, providing insight on
margin and revenue streams for each business area, identifying mitigating
actions to close the gap to targets and driving conversations with executive
management and the Board of Directors.
Brian Winikoff Drove strong 2017 sales performance, increasing year-over-year growth and
outperforming budget and the industry in key markets.
Created a clear business strategy and implemented focused plans and processes
across all business areas, resulting in successful execution of key initiatives.
Successfully implemented several executive management changes, including
consolidation of business leader functions, addition of talent in key areas and
enhanced alignment of business support areas.
Provided thought-leadership on short and long-term manufacturing and
distribution strategies that will further improve sales and profitability while
maintaining our position as a leader in key markets.
Played a key role in leading the company's and industry's efforts through
various regulatory changes, including cross-functional actions to prepare for
the DOL Rule.
Dave Hattem Provided leadership for the Law Department's strategy and activities related to
the Holdings IPO, including drafting of the registration statement and
amendments, obtaining required regulatory approvals and analysis and
implementation of related corporate restructuring.
Drove company strategy regarding significant regulatory proposals, including
tax reform, the DOL Rule and the NAIC and NYDFS cyber initiatives and, as
appropriate, developed compliance programs to comport with new rules
(particularly the DOL Rule).
Provided leadership on the company strategy related to the NYDFS Quinquennial
and other regulatory examinations, none of which resulted in any significant
adverse findings or enforcement proceedings.
Oversaw the creation of the Financial Intelligence Unit within the Law
Department, combining the Financial Crimes Office responsible for our
anti-money laundering, anti-bribery and sanctions programs and the Financial
Security Office responsible for the detection and prevention of external fraud,
while providing leadership for the Law Department's efficiencies efforts and
relocation of positions strategy.
Served as key advisor to Mr. Pearson regarding the Holdings IPO and other
strategic initiatives, and Management Committee, corporate governance and Board
matters.
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 EQ Named Executive Officers. Mr. Malmstrom and Mr. Hattem each received a
percentage of their STIC Program award target that was greater than the Funding
Percentage while Mr. Winikoff received a percentage of his STIC Program award
target that was less than the Funding Percentage. Mr. Pearson received a STIC
Program award equal to approximately 119% of his STIC Program award target.
The STIC Program awards and bonuses earned by the EQ Named Executive Officers
in 2017, 2016 and 2015 are reported in the Summary Compensation Table included
in this section.
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EQUITY-BASED AWARDS
The purpose of equity-based awards is to:
. align strategic interests of award recipients with those of AXA;
. provide competitive total compensation opportunities;
. focus on achievement of long-term strategic business objectives; and
. attract, motivate and retain top performers.
In 2017, annual equity-based awards for executives were available under the
umbrella of AXA's global equity program. Equity-based awards are also granted
from time to time to executives outside of AXA's global equity program as part
of a sign-on package or as a retention vehicle. The value of the equity-based
awards granted in 2017 was linked to the performance of AXA's stock.
Annual Awards Process
Annual equity-based awards granted under AXA's global equity program in 2017
were subject to the oversight of the AXA Board of Directors, which approves all
annual equity programs prior to their implementation and all individual grants.
The AXA Board of Directors also sets the size of the equity pool each year. The
pools are allocated annually among AXA affiliates based on each affiliate's
contribution to AXA'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 set the mix of equity-based awards for individual
grants, which is standardized through AXA worldwide. Since 2004, there has been
a decreasing reliance on AXA stock options in equity-based awards. For example,
in 2017, equity grants were awarded entirely in AXA performance shares, except
for a group of approximately 150 senior executives (including the EQ Named
Executive Officers) who continued to receive a portion of their grant in AXA
stock options.
Each year, the EQ OCC submits recommendations to the AXA Board of Directors
with respect to annual equity-based awards for executives, taking into account
the available equity pool allocation and based on a review of each executive's
potential future contributions, consideration of the importance of retaining
the executive 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.
Individual Targets
Individual equity-based award targets were initially assigned to each EQ Named
Executive Officer other than Mr. Pearson based on evaluations of competitive
market data for his position. These individual award targets are reviewed each
year and may increase or decrease, but generally remain constant from year to
year unless there is a significant change in the level of the EQ Named
Executive Officer's responsibilities or a proven and sustained change in the
market compensation for the position. For Mr. Pearson, his equity-based award
target was based on his actual award for the prior year.
2017 Annual Award Grants
Each EQ Named Executive Officer received an equity-based award grant on
June 21, 2017. These grants involved a mix of two components: (1) AXA stock
options granted under the AXA Stock Option Plan for AXA Financial Employees and
Associates (the "AXA Stock Option Plan") and (2) AXA performance shares granted
under the 2017 AXA International Performance Shares Plan (the "2017 AXA
Performance Shares Plan").
The awards to the EQ Named Executive Officers were granted using U.S. dollar
values. The U.S. dollar values for the EQ Named Executive Officers were
allocated between AXA stock options and AXA performance shares in accordance
with the mix determined by the AXA Board of Directors. For this purpose, the
value of the AXA stock options and AXA 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.
2017 Stock Option Award Grants
The AXA stock options granted to the EQ Named Executive Officers on June 21,
2017 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
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on June 21, 2022 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 AXA
stock options. The exercise price for the AXA stock options is 23.92 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 21, 2017.
In the event of an EQ Named Executive Officer's retirement, the AXA 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.
2017 Performance Share Award Grants
An AXA 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 2017 AXA
Performance Shares Plan, the number of shares that is earned will be determined
at the end of a three-year performance period, starting on January 1, 2017 and
ending on December 31, 2019, 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 stockholders for
2017 and/or 2018 and/or 2019, the performance percentage for the grant will be
divided in half. The AXA performance shares granted to the EQ Named Executive
Officers on June 21, 2017 have a cliff vesting schedule of four years.
The performance percentage for the 2017 AXA Performance Shares Plan initially
will be determined based: (a) 40% on AXA's performance with respect to adjusted
earnings per share, (b) 50% on AXA Financial R&P Operations' performance with
respect to adjusted earnings and underlying earnings (each weighted 50%) and
(c) 10% on AXA'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's relative performance against a selection of its peers with
respect to total stockholder return. The components of the performance
percentage and their targets were 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 AXA performance shares
initially granted will be 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's
adjusted earnings per share and AXA Financial R&P 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 2017 AXA performance shares will be made in AXA ordinary
shares on June 21, 2021. 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 the 2017 AXA
Performance Shares Plan if they choose to retire prior to the end of the
vesting period.
Detailed information on the AXA stock option and AXA performance share grants
for each of the EQ Named Executive Officers in 2017 is reported in the 2017
Grants of Plan-Based Awards Table included in this section.
2017 Payouts from Prior Year Awards
In 2017, certain EQ Named Executive Officers received a payout under the 2014
AXA International Performance Shares Plan (the "2014 AXA Performance Shares
Plan"). Under the 2014 AXA Performance Shares Plan, 50% of the AXA performance
shares granted to a participant had a cliff vesting schedule of three years
(first tranche) and the remaining 50% had a cliff vesting schedule of four
years (second tranche).
The number of AXA performance shares earned was determined for the first
tranche at the end of a two-year performance period starting on January 1, 2014
and ending on December 31, 2015 and for the second tranche at the end of a
three-year performance period starting on January 1, 2014 and ending on
December 31, 2016, by multiplying the number of AXA performance shares granted
for the applicable tranche by a performance percentage determined based on the
performance of AXA Group and AXA Financial R&P Operations over the applicable
performance period. The performance percentage for the first tranche was
123.77% and the performance percentage for the second tranche was 122.92%.
Detailed information on the payouts of 2014 AXA performance shares in 2017 is
reported in the 2017 Option Exercises and Stock Vested Table included in this
section.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
OTHER COMPENSATION AND BENEFIT PROGRAMS
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 AXA
Equitable employees, including executives, are offered a benefits program that
includes group health and disability coverage, group life insurance and various
deferred compensation and retirement benefits. In addition, 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 provides 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 executives:
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 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 was made for the
2017 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 ($127,200 in 2017) plus,
(ii) 5.0% of eligible compensation in excess of the Social Security Wage Base,
up to the qualified plan compensation limit ($270,000 in 2017). All of the EQ
Named Executive Officers were eligible to participate in the 401(k) Plan for
2017.
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 and Mr. Hattem 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 AXA
Equitable employees, including executives:
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 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 EQ Named Executive
Officers were eligible to receive excess 401(k) contributions in 2017.
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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 and
Mr. Hattem, 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 PLANS
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. All of the EQ Named Executive
Officers were eligible to participate in the Post-2004 Plan for 2017.
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.
Mr. Hattem participated in the VDCP prior to its freeze in 2004.
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. All of the EQ Named
Executive Officers were eligible to participate in the ESB Plan for 2017.
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 EQ 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
and other severance benefits to all employees following an involuntary
termination of employment. Executive officers, including the EQ Named Executive
Officers other than Mr. Pearson, 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 temporary income payments to eligible employees
on length of service or base salary. Payments are capped at the lesser of 52
weeks of base salary and $300,000. To obtain benefits under the Severance Plan,
participants must execute a
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general release and waiver of claims against AXA Equitable and affiliates. For
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:
. Temporary income payments equal to 52 weeks' of base salary, reduced by
any temporary income payments for which the executive may be eligible
under the Severance Plan;
. Additional temporary income 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 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 lump sum 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 an assignment of duties materially
inconsistent with Mr. Pearson's duties or authority or a material limitation of
Mr. Pearson's powers, 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 the sum
of 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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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
"Cause" is defined in Mr. Winikoff's severance arrangement as: (i) failure or
refusal to perform his duties or responsibilities, which failure is not cured
within 30 days written notice, (ii) gross negligence or misconduct , which
gross negligence or misconduct has caused harm or damage to the business,
affairs or reputation of AXA Equitable or any of its affiliates,
(iii) commission of, conviction of, or plea of NOLO CONTEDERE to, any crime
involving moral turpitude or any felony or (iv) breach of the non-solicitation
obligations in his severance arrangement, which breach is not cured within 10
days written notice. Pursuant to his severance arrangement, Mr. Winikoff is
subject to a one-year post-termination employee non-solicitation covenant.
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.
Change in control benefits are not provided for performance shares granted
under the AXA Performance Share Plan. Although participants forfeit all of
their performance shares upon a change in control, a change in control will not
be deemed to occur for purposes of the Performance Share Plan unless AXA ceases
to own at least 10% of the capital or voting rights of AXA Financial.
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" below.
PERQUISITES
Executive officers receive limited perquisites. Specifically, executive
officers may use a car and driver for personal purposes from time to time and
may occasionally bring spouses and guests on certain flights otherwise being
taken for business reasons. Also, financial planning and tax preparation
services are provided 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 EQ Named Executive Officers during
2017 are included in the column entitled "All Other Compensation" in the
Summary Compensation Table included in this section.
OTHER COMPENSATION POLICIES
CLAWBACKS
In the event an individual's employment is terminated for cause, all AXA stock
options granted under the AXA 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 an 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 currently have any 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 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 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 (including AB Holding) and any hedging of equity
compensation awards (including stock option, performance share or similar
awards) or the securities underlying those awards. Members of AXA's Management
Committee must pre-clear with the AXA General Counsel any derivatives
transactions with respect to AXA securities and/or the securities of other AXA
publicly-traded subsidiaries.
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 any of its subsidiaries within the Insurance Segment, including AXA
Equitable, 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. However, these limitations will become applicable to Holdings'
executive compensation program after the Holdings IPO. Accordingly, Holdings'
Compensation Committee will review and consider the deductibility of executive
compensation when making compensation decisions after the Holdings IPO.
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 other tax impacts not discussed above are also considered in the
design of equity-based award programs.
COMPENSATION DISCUSSION AND ANALYSIS -- MR. BERNSTEIN
COMPENSATION PROGRAM OVERVIEW
The intellectual capital of its employees is collectively the most important
asset of AB. AB invests in people-its hires qualified people, trains them,
encourages them to give their best thinking to the firm and its clients, and
compensates them in a manner designed to motivate, reward and retain them while
aligning their interests with the interests of holders of AB Holding Units and
AB Units (collectively, the "Unitholders").
AB structures its executive compensation programs with the intent of enhancing
firm-wide and individual performance and Unitholder value.
AB is also focused on ensuring that its compensation practices are competitive
with industry peers and provide sufficient potential for wealth creation for
its executives and employees generally, which AB believes will enable it to
meet the following key compensation goals:
. attract, motivate and retain highly-qualified executive talent;
. reward prior year performance;
. incentivize future performance;
. recognize and support outstanding individual performance and behaviors
that demonstrate and foster AB's culture of "Relentless Ingenuity,"
which includes the core competencies of relentlessness, ingeniousness,
collaboration and accountability; and
. align its executives' long-term interests with those of Unitholders and
clients.
COMPENSATION ELEMENTS
AB utilizes a variety of compensation elements to achieve the goals described
above, consisting of base salary, annual short-term incentive compensation
awards (cash bonuses), a long-term incentive compensation award program, a
defined contribution plan and certain other benefits, each of which are
discussed below.
BASE SALARIES
Base salaries comprise a relatively small portion of the total compensation of
AB's executives. AB considers individual experience, responsibilities and
tenure with the firm when determining the narrow range of base salaries paid to
its executives.
ANNUAL SHORT-TERM INCENTIVE COMPENSATION AWARDS (CASH BONUSES)
AB provides executives with annual short-term incentive compensation awards in
the form of cash bonuses.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
AB believes that annual cash bonuses, which generally reflect individual
performance and the firm's current year financial performance, provide a
short-term retention mechanism for executives because such bonuses typically
are paid during the last week of the year.
LONG-TERM INCENTIVE COMPENSATION AWARDS
A substantial portion of long-term incentive compensation awards for executives
generally is denominated in restricted AB Holding Units. AB uses this structure
to align its executives' long-term interests directly with the interests of
Unitholders and indirectly with the interests of clients, as strong performance
for clients generally contributes directly to increases in assets under
management and improved financial performance for the firm.
AB believes that annual long-term incentive compensation awards provide a
long-term retention mechanism for executives because such awards generally vest
ratably over four years.
An award recipient who resigns or is terminated without cause continues to vest
in the recipient's long-term incentive compensation award if the award
recipient complies with certain agreements and restrictive covenants set forth
in the applicable award agreement, including restrictions on competition,
restrictions on employee and client solicitation, and a claw-back for failing
to follow existing risk management policies. As such, for accounting purposes,
there is no employee service requirement and awards are fully expensed when
granted. As used in this Executive Compensation section, "vest" refers to the
time at which the awards are no longer subject to forfeiture for breach of
these restrictions or risk management policies, which we discuss further below
in "Consideration of Risk Matters in Determining Compensation."
Prior to vesting, distributions of the restricted AB Holding Units underlying
an award are not permitted. Upon vesting, the AB Holding Units underlying an
award are distributed unless the award recipient has, in advance, voluntarily
elected to defer receipt to future periods. Quarterly cash distributions on
vested and unvested restricted AB Holding Units are paid to award recipients
when paid to Unitholders generally.
DEFINED CONTRIBUTION PLAN
U.S. employees of AB, including Mr. Bernstein, are eligible to participate in
the Profit Sharing Plan for Employees of AB (as amended and restated as of
January 1, 2015 and as further amended as of January 1, 2017, the "Profit
Sharing Plan"), a tax-qualified retirement plan. The Compensation Committee of
the AB Board of Directors (the "AB Compensation Committee") determines the
amount of company contributions (both the level of annual matching by the firm
of an employee's pre-tax salary deferral contributions and the annual company
profit sharing contribution, if any).
For 2017, the AB Compensation Committee determined that employee deferral
contributions would be matched on a dollar-for-dollar basis up to 5% of
eligible compensation and that there would be no profit sharing contribution.
OTHER BENEFITS
AB pays the premiums associated with life insurance policies purchased on
behalf of its executives.
OVERVIEW OF MR. BERNSTEIN'S COMPENSATION
On May 1, 2017, Mr. Bernstein, the General Partner, AB and AB Holding entered
into an agreement (the "SB Employment Agreement") pursuant to which
Mr. Bernstein is serving as AB's President and CEO until May 1, 2020, provided
that the term of employment shall automatically extend for one additional year
on May 1, 2020 and each anniversary thereafter, unless the SB Employment
Agreement is terminated in accordance with its terms ("Employment Term").
The terms of the SB Employment Agreement were the result of arm's length
negotiations between Mr. Bernstein and senior executives at AXA, AB's parent
company and majority Unitholder. The AB Board of Directors then approved the
CEO Employment Agreement after having considered, among other things, the
compensation package provided to Mr. Bernstein's predecessor, the 2016 and 2017
compensation of AB's other executive officers and Mr. Bernstein's compensation
at his former employer.
COMPENSATION ELEMENTS
Base Salary
Mr. Bernstein's annual base salary under the CEO Employment Agreement is
$500,000. This amount is consistent with AB's policy to keep base salaries of
executives and other highly-compensated employees low in relation to total
compensation. Any future increase to Mr. Bernstein's base salary is entirely in
the discretion of the AB Compensation Committee.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
Cash Bonus
Under the SB Employment Agreement, Mr. Bernstein was entitled to, and received,
a cash bonus of $3,000,000 in 2017. During each subsequent year of the
Employment Term, he is entitled to be paid a cash bonus at a target level of
$3,000,000, subject to review and increase from time to time by the AB
Compensation Committee, in its sole discretion.
Restricted AB Holding Units
On May 16, 2017, in connection with the commencement of Mr. Bernstein's
employment, Mr. Bernstein was granted restricted AB Holding Units with a grant
date fair value of $3,500,000, or 164,706 restricted AB Holding Units ("SB
Sign-On Grant") which, subject to accelerated vesting upon circumstances
described in the SB Employment Agreement, vest ratably on each of the first
four anniversaries of May 1, 2017, commencing May 1, 2018, provided, with
respect to each installment, Mr. Bernstein continues to be employed by AB on
the vesting date. Also, subject to accelerated delivery of the SB Sign-On Grant
upon circumstances described in the SB Employment Agreement, the entire SB
Sign-On Grant, minus any AB Holding Units withheld to cover applicable taxes,
will be delivered to Mr. Bernstein as promptly as possible after May 1, 2021.
Mr. Bernstein will receive the cash distributions payable with respect to the
unvested portion of the SB Sign-On Grant and the vested but undelivered portion
of the SB Sign-On Grant on the same basis as cash distributions are paid to AB
Holding Unitholders generally.
Commencing in 2018 and during the remainder of the Employment Term,
Mr. Bernstein will be eligible to receive annual equity awards with a grant
date fair value of $3,500,000, subject to review and increase from time to time
by the AB Compensation Committee in its sole discretion, in accordance with
AB's compensation practices and policies generally applicable to the firm's
executives as in effect from time to time.
A substantial portion of Mr. Bernstein's 2017 compensation consists of, and his
annual compensation throughout the Employment Term will continue to
substantially consist of, restricted AB Holding Unit awards. Accordingly, his
long-term interests are, and will continue to be, aligned directly with the
interests of Unitholders and indirectly with the interests of clients. In this
connection, strong performance for clients generally contributes directly to
increases in assets under management and improved financial performance for the
firm.
PERQUISITES AND BENEFITS
Under the SB Employment Agreement, Mr. Bernstein is eligible to participate in
all benefit plans available to executives and for his safety and accessibility,
a company car and driver for personal and business use.
SEVERANCE AND CHANGE IN CONTROL BENEFITS
The SB Employment Agreement contains severance and change-in-control provisions
which are highlighted below and also described in detail under the heading
"POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL" . We believe that
these severance and change-in-control provisions assist in retaining
Mr. Bernstein and in the event of a change in control, provide protection to
Mr. Bernstein so he is not distracted by personal or financial situations at a
time when AB needs him to remain focused on his responsibilities.
If Mr. Bernstein is terminated without cause or resigns for good reason and he
signs and does not revoke a waiver and release of claims, he will receive the
following:
. a cash payment equal to the sum of (a) his current base salary and
(b) bonus opportunity amount;
. a pro rata bonus based on actual performance for the fiscal year in
which the termination occurs;
. immediate vesting of any outstanding equity awards;
. delivery of AB Holding Units in respect of the SB Sign-On Grant (subject
to any withholding requirements);
. monthly payments equal to the cost of COBRA coverage for the COBRA
coverage period; and
. following the COBRA coverage period, access to participation in AB's
medical plans as in effect from time to time at Mr. Bernstein's (or his
spouse's) sole expense.
If during the 12 months following a change in control, Mr. Bernstein is
terminated without cause or resigns for good reason, in addition to the amounts
described above, he will receive a cash payment equal to three times the sum of
(a) his current base salary and (b) bonus opportunity amount (provided that if
the change in control occurs on or after May 1, 2018, the sum is multiplied by
two).
In the event of a change in control or in the event that Mr. Bernstein's
employment is terminated because the SB Employment Agreement is not renewed
(other than for cause), his SB Sign-On Grant will immediately vest and AB
Holding Units in respect of any such award will be delivered by AB to him.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
In the event any payments constitute "golden parachute payments" within the
meaning of Section 280G of the Code and would be subject to an excise tax
imposed by Section 4999, such payments will be reduced to the maximum amount
that does not result in the imposition of such excise tax, but only if such
reduction results in Mr. Bernstein receiving a higher net-after tax amount than
he would receive absent such reduction. If a change in control occurs prior to
January 1, 2020, to the extent that payments to Mr. Bernstein would be subject
to the excise tax under Section 4999 of the Code, Mr. Bernstein will be
entitled to a gross-up payment to ensure that he will retain an amount equal to
the excise tax imposed upon the payments, but if the payments do not exceed
110% of the statutory limit imposed by Section 280G of the Code, the payments
will be reduced to the maximum amount that does not result in the imposition of
such excise tax.
Mr. Bernstein is subject to a confidentiality provision, in addition to
covenants with respect to noncompetition during his employment and six months
thereafter and non-solicitation of customers and employees for twelve months
following his termination of employment.
A change in control is defined as, among other things:
. AXA Financial and its majority-owned subsidiaries ceasing to control the
election of a majority of the AB Board of Directors; or
. AB Holding, or any successor thereto, ceasing to be a publicly traded
entity.
Mr. Bernstein negotiated the severance and change-in-control provisions to have
the security and flexibility to focus on the business and preserve the value of
his long-term incentive compensation. The AB Board of Directors and AXA
determined that these provisions were reasonable and appropriate because they
were necessary to recruit and retain Mr. Bernstein and provided Mr. Bernstein
with effective incentives for future performance. The AB Board of Directors and
AXA determined to limit the applicability of the excise tax gross-up provision
since the application of the excise tax is more burdensome on newly hired
employees.
The AB Board of Directors and AXA also concluded that the change-in-control and
termination provisions in the SB Employment Agreement fit within AB's overall
compensation objectives because these provisions, which align with AB's goal of
providing its executives with effective incentives for future performance, also:
. permitted AB to recruit and retain a highly-qualified CEO;
. aligned Mr. Bernstein's long-term interests with those of AB's
Unitholders and clients;
. were consistent with AXA's and the AB Board of Directors' expectations
with respect to the manner in which AB and AB Holding would be operated
during Mr. Bernstein's tenure; and
. were consistent with the AB Board of Directors' expectations that
Mr. Bernstein would not be terminated without cause and that no steps
would be taken that would provide him with the ability to terminate the
agreement for good reason.
THE AB COMPENSATION COMMITTEE
The AB Compensation Committee has general oversight of compensation and
compensation-related matters, including:
. determining cash bonuses;
. determining contributions and awards under incentive plans or other
compensation arrangements (whether qualified or non-qualified) for
employees of AB and its subsidiaries, and amending or terminating such
plans or arrangements or any welfare benefit plan or arrangement or
making recommendations to the AB Board of Directors with respect to
adopting any new incentive compensation plan, including equity-based
plans; and
. reviewing and approving the compensation of the CEO, evaluating his
performance, and determining and approving his compensation level based
on this evaluation.
OTHER COMPENSATION-RELATED MATTERS
Code Section 162(m) is not applicable to either AB or AB Holding.
COMPENSATION COMMITTEE REPORT
Not Applicable.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Not Applicable.
The EQ Named Executive Officers 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. Mr. Bernstein participated in AB's executive compensation
program, and no part of his compensation was allocated to MLOA.
CONSIDERATION OF RISK MATTERS IN DETERMINING COMPENSATION
AXA Equitable has considered whether the compensation practices of AXA
Equitable and AB 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.
AXA Equitable also considered that a substantial portion of each long-term
incentive compensation award granted to an eligible employee of AB is
denominated in AB Holding Units that are not delivered until subsequent years,
so the ultimate value that the employee derives from the award depends on the
long-term performance of the firm. Denominating a substantial portion of the
award in restricted AB Holding Units and deferring its delivery sensitizes
employees to risk outcomes and discourages them from taking excessive risks
that could lead to a decrease in the value of the AB Holding Units.
Furthermore, all outstanding long-term incentive compensation awards generally
include a provision permitting AB to "claw-back" the unvested portion of an
employee's long-term incentive compensation award if the AB Compensation
Committee determines that (i) the employee failed to follow existing risk
management policies and (ii) as a result of the employee's failure, there has
been or reasonably could be expected to be a material adverse impact on AB or
the employee's business unit.
CHIEF EXECUTIVE OFFICER PAY RATIO INFORMATION
In 2017, the compensation of Mr. Pearson was approximately 70 times the median
pay of all employees, resulting in a Chief Executive Officer pay ratio of 70 :
1.
MARK PEARSON MEDIAN EMPLOYEE
------------- ---------------
Base salary ($)................................... $ 1,250,114 $ 90,165
Cash bonus ($).................................... $ 2,526,000 $ 8,615
Stock awards ($).................................. $ 2,408,658 $ 0
Change in pension value ($)....................... $ 1,017,919 $ 6,698
All other compensation ($)........................ $ 370,237 $ 3,461
Total ($)......................................... $ 7,572,928 $ 108,939
2017 CEO Pay Ratio................................ 70:1
The median employee was identified by examining 2017 total compensation for all
individuals, excluding Mr. Pearson, who were employed by AXA Equitable and its
subsidiaries as of December 29, 2017, the last day of the payroll year. All
employees were included in this process, whether employed on a full-time or
part-time basis. Total compensation included base salary (plus overtime, as
applicable), commissions (as applicable), cash bonuses and the grant date fair
value of equity-based awards. No assumptions or estimates were made with
respect to total compensation, but compensation paid to non-U.S. employees was
adjusted based on the average monthly exchange rates for the 12-month period
ending September 30, 2017 between the local currencies in which the employees
were paid and U.S. dollars.
After identifying the median employee based on total compensation, the median
employee's compensation for 2017 was compared to Mr. Pearson's compensation
using the same methodology used for the Summary Compensation Table included in
this section.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
SUMMARY COMPENSATION TABLE
The following table presents the total compensation of our Named Executive
Officers for services performed for us for the years ended December 31, 2017,
December 31, 2016 and December 31, 2015, except that no information is provided
for years prior to 2016 for Mr. Winikoff or for years prior to 2017 for
Mr. Bernstein 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 EQ Named Executive Officers by AXA
Equitable allocated to MLOA in a manner consistent with the allocation of
compensation expenses under the Services Agreement. No part of Mr. Bernstein's
compensation was allocated to MLOA. The total compensation reported in the
following table includes items such as salary and non-equity incentive
compensation as well as the grant date fair value of equity-based compensation.
The equity-based compensation 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- ALL OTHER
FISCAL STOCK OPTION INCENTIVE ENSATION COMP-
NAME YEAR SALARY/(1)/ BONUS/(2)/ AWARDS/(3)/ AWARDS/(4)/ COMPENSATION/(5)/ EARNINGS/(6)/ ENSATION/(7)/
---- ------ ---------- ------------ ------------ ---------- ---------------- ------------ ------------
PEARSON,
MARK............. 2017 $ 41,254 $ 68,223 $ 11,262 $ 83,358 $ 33,591 $ 12,218
CHAIRMAN,
PRESIDENT
AND
CHIEF
EXECUTIVE 2016 $ 38,773 $ 62,324 $ 11,855 $ 67,084 $ 12,065
OFFICER 2015 $ 38,773 $ 52,119 $ 8,101 $ 72,571 $ 12,197 $ 17,765
MALMSTROM,
ANDERS........... 2017 $ 21,722 $ 17,377 $ 3,522 $ 34,559 $ 5,942 $ 10,908
SENIOR
EXECUTIVE
VICE
PRESIDENT
AND
CHIEF
FINANCIAL 2016 $ 20,405 $ 15,407 $ 3,599 $ 26,350 $ 8,698 $ 5,630
OFFICER 2015 $ 20,405 $ 10,850 $ 1,900 $ 29,140 $ 686 $ 17,641
WINIKOFF,
BRIAN............ 2017 $ 24,329 $ 18,463 $ 3,742 $ 30,912 $ 1,740 $ 5,549
SENIOR
EXECUTIVE
VICE
PRESIDENT
AND
HEAD
OF
U.S.
LIFE,
RETIREMENT
AND
WEALTH
MANAGEMENT 2016 $ 10,321 $ 49,598 $ 0 $ 27,900 $ 0
HATTEM,
DAVE............. 2017 $ 20,108 $ 21,334 $ 3,522 $ 26,008 $ 19,092 $ 5,116
SENIOR
EXECUTIVE
VICE
PRESIDENT,
SECRETARY
AND
GENERAL 2016 $ 18,597 $ 20,102 $ 3,824 $ 23,250 $ 7,386 $ 4,161
COUNSEL 2015 $ 17,091 $ 1,475 $ 13,322 $ 2,071 $ 22,320 $ 510 $ 4,955
SETH,
BERNSTEIN........ 2017 $ 334,615 $ 3,000,000 $ 3,500,003 $ 148,274
CHIEF
EXECUTIVE
OFFICER
OF
ALLIANCEBERNSTEIN
CORPORATION
NAME TOTAL
---- --------------
PEARSON,
MARK............. $ 249,906
CHAIRMAN,
PRESIDENT
AND
CHIEF
EXECUTIVE $ 204,298
OFFICER $ 189,329
MALMSTROM,
ANDERS........... $ 94,030
SENIOR
EXECUTIVE
VICE
PRESIDENT
AND
CHIEF
FINANCIAL $ 80,089
OFFICER $ 80,622
WINIKOFF,
BRIAN............ $ 84,735
SENIOR
EXECUTIVE
VICE
PRESIDENT
AND
HEAD
OF
U.S.
LIFE,
RETIREMENT
AND
WEALTH
MANAGEMENT
HATTEM,
DAVE............. $ 95,180
SENIOR
EXECUTIVE
VICE
PRESIDENT,
SECRETARY
AND
GENERAL $ 77,320
COUNSEL $ 61,744
SETH,
BERNSTEIN........ $ 6,982,892
CHIEF
EXECUTIVE
OFFICER
OF
ALLIANCEBERNSTEIN
CORPORATION
/(1)/For the EQ Named Executive Officers, the amounts in this column reflect
actual salary paid in each year. Mr. Bernstein's annual base salary is
$500,000. The salary figure in the table is prorated based on his hire
date (May 1, 2017).
/(2)/No bonuses were paid to the EQ Named Executive Officers in 2017, 2016 or
2015 except that Mr. Hattem was paid a bonus in May 2015 to compensate him
for the loss of AXA stock options due to regulatory and other constraints
prohibiting his exercise. Mr. Bernstein was paid a bonus in 2017
consistent with the SB Employment Agreement.
/(3)/For Mr. Winikoff, this column reflects the grant date fair value of his
sign-on restricted stock unit ("RSU") grant in 2016. For Mr. Bernstein,
this column reflects the grant date fair value of the SB Sign-On Grant.
Otherwise, the amounts reported in this column represent the aggregate
grant date fair value of AXA performance shares awarded in each year in
accordance with FASB ASC Topic 718. The AXA performance share grants were
valued at target which represents the probable outcome at grant date. The
2017 AXA performance share grants, Mr. Winikoff's sign-on RSU grant and
the AB Sign-On Grant are described in more detail below in " -- Executive
Compensation -- Supplemental Information for Summary Compensation and
Grants of Plan-Based Awards Tables."
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
/(4)/The amounts reported in this column represent the aggregate grant date
fair value of AXA stock options awarded in each year in accordance with
FASB ASC Topic 718. The 2017 AXA 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 2017 are the awards paid in February 2018 to each
of the Named Executive Officers based on their 2017 performance. 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.
/(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 2017, 2016 or 2015. For more information
regarding the pension benefits for each Named Executive Officer, see the
"Pension Benefits as of December 31, 2017" table below.
/(7)/The following table provides additional details for the compensation
information found in the All Other Compensation column.
EXCESS EXCESS OTHER
LIABILITY FINANCIAL 401(K) PLAN 401 (K) PERQUISITES/
NAME AUTO/(A)/ INSURANCE/(B)/ ADVICE/(C)/ CONTRIBUTIONS/(D)/ CONTRIBUTIONS/(E)/ BENEFITS TOTAL
--------------- ----------- ------------- ---------- ----------------- ----------------- ------------ -----------
PEARSON, MARK.. 2017 $ 338 $ 269 $ 810 $ 430 $ 10,371 $ -- $ 12,218
2016 $ 356 $ 251 $ 751 $ 401 $ 10,306 $ -- $ 12,065
2015 $ 554 $ 251 $ 1,073 $ 524 $ 10,610 $ 4,753 $ 17,765
MALMSTROM,
ANDERS......... 2017 $ -- $ -- $ 940 $ 430 $ 4,086 $ 5,452 $ 10,908
2016 $ 10 $ 805 $ 401 $ 4,133 $ 281 $ 5,630
2015 $ 26 $ 905 $ 524 $ 3,389 $ 12,797 $ 17,641
WINIKOFF, BRIAN 2017 $ -- $ -- $ 587 $ 430 $ 4,512 $ 20 $ 5,549
2016 $ -- $ -- $ 401 $ 211 $ 10
HATTEM, DAVE... 2017 $ -- $ -- $ 495 $ 430 $ 3,921 $ 270 $ 5,116
2016 $ 2 $ -- $ 401 $ 3,549 $ 209 $ 4,161
2015 $ 191 $ 543 $ 524 $ 3,396 $ 301 $ 4,955
SETH, BERNSTEIN 2017 $ 146,845 $ 1,429 $ 148,274
2016
2015
/(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 2017 was valued based on a formula considering the
annual lease value of the vehicle, the compensation of the driver and the
cost of fuel. Pursuant to his employment agreement, Mr. Bernstein is
entitled to a car and driver for his business and personal purposes and
this column includes auto lease costs ($10,493) and driver compensation
and other auto related expenses ($136,352).
/(b)/AXA Equitable pays the premiums for excess liability insurance coverage
for Mr. Pearson pursuant to his employment agreement. The amounts in this
column reflect the actual amount of the premiums paid for each year.
/(c)/AXA Equitable pays for financial planning and tax preparation services for
each of the EQ Named Executive Officers. The amounts in this column
reflect the actual amounts paid to the service provider for each year.
/(d)/This column includes the amount of company contributions received by each
EQ Named Executive Officer under the 401(k) Plan for 2017.
/(e)/This column includes the amount of any excess 401(k) contributions made by
AXA Equitable to the Post-2004 Plan for each EQ Named Executive Officer.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
2017 GRANTS OF PLAN-BASED AWARDS
The following table provides additional information about plan-based
compensation disclosed in the Summary Compensation Table allocated to MLOA in a
manner consistent with the allocation of compensation expenses under the
Services Agreement. No part of Mr. Bernstein's compensation was allocated to
MLOA. This table includes both equity and non-equity awards granted during 2017.
ALL OTHER ALL OTHER
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS STOCK OPTION EXERCISE
UNDER NON-EQUITY INCENTIVE UNDER EQUITY INCENTIVE AWARDS: AWARDS: OR BASE
PLAN AWARDS/(2)/ PLAN AWARDS/(3)/ NUMBER OF NUMBER OF PRICE OF
OCC ------------------------- ------------------------ SHARES OF SECURITIES OPTION
GRANT APPROVAL THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM STOCK OR UNDERLYING AWARDS/(5)/
NAME DATE DATE/(1)/ ($) ($) ($) (#) (#) (#) UNITES/(4)/(#) OPTIONS ($/SH)
---------- --------- --------- --------- ------- ------- --------- ------ ------- ------------ (#) ----------
PEARSON,
MARK...... 6/21/2017 2/15/2017 -- $70,237 n/a 0 5,610 5,610 $ 26.69
6/21/2017 2/15/2017 0 3,206 138
MALMSTROM,
ANDERS.... 6/21/2017 2/15/2017 -- $26,400 n/a 585 585 1170 $ 26.69
6/21/2017 2/15/2017 1002 43
WINIKOFF,
BRIAN..... 6/21/2017 2/15/2017 $ -- $29,700 n/a 0 621 621 1,243 $ 26.69
6/21/2017 2/15/2017 0 1,065 46
HATTEM,
DAVE...... 6/21/2017 2/15/2017 -- $21,450 n/a 0 585 585 1170 $ 26.69
6/21/2017 2/15/2017 0 1002 43
SETH,
BERNSTEIN. 5/16/2017 164,706
CLOSING GRANT DATE
MARKET FAIR VALUE
PRICE ON OF
DATE OF STOCK AND
GRANT OPTION
NAME ($/SH) AWARDS/(6)/
---------- -------- ------------
PEARSON,
MARK...... $ 26.8 $ 11,262
$ 68,223
MALMSTROM,
ANDERS.... $ 26.8 $ 3,522
$ 17,377
WINIKOFF,
BRIAN..... $ 26.8 $ 3,742
$ 18,463
HATTEM,
DAVE...... $ 26.8 $ 3,522
$ 21,334
SETH,
BERNSTEIN. $ 3,500,003
/(1)/For the EQ Named Executive Officers, this column reports the date on which
the EQ OCC approved its recommendation of the grants to the AXA Board of
Directors.
/(2)/For the EQ Named Executive Officers, the target column shows the target
award for 2017 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 2017 awards paid to the EQ Named Executive Officers are listed in
the Non-Equity Incentive Compensation column of the Summary Compensation
Table.
/(3)/The second row for each EQ Named Executive Officer shows the AXA stock
options granted under the AXA Stock Option Plan on June 21, 2017. The
third row for each EQ Named Executive Officer shows the AXA performance
shares granted under the AXA 2017 Performance Share Plan on June 21, 2017.
/(4)/For Mr. Bernstein, this column shows the SB Sign-On Grant.
/(5)/The exercise price for the AXA stock options granted on June 21, 2017 is
equal to the average of the closing prices for an AXA ordinary share on
Euronext Paris SA over the 20 trading days immediately preceding June 21,
2017. 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 20, 2017.
/(6)/For the EQ Named Executive Officers, the amounts in this column represent
the aggregate grant date fair value of the AXA stock options and AXA
performance shares granted in 2017 in accordance with FASB ASC Topic 718.
The AXA performance share grants were valued at target which represents
the probable outcome at grant date. For Mr. Bernstein, the amount in this
column represents the grant date fair value of the SB Sign-On Grant.
SUPPLEMENTAL INFORMATION FOR SUMMARY COMPENSATION AND GRANTS OF PLAN-BASED
AWARDS TABLES
2017 Stock Option Award Grants
The AXA stock option awards granted to the EQ Named Executive Officers on
June 21, 2017 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 21,
2022 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
23.92 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 21, 2017.
In the event of retirement, the AXA stock options continue to vest and may be
exercised until the end of the term, except in the case of misconduct.
Accordingly, since Messrs. Hattem and Pearson are currently eligible to retire,
their AXA stock options will not be forfeited due to any service condition.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
2017 Performance Share Award Grants
An AXA performance share is a "phantom" share of AXA that, once earned and
vested, provides the right to receive an AXA ordinary share at the time of
payment. AXA performance shares are granted unearned. Under the 2017 AXA
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, 2017 and
ending on December 31, 2019, 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 stockholders for
2017 and/or 2018 and/or 2019, the performance percentage for the grant will be
divided in half. The AXA performance shares granted to the EQ Named Executive
Officers on June 21, 2017 cliff vest after four years.
The performance percentage for the 2017 AXA Performance Shares Plan initially
will be determined based: (a) 40% on AXA's performance with respect to adjusted
earnings per share, (b) 50% on AXA Financial R&P Operations' performance with
respect to adjusted earnings and underlying earnings (each weighted 50%) and
(c) 10% on AXA'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's relative performance against a selection of its peers with
respect to total stockholder 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 AXA 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's
adjusted earnings per share and AXA Financial R&P 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 2017 AXA performance shares will be made in AXA ordinary
shares on June 21, 2021. In the case of retirement, a participant is treated as
if he or she continued employment until the settlement date. Accordingly,
Messrs. Hattem and Pearson will still receive a payout if they choose to retire
prior to the end of the vesting period.
Mr. Winikoff's RSUs Grant
On July 5, 2016, Mr. Winikoff received a sign-on grant of 84,611 RSUs in
respect of AXA ordinary shares. These RSUs will vest ratably over a four-year
period and be paid out in cash within 30 days after the vesting date. 21,153 of
these RSUs vested in 2017.
The SB Sign-On Grant
On May 16, 2017, in connection with the commencement of Mr. Bernstein's
employment, Mr. Bernstein was granted restricted AB Holding Units with a grant
date fair value of $3,500,003, or 164,706 restricted AB Holding which, subject
to accelerated vesting upon circumstances described in the SB Employment
Agreement, vest ratably on each of the first four anniversaries of May 1, 2017,
commencing May 1, 2018, provided, with respect to each installment,
Mr. Bernstein continues to be employed by AB on the vesting date. Also, subject
to accelerated delivery of the SB Sign-On Grant upon circumstances described in
the SB Employment Agreement, the entire SB Sign-On Grant, minus any AB Holding
Units withheld to cover applicable taxes, will be delivered to Mr. Bernstein as
promptly as possible after May 1, 2021. Mr. Bernstein will receive the cash
distributions payable with respect to the unvested portion of the SB Sign-On
Grant and the vested but undelivered portion of the SB Sign-On Grant on the
same basis as cash distributions are paid to AB Holding Unitholders generally.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2017
The following table lists outstanding equity grants for each Named Executive
Officer as of December 31, 2017 allocated to MLOA in a manner consistent with
the allocation of compensation expenses under the Services Agreement. No part
of Mr. Bernstein's equity grants were allocated to MLOA. The table includes
outstanding equity grants from past years as well as the current year. For the
EQ Named Executive Officers, equity grants in 2017 and prior years were awarded
in respect of AXA ordinary shares. For Mr. Bernstein, equity grants in 2017
were awarded in respect of AB Holding Units.
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....... 97 $ 33.21 04/01/18 1,499
1141 $ 21.59 06/10/19
1997 $ 21.08 03/19/20
4,538 $ 20.63 03/18/21
3,828 $ 15.96 03/16/22
4,620 $ 17.83 03/22/23
1,357 2,715 $ 25.74 03/24/24
4,800 $ 26.12 06/19/25
6,140 $ 24.00 06/06/26
5,610 $ 26.69 06/21/27
MALMSTROM, ANDERS... 384 $ 17.83 03/22/23 442
403 403 403 $ 25.74 03/24/24
818 409 $ 26.12 06/19/25
1,243 621 $ 24.00 06/06/26
1,170 585 $ 26.69 06/21/27
WINIKOFF, BRIAN..... 1,243 621 $ 26.69 06/21/27 2,094
HATTEM, DAVE........ 74 $ 33.21 04/01/18 410
373 373 373 $ 25.74 03/24/24
818 409 $ 26.12 06/19/25
1,320 660 $ 24.00 06/06/26
1,170 585 $ 26.69 06/21/27
SETH, BERNSTEIN..... 164,706
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/ /(#) VESTED (#)
---- ------------ ----------- -------------
PEARSON, MARK....... $ 38,870 9,457 $ 245,272
MALMSTROM, ANDERS... $ 11,466 2,769 $ 71,803
WINIKOFF, BRIAN..... $ 54,309 1,065 $ 27,623
HATTEM, DAVE........ $ 10,625 2835 $ 73,530
SETH, BERNSTEIN..... $ 4,125,885
/(1)/All AXA stock options have ten-year terms. All AXA 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 AXA 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 AXA stock options granted
to Mr. Pearson after 2011).
/(2)/All AXA 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)/For all of the EQ Named Executive Officers except Mr. Winikoff, this
column reflects earned but unvested AXA performance shares granted in 2014
with a vesting date of March 24, 2018. For Mr. Winikoff, this column
reflects the unvested portion of his sign-on RSU grant for 2016. His RSUs
will vest ratably over a four-year period and be paid out in cash within
30 days after the vesting date. For Mr. Bernstein, this column reflects
his AB Sign-On Grant.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
OPTION EXERCISES AND STOCK VESTED IN 2017
The following table summarizes the value received from AXA stock option
exercises and stock awards vested during 2017 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..................................... 194 $ 1,052 1,509 $ 37,731
MALMSTROM, ANDERS................................. 0 $ 0 445 $ 11,130
WINIKOFF, BRIAN................................... 0 $ 0 698 $ 19,078
HATTEM, DAVE...................................... 2619 $ 32,971 413 $ 10,313
SETH, BERNSTEIN...................................
/(1)/This column reflects the number of AXA stock options exercised in 2017 by
Mr. Pearson and Mr. Hattem.
/(2)/All shares acquired upon the option exercises were immediately sold. This
column reflects the actual sale price received less the exercise price.
/(3)/For Mr. Winikoff, this column reflects the portion of his RSUs that vested
in 2017. Otherwise, this column reflects the first tranche of the AXA
performance shares earned under the 2014 AXA Performance Shares Plan that
vested in 2017.
/(4)/The value of the AXA performance shares that vested in 2017 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.
PENSION BENEFITS AS OF DECEMBER 31, 2017
The following table lists the pension program participation and actuarial
present value of each EQ Named Executive Officer's defined benefit pension at
December 31, 2017 allocated to MLOA in a manner consistent with the allocation
of compensation expenses under the Services Agreement. Note that
Messrs. Malmstrom and Winikoff 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. Mr. Bernstein does not have any pension benefits.
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 $ 2,334 --
AXA Equitable Excess Retirement Plan 3 $ 23,174 --
AXA Equitable Executive Survivor Benefit Plan 23 $ 141,844 --
MALMSTROM, ANDERS... AXA Equitable Retirement Plan 0 $ -- --
AXA Equitable Excess Retirement Plan 0 $ -- --
AXA Equitable Executive Survivor Benefit Plan 6 $ 16,878 --
WINIKOFF, BRIAN..... AXA Equitable Retirement Plan 0 $ -- --
AXA Equitable Excess Retirement Plan 0 $ -- --
AXA Equitable Executive Survivor Benefit Plan 1 $ 1,740 --
HATTEM, DAVE........ AXA Equitable Retirement Plan 19 $ 17,089 --
AXA Equitable Excess Retirement Plan 19 $ 35,475 --
AXA Equitable Executive Survivor Benefit Plan 24 $ 80,784 --
SETH, BERNSTEIN
/(1)/The December 31, 2017 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 3.40% for the Retirement Plan;
. a discount rate of 3.32% for the Excess Plan;
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
. a discount rate of 3.47% 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").
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 2017, 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 .75%.
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.
Messrs. Pearson and Hattem are each entitled to a frozen cash balance benefit
under the Retirement Plan and 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 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
provided that payment will be delayed six months for "specified employees"
(generally, the fifty most highly-compensated officers of AXA), 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. Neither Mr. Pearson or
Mr. Hattem made a special election. The time and form of payment of Excess Plan
benefits that vested prior to 2005 are the same as the time and form of payment
of the participant's Retirement Plan benefits.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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.
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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
NON-QUALIFIED DEFERRED COMPENSATION TABLE AS OF DECEMBER 31, 2017
The following table provides information on (i) earnings on compensation
Mr. Hattem has previously elected to defer and (ii) the excess 401(k)
contributions received by the EQ Named Executive Officers in 2017. 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)/ ($) FYE ($)
---- --------------------------- ------------- -------------- ----------- ------------- -------------
PEARSON, MARK....... The Post-2004 Variable
Deferred Compensation Plan $ 10,371 $ 4,397 $ 49,783
MALMSTROM, ANDERS... The Post-2004 Variable
Deferred Compensation Plan $ 4,086 $ 2,057 $ 14,917
WINIKOFF, BRIAN..... The Post-2004 Variable
Deferred Compensation Plan $ 4,512 $ 294 $ 5,030
HATTEM, DAVE........ The Post-2004 Variable
Deferred Compensation Plan $ 3,921 $ 2,703 $ 3,324 $ 24,934
SETH, BERNSTEIN..... The Variable Deferred
Compensation Plan $ 4,837 $ 43,963
/(1)/The amounts reported in this column are also reported in the "All Other
Compensation" column of the 2017 Summary Compensation Table above.
/(2)/The amounts reported in this column are not reported in the 2017 Summary
Compensation Table.
THE POST-2004 PLAN
The above table reflects the excess 401(k) contributions made by AXA Equitable
to the EQ 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 EQAT.
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 ($270,000 in 2017) 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
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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.
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.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL -- EQ NAMED EXECUTIVE
OFFICERS
The tables below and the accompanying text present the hypothetical payments
and benefits that would have been payable if the EQ Named Executive Officers
terminated employment, or a change-in-control of AXA Financial occurred on
December 31, 2017 (the "Trigger Date") and uses the closing price of the AXA
ordinary share on December 29, 2017, converted to U.S. dollars where applicable.
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. The payments and
benefits described below have not been allocated to MLOA.
RETIREMENT
The only EQ Named Executive Officers eligible to retire on the Trigger Date
were Mr. Pearson and Mr. Hattem. They 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.
Short-Term Incentive Compensation: Mr. Pearson and Mr. Hattem would have
received short-term incentive compensation awards for 2017 under the Retiree
Short-Term Incentive Compensation Program in the following amounts:
Mr. Pearson....................................... $ 2,128,400
Mr. Hattem........................................ $ 650,000
Stock Options: All AXA stock options granted to Mr. Pearson and Mr. Hattem
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).
The value at the Trigger Date of the AXA stock options that would have vested
after 2017 for each of Messrs. Pearson and Hattem are:
Mr. Pearson....................................... $ 1,814,269
Mr. Hattem........................................ $ 539,584
Performance Shares: Mr. Pearson and Mr. Hattem 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 AXA performance share awards. Accordingly, they would
have received AXA 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.
The estimated values of those payouts at the Trigger Date assuming target
performance are:
Mr. Pearson....................................... $ 9,848,883
Mr. Hattem........................................ $ 2,916,958
Retirement Benefits: Mr. Pearson and Mr. Hattem would have been entitled to the
benefits described in the pension and nonqualified deferred compensation tables
above.
Medical Benefits: Mr. Pearson and Mr. Hattem would have been entitled to access
to retiree medical coverage without any company subsidy.
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ESB Plan: Mr. Pearson and Mr. Hattem would have been entitled to continuation
of their participation in the ESB Plan described above.
VOLUNTARY TERMINATION OTHER THAN RETIREMENT
MR. MALMSTROM
If Mr. Malmstrom had voluntarily terminated employment on the Trigger Date:
Short-Term Incentive Compensation: He would not have been entitled to a STIC
Program award for 2017.
Stock Options: All vested and unvested AXA stock options granted to him would
have been forfeited on his termination date.
Performance Shares: He would have forfeited all AXA performance shares on his
termination date.
Retirement Benefits: He would have been entitled to the benefits described in
the pension and nonqualified deferred compensation tables above, except that he
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 (estimated value at the Trigger Date of $1,882,462); and
. he would have been eligible to receive a payment of $2,380,000 (equal to
two times his annual base salary plus his STIC Program award target for
2017). 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 he 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) temporary income
payments 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 temporary
income payments and all of his temporary income payments were 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.
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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:
Temporary Income Payments......................... $ 7,133,333
Pro-Rated Bonus................................... $ 2,128,400
Cash Payment...................................... $ 713,333
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 EQ Named Executive Officers had terminated employment due to death on
the Trigger Date:
Short-Term Incentive Compensation: The EQ Named Executive Officers' estates
would not have been entitled to any STIC Program awards for 2017.
Stock Options: All AXA 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. The estimated values of the AXA
stock options with accelerated vesting are:
Mr. Pearson....................................... $ 1,814,269
Mr. Malmstrom..................................... $ 528,852
Mr. Winikoff...................................... $ 55,208
Mr. Hattem........................................ $ 539,584
Performance Shares: The total number of AXA performance shares granted in 2015,
2016 and 2017 would have been multiplied by an assumed performance factor of
1.3 and the second tranche 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. The estimated values of those
payouts are:
Mr. Pearson....................................... $ 12,399,355
Mr. Malmstrom..................................... $ 3,632,936
Mr. Winikoff...................................... $ 1,244,695
Mr. Hattem........................................ $ 3,681,560
Restricted Stock Units: Mr. Winikoff's RSUs would have immediately vested in
full for an estimated value of $1,882,462.
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
EQ NAMED EXECUTIVE OFFICERS OTHER THAN MR. PEARSON
The EQ 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:
. temporary income payments equal to 52 weeks' of base salary;
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
. additional temporary income payments 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 2017;
. a lump sum payment equal to the sum of: (i) the executive's target STIC
Program award for 2017 and (ii) $40,000; and
. one year's continued participation in the ESB Plan.
The EQ Named Executive Officers would have had a one-year severance period. If
an EQ Named Executive Officer would have been eligible to retire prior to the
end of the severance period, all AXA stock options granted to him 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 EQ
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 AXA
performance shares.
In addition to the above, Mr. Winikoff would have received the following:
. the immediate vesting of his outstanding RSUs for an estimated value of
$1,882,462; and
. a payment equal to (i) two times his annual base salary plus his STIC
Program award target for 2017, reduced by (ii) any 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 EQ Named Executive Officers
would have received if they were involuntarily terminated under the Severance
Plan on the Trigger Date as well as the implications for their AXA stock option
and AXA performance share awards:
SEVERANCE BENEFITS EQUITY GRANTS
----------------------- --------------------------------------------------------------
LUMP SUM PERFORMANCE
NAME SEVERANCE PAYMENT STOCK OPTIONS SHARES
----------------------------- ----------- ----------- -------------------------------- -----------------------------
MALMSTROM, ANDERS............. $1,505,946 $840,000 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.
WINIKOFF, BRIAN............... $1,635,596 $2,584,403 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.................. $1,355,351 $690,000 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.
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.
CHANGE-IN-CONTROL
With the exception of Mr. Pearson, none of the EQ Named Executive Officers are
entitled to any special benefits upon a change-in-control of AXA Financial
other than the benefits provided for all AXA stock options granted under the
AXA Stock Option Plan. For those options, if there
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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. The value of the AXA stock options that would have
immediately vested for each EQ Named Executive Officer is:
Mr. Pearson....................................... $ 1,814,269
Mr. Malmstrom..................................... $ 528,852
Mr. Winikoff...................................... $ 55,208
Mr. Hattem........................................ $ 539,584
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.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL -- MR. BERNSTEIN
Estimated payments and benefits to which Mr. Bernstein would have been entitled
upon a change in control of AB or the specified qualifying events of
termination of employments as of the Trigger Date, using the closing price of
an AB Holding Unit on December 29, 2017, are as follows:
CHANGE IN CONTROL
CASH EQUITY OTHER BENEFITS TOTAL
---- ------------- -------------- -------------
$ 4,125,885 $ 4,125,885
TERMINATION DUE TO NON-EXTENSION OF EMPLOYMENT TERM
CASH EQUITY OTHER BENEFITS TOTAL
---- ------------- -------------- -------------
$ 4,125,885 $ 4,125,885
TERMINATION BY MR. BERNSTEIN FOR GOOD REASON OR BY AB OTHER THAN FOR CAUSE
CASH EQUITY OTHER BENEFITS TOTAL
---- ------------- -------------- -------------
$ 3,500,000 $ 4,125,885 $ 13,610 $ 7,639,495
DEATH OR DISABILITY
CASH EQUITY OTHER BENEFITS TOTAL
---- ------------- -------------- -------------
$ 4,125,885 $ 13,610 $ 4,139,495
TERMINATION BY MR. BERNSTEIN FOR GOOD REASON OR BY AB WITHOUT PRIOR TO MAY 1,
2018 AND WITHIN 12 MONTHS OF A CHANGE IN CONTROL
CASH EQUITY OTHER BENEFITS TOTAL
---- ------------- -------------- --------------
$ 10,500,000 $ 4,125,885 $ 13,610 $ 14,639,495
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
2017 DIRECTOR COMPENSATION
The following table provides information on compensation that was paid to our
directors for 2017 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 OLIVEIRA, RAMON................................ $ 27,800 $ 33,333 $ -- $ -- $ --
DUVERNE, DENIS.................................... $ -- $ -- $ -- $ -- $ --
EVANS, PAUL....................................... $ -- $ -- $ -- $ -- $ --
FALLON-WALSH, BARBARA............................. $ 42,667 $ 33,333 $ -- $ -- $ --
KAYE, DANIEL...................................... $ 34,500 $ 33,333 $ -- $ -- $ --
MATUS, KRISTI..................................... $ 29,879 $ 33,333 $ -- $ -- $ --
SCOTT, BERTRAM.................................... $ 33,300 $ 33,333 $ -- $ -- $ --
SLUTSKY, LORIE A.................................. $ 11,063 $ 21,898 $ -- $ -- $ --
STANSFIELD, GEORGE................................ $ -- $ -- $ -- $ -- $ --
STONEHILL, CHARLES................................ $ 3,125 $ 4,583 $ -- $ -- $ --
VAUGHAN, RICHARD C................................ $ 41,167 $ 33,333 $ -- $ -- $ --
ALL OTHER
COMPENSATION/(4)/ TOTAL
NAME ($) ($)
------------------------------------------------- ---------------- ----------
BUBERL, THOMAS.................................... $ -- $ --
DE OLIVEIRA, RAMON................................ $ 13 $ 61,146
DUVERNE, DENIS.................................... $ 3,178 $ 3,178
EVANS, PAUL....................................... $ -- $ --
FALLON-WALSH, BARBARA............................. $ 254 $ 76,254
KAYE, DANIEL...................................... $ 205 $ 68,038
MATUS, KRISTI..................................... $ 13 $ 63,225
SCOTT, BERTRAM.................................... $ 13 $ 66,646
SLUTSKY, LORIE A.................................. $ 6 $ 32,967
STANSFIELD, GEORGE................................ $ -- $ --
STONEHILL, CHARLES................................ $ 1 $ 7,709
VAUGHAN, RICHARD C................................ $ 205 $ 74,705
/(1)/For 2017, 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 2017 in
accordance with FASB ASC Topic 718. As of December 31, 2017, our directors
had outstanding restricted stock awards in the following amounts:
Mr. De Oliveira.................................. 1,866
Ms. Fallon-Walsh................................. 1,866
Mr. Kaye......................................... 1,278
Ms. Matus........................................ 1,278
Mr. Scott........................................ 1,866
Ms. Slutsky...................................... 1,866
Mr. Vaughan...................................... 1,866
/(3)/As of December 31, 2017, our directors had outstanding stock options in
the following amounts:
Mr. De Oliveira.................................. 1,454
Ms. Fallon-Walsh................................. 709
Mr. Scott........................................ --
Ms. Slutsky...................................... 364
Mr. Vaughan...................................... 2,101
/(4)/This column lists premiums paid by the company for $125,000 of 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.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 $45,000 (granted in the first quarter);
and
. a stock retainer of $55,000, 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 was 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 $45,000 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.
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 $500,000 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 $2,000 per year.
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APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
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 $5,000 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.
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.
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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, which is a
direct, wholly owned subsidiary of Holdings. Holdings' common stock is 100%
owned by AXA.
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 1, 2018, 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)/..................................................................... 1,034,338 *
Thomas Buberl/(3)/.................................................................... 413,450 *
Ramon de Oliveira/(4)/................................................................ 36,546 *
Barbara Fallon-Walsh/(5)/............................................................. 27,612 *
Daniel G. Kaye........................................................................ 10,493 *
Kristi A. Matus....................................................................... 6,388 *
Bertram L. Scott/(6)/................................................................. 23,150 *
George Stansfield/(7)/................................................................ 278,506 *
Charles G.T. Stonehill/(8)/........................................................... 1,890 *
Richard C. Vaughan/(9)/............................................................... 41,554 *
Seth Bernstein........................................................................ -- *
Dave S. Hattem/(10)/.................................................................. 121,036 *
Jeffrey J. Hurd....................................................................... -- *
Anders Malmstrom/(11)/................................................................ 134,437 *
Brian Winikoff/(12)/.................................................................. 32,276 *
All directors, director nominees and executive officers as a group (15 persons)/(13)/. 2,161,676 *
* 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 (i) 570,840 shares Mr. Pearson can acquire within 60 days under
option plans and (ii) 286.589 unvested AXA performance shares.
/(3)/Includes (i) 16,267 shares Mr. Buberl can acquire within 60 days under
option plans, (ii) 184,012 unvested AXA performance shares and (iii) 4,295
units in AXA employee shareholding plans.
/(4)/Includes 4,361 shares Mr. de Oliveira can acquire within 60 days under
option plans.
/(5)/Includes (i) 2,127 shares Ms. Fallon-Walsh can acquire within 60 days
under option plans and (ii) 24,485 deferred stock units under The Equity
Plan for Directors.
/(6)/Includes 23,150 deferred stock units under The Equity Plan for Directors.
/(7)/Includes (i) 57,268 shares Mr. Stansfield can acquire within 60 days under
option plans, (ii) 111,145 unvested AXA performance shares and (iii) 20,480
units in AXA employee shareholding plans.
/(8)/Includes 1,890 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 (i) 22,626 shares Mr. Hattem can acquire within 60 days under
option plans and (ii) 85,916 unvested AXA performance shares.
/(11)/Includes (i) 36,058 shares Mr. Malmstrom can acquire within 60 days under
option plans and (ii) 83,899 unvested AXA performance shares.
/(12)/Includes 32,276 unvested AXA performance shares.
/(13)/Includes 703,643 shares the directors and executive officers as a group
can acquire within 60 days under option plans.
F-141
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
$131,318,994, $129,215,429 and $88,073,086 for 2017, 2016 and 2015,
respectively.
MLOA paid $102,754,320, $92,972,545 and $83,573,241 in commissions and fees for
the sale of its insurance products to AXA Distribution Holding Corporation and
its subsidiaries in 2017, 2016 and 2015, 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
2017, 2016 and 2015, were $1,896,572, $2,488,558 and $1,049,685, respectively.
Claims and expenses assumed under these agreements during 2017, 2016 and 2015
were $1,450,059, $1,935,698 and $1,402,968, respectively.
MLOA cedes a portion of its life business through excess of retention treaties
to AXA Equitable on a yearly renewal term basis and, through April 10, 2018,
reinsured the no lapse guarantee riders through AXA RE Arizona, an affiliate.
On April 11, 2018, all of the business MLOA reinsured to AXA RE Arizona was
novated to EQ AZ Life Re, a newly formed captive insurance company organized
under the laws of Arizona. EQ AZ Life Re is an indirect, wholly owned
subsidiary of Holdings. Premiums earned from the above mentioned affiliated
reinsurance transactions during 2017, 2016 and 2015, were $2,781,716,
$2,876,872 and $2,222,640, respectively. Claims and expenses assumed under
these agreements during 2017, 2016 and 2015 were $0, $0 and $7,359,
respectively.
F-142
APPENDIX: INFORMATION ABOUT MONY LIFE INSURANCE COMPANY OF AMERICA
MLOA paid $43,144,477, $43,388,164 and $57,413,794 in commissions and fees for
the sale of its insurance products to AXA Distributors in 2017, 2016 and 2015,
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 $1,784,557, $1,572,382 and
$1,374,155 for 2017, 2016 and 2015, respectively.
F-143
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........................................... $18,675
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 24th day of April, 2018.
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 Charles G.T. Stonehill
Barbara Fallon-Walsh Mark Pearson Richard C. Vaughan
Daniel G. Kaye Bertram Scott
*By: /s/ Shane Daly
--------------------------
Shane Daly
Attorney-in-Fact
April 24, 2018
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION TAG VALUE
----------- ------------------------------------------------------ -----------
(5)(a) Opinion and Consent of Shane Daly EX-99.5a
23(a) Consent of PricewaterhouseCoopers LLC 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