##### Table of Contents

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FORM 10-Q





SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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(Mark One)


|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------------




For the quarterly period ended September 30, 2002





OR





|[    ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|------ |  | ----------------------------------------------------------------------------------------




For the transition period from
                                    
to





Commission file number: 33-45123





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C.M. LIFE INSURANCE COMPANY


(Exact name of
registrant as specified in its charter)





---




Connecticut

06-1041383(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


140 Garden Street, Hartford, Connecticut 06154


(Address of principal executive offices) (Zip Code)





(860)
987-6500


(Registrants telephone number, including area code)





---




None


(Former name, former address and former


fiscal year, if changed since last report)





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Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.





(1)
Yes    X     No


(2)
Yes    X     No





Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).





Yes      No X





APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PRECEDING FIVE YEARS





Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.





Yes          No





APPLICABLE ONLY TO CORPORATE ISSUERS


Registrant has 12,500 shares of common stock outstanding on
September 30, 2002, all of which are owned by Massachusetts Mutual Life Insurance Company.





The Registrant meets
the conditions set forth in General Instruction H(1) of Form 10-Q and is therefore filing this form with the reduced disclosure format.





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##### Table of Contents

C.M. LIFE INSURANCE COMPANY





INDEX


Part I

Financial InformationItem 1:

Financial StatementsStatutory Statements of Financial Position-September 30, 2002 and December 31, 2001

3Statutory Statements of Income-Three Months Ended September 30, 2002 and 2001

4Statutory Statements of Income-Nine Months Ended September 30, 2002 and 2001

5Statutory Statements of Changes in Shareholders Equity-Nine Months Ended September 30, 2002 and 2001

6Statutory Statements of Cash Flows-Nine Months Ended September 30, 2002 and 2001

7Condensed Notes to Statutory Financial Statements

8Item 2:

Managements Discussion and Analysis of FinancialCondition and Results of Operations

13Item 3:

Quantitative and Qualitative Disclosure AboutMarket Risk

23Item 4:

Controls and Procedures

24Part II

Other InformationItem 1:

Legal Proceedings

NoneItem 2:

Changes in Securities and Use of Proceeds

Not ApplicableItem 3:

Defaults Upon Senior Securities

Not ApplicableItem 4:

Submission of Matters to a Vote of Security Holders

Not ApplicableItem 5:

Other Information

NoneItem 6:

Exhibits and Reports on Form 8-K

25Signatures





25




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##### Table of Contents

PART I


Item 1





C.M. LIFE INSURANCE COMPANY


STATUTORY STATEMENTS OF FINANCIAL POSITION





September 30, 2002


December 31, 2001(Unaudited)($ In Millions Except for Par Value)Assets:Bonds

$
1,398.1


$
1,165.7Common stocksubsidiary


191.5



Mortgage loans


383.5



329.0Policy loans


134.4



132.4Other investments


104.4



24.2Cash and short-term investments


555.3



209.6Total invested assets


2,767.2



1,860.9Investment and insurance amounts receivable


56.6



72.6Deferred income taxes


8.7



7.12,832.5



1,940.6Separate account assets


2,837.6



3,317.5Total assets

$
5,670.1


$
5,258.1Liabilities:Policyholders reserves and funds

$
2,485.4


$
1,753.4Policyholders claims and other benefits


6.4



7.0Transfers due from separate accounts


(97.9
)


(123.7
)Payable to parent


36.9



45.0Federal income taxes


22.0



22.5Asset valuation and other investment reserve


17.7



16.1Other liabilities


45.5



32.42,516.0



1,752.7Separate account liabilities


2,837.6



3,317.5Total liabilities


5,353.6



5,070.2Shareholders equity:Common stock, $200 par value, 50,000 shares authorized, 12,500 shares issued and outstanding


2.5



2.5Paid-in and contributed surplus


390.3



198.8Surplus


(76.3
)


(13.4
)Total shareholders equity


316.5



187.9Total liabilities and shareholders equity

$
5,670.1


$
5,258.1





See condensed notes to statutory financial statements.




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##### Table of Contents

PART I


Item 1 (continued)





C.M. LIFE INSURANCE COMPANY


STATUTORY STATEMENTS OF INCOME


(Unaudited)





Three Months Ended September 30,2002


2001(In Millions)Revenue:Premium income

$
515.5


$
375.9Net investment income


39.9



27.6Fees and other income


12.6



17.4Total revenue


568.0



420.9Benefits and expenses:Policyholders benefits and payments


185.5



125.6Addition to policyholders reserves and funds


355.1



263.1Operating expenses


37.7



44.0Commissions


34.0



34.9State taxes, licenses and fees


3.5



3.0Federal income tax benefit


(0.7
)


(1.9
)Total benefits and expenses


615.1



468.7Net loss from operations


(47.1
)


(47.8
)Net realized capital gain (loss)


47.0



(1.3
)Net loss

$
(0.1
)

$
(49.1
)





See condensed notes to statutory financial statements.




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##### Table of Contents




PART I


Item 1 (continued)





C.M. LIFE INSURANCE COMPANY


STATUTORY STATEMENTS OF INCOME


(Unaudited)





Nine Months Ended September 30,2002


2001(In Millions)Revenue:Premium income

$
1,431.4


$
1,062.5Net investment income


104.9



86.0Fees and other income


44.6



58.8Total revenue


1,580.9



1,207.3Benefits and expenses:Policyholders benefits and payments


491.1



358.2Addition to policyholders reserves and funds


954.0



694.5Operating expenses


114.5



127.1Commissions


96.3



92.6State taxes, licenses and fees


13.7



10.3Federal income tax benefit


(5.6
)


(6.4
)Total benefits and expenses


1,664.0



1,276.3Net loss from operations


(83.1
)


(69.0
)Net realized capital gain (loss)


62.2



(1.1
)Net loss

$
(20.9
)

$
(70.1
)





See condensed notes to statutory financial statements.




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##### Table of Contents




PART I


Item 1 (continued)





C.M. LIFE INSURANCE COMPANY


STATUTORY STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY


(Unaudited)





Nine Months Ended September 30,2002


2001(In Millions)Shareholders equity, beginning of year, as previously reported

$
187.9


$
146.7Cumulative effect of the change in statutory accounting principles






11.2Shareholders equity, beginning of year, as adjusted


187.9



157.9Increases (decreases) due to:Net loss


(20.9
)


(70.1
)Paid-in and contributed surplus


191.5



Change in net unrealized capital losses


(2.2
)


(6.9
)Change in asset valuation and other investment reserves


(1.6
)


4.4Changes in non-admitted assets


(8.3
)


13.9Change in reserve valuation basis


(31.7
)


Other


1.8



4.1128.6



(54.6
)Shareholders equity, end of period

$
316.5


$
103.3





See condensed notes to statutory financial statements.




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PART I


Item 1 (continued)





C.M. LIFE INSURANCE COMPANY


STATUTORY STATEMENTS OF CASH FLOWS


(Unaudited)





Nine Months Ended September 30,2002


2001(In Millions)Operating activities:Net loss

$
(20.9
)

$
(70.1
)Additions to policyholders reserves, funds and policy benefits, net of transfers to separate accounts


725.7



269.2Net realized capital (gain) loss


(62.2
)


1.1Change in investment and insurance amounts receivable


16.0



21.3Other changes


2.4



(1.2
)Net cash provided by operating activities


661.0



220.3Investing activities:Loans and purchases of investments


(782.2
)


(473.0
)Sales and maturities of investments and receipts from repayments of loans


466.9



263.4Net cash used in investing activities


(315.3
)


(209.6
)Increase in cash and short-term investments


345.7



10.7Cash and short-term investments, beginning of year


209.6



115.4Cash and short-term investments, end of period

$
555.3


$
126.1





See condensed notes to statutory financial statements.




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##### Table of Contents




Part I


Item 1 (Continued)





C.M. Life Insurance Company


Condensed Notes to Statutory Financial Statements


September 30, 2002


(Unaudited)





C.M. Life Insurance Company (the Company or C.M.
Life), is a wholly-owned stock life insurance subsidiary of Massachusetts Mutual Life Insurance Company (MassMutual or the parent). The Company is primarily engaged in the sale of life insurance and annuities,
principally flexible premium universal life insurance, variable life insurance, fixed annuity, and variable annuity products and distributes these products primarily through career agents.





The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange
Commission. These financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the Companys audited statutory financial statements for the year ended December
31, 2001. Accordingly, footnote disclosures, which would substantially duplicate the disclosures contained in the Companys December 31, 2001 audited statutory financial statements, have been omitted from these interim financial statements.
These unaudited interim financial statements should be read in conjunction with the audited statutory financial statements and notes thereto, included in the Companys Annual Report on Form 10-K, for the year ended December 31, 2001.





1. Summary of Accounting Practices





The accompanying statutory financial statements have been prepared in conformity with the statutory accounting practices, except as to form, of the National Association of Insurance Commissioners (NAIC) and the
accounting practices prescribed or permitted by the State of Connecticut Insurance Department and are different in some respects from financial statements prepared in accordance with accounting principles generally accepted in the United States of
America (GAAP). The more significant differences are as follows: (a) acquisition costs, such as commissions and other variable costs directly related to acquiring new business, are charged to current operations as incurred, whereas GAAP
would require these expenses to be capitalized and recognized over the life of the policies; (b) statutory policy reserves are based upon the Commissioners Reserve Valuation Methods and statutory mortality, morbidity and interest assumptions,
whereas GAAP reserves would generally be based upon the net level premium method, estimated gross margin method, and appropriate estimates of future mortality, morbidity and interest assumptions; (c) bonds are generally carried at amortized cost,
whereas GAAP generally requires they be reported at fair value; (d) deferred income taxes, which provide for book/tax temporary differences, are subject to limitation and are charged directly to shareholders equity, whereas GAAP would include
deferred taxes as a component of net income; (e) payments received for universal and variable life products and variable annuities are reported as premium income and changes in reserves, whereas, under GAAP, these payments would be recorded as
deposits to policyholders account balances; (f) assets are reported as admitted asset value and non-admitted assets are excluded through a charge against surplus, while under GAAP non-admitted assets are
recorded, net of any valuation allowance; (g) reinsurance recoverables on unpaid losses are reported as a reduction of policyholders reserves and funds, while under GAAP, they are reported as an asset; and (h) majority-owned subsidiaries are
accounted for using the equity method, whereas GAAP would consolidate these entities. Certain balances have been reclassified to conform to current year presentation.




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Effective January 1, 2002, the Company reflected Actuarial Guideline XXXIV for minimum guaranteed death
benefits included in variable annuity contracts, resulting in a $1.2 million increase in shareholders equity.





Effective third
quarter 2002, the Company reflected Actuarial Guidelines XXXVII and XXXVIII related to reserves on certain universal life policies issued prior to December 31, 2001, resulting in a $32.9 million decrease in shareholders equity.





The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as disclosures of contingent assets and liabilities. Management must also make estimates and assumptions that affect the amounts of revenues and expenses during the reporting period. Future events, including changes in the
levels of mortality, morbidity, interest rates, persistency and asset valuations, could cause actual results to differ from the estimates used in these financial statements.





In the Companys opinion, these financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary to present fairly its statutory financial position in
accordance with statutory accounting principles, as of September 30, 2002 and December 31, 2001, and the results of its operations, changes in shareholders equity, and its cash flows for the three and nine month periods ended September 30,
2002 and 2001.





2. Related Party Transactions





MassMutual and the Company have an agreement whereby MassMutual, for a fee, furnishes the Company, as required, operating facilities, human resources, computer software development, and managerial
services. Also, investment and administrative services are provided to the Company pursuant to a management services agreement with MassMutual. Fees incurred under the terms of these agreements were $120.6 million and $129.3 million for the nine
month periods ended September 30, 2002 and 2001, respectively, and $36.6 million and $44.6 million for the three month periods ended September 30, 2002 and 2001, respectively. While management believes that these fees are calculated on a reasonable
basis, they may not necessarily be indicative of the costs that would have been incurred on a stand-alone basis.





The Company
participates in variable annuity exchange programs with its parent whereby certain MassMutual variable annuity contract holders can make a non-taxable exchange of their contract for an enhanced C.M. Life variable annuity contract. The Company
received premiums of $217.6 million and $183.6 million for the nine month periods ended September 30, 2002 and 2001, respectively, and $54.2 million and $68.7 million for the three month periods ended September 30, 2002 and 2001, respectively,
related to these exchange programs. The Company has an agreement with MassMutual to compensate MassMutual for the lost revenue associated with the exchange of these contracts. As a result of these exchanges, the Company recorded commissions payable
of $1.7 million as of September 30, 2002 and $0.4 million as of December 31, 2001, and has paid $4.9 million and $10.0 million for the nine month periods ended September 30, 2002 and September 30, 2001, respectively. For the three month period ended
September 30, 2002, the Company did not make any commission payments. For the three month period ended September 30, 2001, the Company paid $5.0 million to MassMutual.





The Company cedes a portion of its life insurance business to MassMutual and other insurers in the normal course of business. The Companys retention limit per individual insured is $15.0 million;
the portion of the risk exceeding the retention limit is reinsured with other insurers, including MassMutual. The Company is contingently liable with respect to ceded reinsurance in the event any reinsurer is unable to fulfill its contractual
obligations.





The Company has a modified coinsurance quota-share reinsurance agreement with MassMutual, whereby the Company cedes
75% of the premiums on certain universal life policies, and a modified




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##### Table of Contents

coinsurance adjustment based on experience. In return, MassMutual cedes to the Company a stipulated expense allowance, death and surrender benefits. The Company retains the assets and related
reserves for payment of future benefits on the ceded policies. For the nine month periods ended September 30, 2002 and 2001, respectively, premium income of $17.5 million and $19.3 million was ceded to MassMutual and policyholders benefits of
$26.8 million and $27.9 million were ceded to the Company. For the three month periods ended September 30, 2002 and 2001, premium income of $5.2 million and $5.9 million was ceded to MassMutual and policyholders benefits of $8.6 million and
$9.8 million were ceded to the Company. For the nine month periods ended September 30, 2002 and 2001, commissions and expense allowances of $5.7 million and $6.1 million were ceded to the Company. For the three month periods ended September 30, 2002
and 2001, commissions and expense allowances of $1.7 million and $1.8 million were ceded to the Company from MassMutual. For the nine month periods ended September 30, 2002 and 2001, a modified coinsurance adjustment of $20.2 million and $23.1
million was ceded by the Company to MassMutual. For the three month periods ended September 30, 2002 and 2001, a modified coinsurance adjustment of $8.4 million and $6.3 million was ceded to MassMutual.





The Company also has a stop-loss agreement with MassMutual whereby the Company cedes claims which, in the aggregate, exceed .32% of the covered volume for any
year, with maximum coverage of $25.0 million above the aggregate limit. The aggregate limit was $68.5 million as of September 30, 2002 and $70.0 million as of December 31, 2001, and it was not exceeded in any of the periods being reported. Premium
income of $1.0 million was ceded to MassMutual for the nine month periods ended September 30, 2002 and 2001, respectively. Premium income of $0.4 million was ceded to MassMutual for the three month periods ended September 30, 2002 and 2001,
respectively.





The Company also has a coinsurance agreement with MassMutual whereby the Company substantially cedes 100% of the premiums
on new issues of certain universal life policies. In return, MassMutual cedes to the Company a stipulated expense allowance and death and surrender benefits. MassMutual holds the assets and related reserves for payment of future benefits on the
ceded policies. For the nine month periods ended September 30, 2002 and 2001, premium income of $22.5 million and $40.7 million was ceded to MassMutual and policyholders benefits of $1.5 million and $10.4 million were ceded to the Company. For
the three month periods ended September 30, 2002 and 2001, premium income of $7.1 million and $11.2 million was ceded to MassMutual. No policyholders benefits were ceded to the Company for the three month period ended September 30, 2002.
Policyholders benefits of $8.1 million were ceded to the Company for the three month period ended September 30, 2001. For the nine month period ended September 30, 2002 and 2001, commissions and expense allowances of $4.8 million and $25.3
million were ceded to the Company. For the three month periods ended September 30, 2002 and 2001, commissions and expense allowances of $1.8 million and $6.2 million were ceded to the Company from MassMutual. In addition, experience refunds of $2.2
million and $1.3 million were ceded to the Company from MassMutual for the nine month periods ended September 30, 2002 and 2001. For the three month period ended September 30, 2002, an experience refund of $1.0 million was ceded to the Company,
whereas for the three month period ended September 30, 2001, a coinsurance adjustment of $2.3 million was ceded to MassMutual by the Company.




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##### Table of Contents




3. Deferred Income Taxes





The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:





September 30, 2002


December 31, 2001(In Millions)Deferred Tax Assets:Policy acquisition costs

$
55.5


$
47.7Policy reserves


39.1



11.2Investment and other items


2.8



2.1Total deferred tax assets


97.4



61.0Non-admitted deferred tax assets


(63.9
)


(51.0
)Admitted deferred tax assets


33.5



10.0Deferred Tax Liabilities:Investment items


23.8



1.7Policy reserves


1.0



1.1Expense items






0.1Total deferred tax liabilities


24.8



2.9Net admitted deferred tax assets

$
8.7


$
7.1





The increase in deferred tax assets of $23.5 million, net of non-admitted deferred tax
assets, less the increase in deferred tax liabilities of $21.9 million resulted in a net increase in deferred taxes of $1.6 million for the nine months ended September 30, 2002.





4. Investment in Unconsolidated Subsidiary





Effective September 2002, MML Bay
State Life Insurance Company (Bay State) became a wholly-owned stock life insurance subsidiary of the Company through the contribution of all of Bay States outstanding shares of common stock from MassMutual to the Company. Bay
State provides life insurance and annuities to individuals and group life insurance to institutions. This transaction is considered a non-economic transaction per SSAP No. 25 Accounting For and Disclosures about Transactions with
Affiliates and Other Related Parties, as a related party capital contribution is considered a non-economic transaction. The transaction was recorded at the lower of existing book value or fair value in accordance with SSAP No. 25.
No realized capital gain or loss was recorded on this transaction. The company accounts for the value of its investment in Bay State at its underlying statutory net equity. Operating results, less dividends declared, are reflected as net unrealized
capital gains in the Statutory Statements of Changes in Shareholders Equity.





Below is summarized statutory financial information
for the unconsolidated subsidiary at September 30, 2002 and December 31, 2001.





September 30, 2002

December 31, 2001(In Millions)Assets

$
3,824.8

$
3,870.1Liabilities

$
3,633.3

$
3,689.8




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##### Table of Contents




Below is summarized statutory financial information for the unconsolidated subsidiary for the nine and
three month periods ended September 30, 2002 and September 30, 2001.





Three Months Ended September 30,

Nine Months Ended September 30,2002

2001

2002

2001(In Millions)

(In Millions)Total Revenue

$
46.4

$
52.9

$
144.5

$
602.6Net Income

$
2.4

$
7.2

$
11.1

$
13.4




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##### Table of Contents




Part I


Item 2





Managements Discussion and Analysis


Of Financial Condition and Results of Operations





Managements Discussion and
Analysis of Financial Condition and Results of Operations should be read in conjunction with (i) the unaudited statutory financial statements and condensed notes to statutory financial statements included elsewhere in this filing, (ii) the audited
statutory financial statements and notes thereto, and (iii) the Managements Discussion and Analysis of Financial Condition and Results of Operations included in the Companys Annual Report on Form 10-K for the year ended December 31,
2001.





Forward-Looking Information





The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements, which are identified as such and are accompanied by the identification of important factors, which could
cause a material difference from the forward-looking statements.





Certain information contained in this discussion is or may be
considered as forward-looking. Forward-looking statements are those not based on historical information, but rather, relate to future operations, strategies, financial results or other developments, and contain terms such as may,
expects, should, believes, anticipates, intends, estimates, projects, goals, objectives or similar expressions.





Forward-looking statements are based upon estimates and assumptions. These statements may change due to business uncertainties, economic uncertainties,
competitive uncertainties, and other factors, many of which are beyond the Companys control. Additionally, the Companys business decisions are also subject to change. The Company does not publicly update or revise any forward-looking
statements as a result of new information, future developments or otherwise.




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##### Table of Contents

Results of Operations





For the Three Months Ended September 30, 2002





Compared to the Three Months Ended September 30, 2001





The following table sets forth the components of the
Companys net loss:





Three Months Ended September 30,2002


2001


% Change($ In Millions)Revenue:Premium income

$
515.5


$
375.9


37
%Net investment income


39.9



27.6


45Fees and other income


12.6



17.4


(28
)Total revenue


568.0



420.9


35Benefits and Expenses:Policyholders benefits and payments


185.5



125.6


48Addition to policyholders reserves and funds


355.1



263.1


35Commissions


34.0



34.9


(3
)Operating expenses, state taxes, licenses and fees


41.2



47.0


(12
)Federal income tax benefit


(0.7
)


(1.9
)

(63
)Total benefits and expenses


615.1



468.7


31Net loss from operations


(47.1
)


(47.8
)

(1
)Net realized capital gain (loss)


47.0



(1.3
)

NMNet loss

$
(0.1
)

$
(49.1
)

(100
)%





NM = not meaningful, or in excess of 200%.





The decrease in the net loss for third quarter 2002 is primarily attributable to increased realized capital gains and net investment income, partially offset by
earnings strain associated with the continued growth of the Companys annuity and life insurance businesses, an increase in annuity reserves for guaranteed minimum death benefits, higher surrender benefits and lower expense allowances on
reinsurance ceded. It is generally expected that the increase in policyholders reserves and costs related to the production of new business will exceed the amount of premium earned in the first year of a policy, causing operating losses.
Management expects losses may continue in conjunction with future growth.





Costs related to the production of new business include
commissions and other variable producer compensation, management fees assessed by MassMutual and business issuance and processing costs, which include policy assembly and other customer service activities, including fluctuations in the market value
of variable funds during the processing of deposits. During the three months ended September 30, 2002, costs related to the production of new business as a percentage of premiums were lower than the three months of 2001, primarily due to the
continued shift in the product mix from life insurance products to fixed annuity products, as well as a reduction in first year premium from life insurance products.




14




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##### Table of Contents




The following table sets forth premium data for the Companys products:





Three Months Ended September 30,2002


2001


% Change($ In Millions)Premium Income:Universal, variable, term & corporate owned life insurance

$
118.0


$
113.7


4
%Annuities and supplementary contracts


421.8



288.8


46Total direct premiums


539.8



402.5


34Less: reinsurance ceded


(24.3
)


(26.6
)

(9
)Total

$
515.5


$
375.9


37
%





Premium income increased in the third quarter of 2002, primarily due to increases in
premium received from annuity products and life insurance products. Increases in annuity product premium over 2001 were primarily due to an increase in sales of fixed annuity products due to market conditions and the sales of a new variable annuity
product, which began in July 2001.





The Companys business mix has shifted as a result of increasing sales of annuity products.
Annuity products were 82% of total premium income for the three months ended September 30, 2002, compared to 77% for the same period in 2001. Universal and other life products comprised 18% of total premium income for the three months ended
September 30, 2002, compared to 23% for the same period in 2001.





The components of net investment income are set forth in the table
below:





Three Months Ended September 30,2002


2001


% Change($ In Millions)Gross Investment Income:Bonds

$
23.1


$
18.7


24
%Mortgage loans


6.7



5.8


16Policy loans


2.5



2.5


Other investments


5.9



0.1


NMCash and short-term investments


2.2



1.3


69Total gross investment income


40.4



28.4


42Investment expenses


(1.0
)


(0.7
)

43Interest Maintenance Reserve (IMR) amortization


0.5



(0.1
)

NMNet investment income

$
39.9


$
27.6


45
%





NM = not meaningful, or in excess of 200%.





Net investment income increased for the three months ended September 30, 2002, primarily due to a 52% increase in average invested assets, partially offset by a
decrease in the annualized gross yield for the investment portfolio to 6.6% in 2002 from 7.0% in 2001. Increased asset levels are primarily due to general account business growth and capital contributions received in December 2001. Annualized gross
investment yields decreased as older, higher yielding bonds mature and are replaced with new bonds that have lower yields. Additionally, common stock of subsidiary does not generate dividend income until a dividend is declared. After expenses and
IMR amortization, net annualized yields were 6.5% and 6.8%, for the three month periods ended September 30, 2002 and 2001, respectively. Fluctuations in market conditions will impact future investment results.





The annualized yield on each investment category, before federal income taxes, is calculated as: (a) two times gross investment income divided by (b) the sum of
assets at the beginning of the period and assets at the end of the period, less gross investment income, (c) multiplied by four.





The
increase in 2002 gross investment income from bonds is primarily due to a 30% increase in average invested bonds, partially offset by a decrease in the annualized yield to 6.9% in 2002 from 7.3% in 2001. The increase in income from mortgage loans is
primarily due to a 18% increase in




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average invested mortgage loans, partially offset by a decrease in the annualized yield from 7.5% in 2001 to 7.3% in 2002. The increase in gross
investment income from other investments is primarily due to increases in derivative instrument holdings. The increase in gross investment income from cash and short-term investments is primarily due to an increase in average cash and short-term
investments.





The components of fees and other income are set forth in the table below:





Three Months Ended September 30,2002


2001


% Change($ In Millions)Fees

$
17.5


$
18.3


(4
)%Commissions and expense allowances on reinsurance ceded


3.5



7.8


(55
)Reserve adjustments on reinsurance ceded


(8.4
)


(8.7
)

(3
)Total fees and other income

$
12.6


$
17.4


(28
)%





Fees and other income decreased in the third quarter of 2002, as compared to 2001,
primarily due to a decrease in the Companys separate accounts and a decline in commissions and expense allowances on reinsurance ceded attributable to a decrease in the activity related to the coinsurance agreements between MassMutual and the
Company, partially offset by a decrease in reserve adjustments on reinsurance ceded. See Related Party Transactions footnote for a more detailed description of the Companys modified coinsurance agreements with MassMutual.





Policyholders benefits and payments increased in 2002, primarily due to increased annuity surrenders and benefit payments on
individual annuity products, partially offset by lower death benefits on individual life products. Annuity surrenders increased $65.5 million, or 73%, from the prior year, while annuity benefits increased 90%, or $6.9 million from 2001, primarily
due to lower market returns on separate account assets and continued business growth. Death benefits decreased $11.2 million, or 56%, from the prior year.





Addition to policyholders reserves and funds includes transfers to and from the separate accounts, based upon policyholder elections, and a $242.7 million increase in the change in general account reserves. The
increase in 2002 in the change in general account reserves is primarily attributable to a $228.4 million increase in the change in annuity reserves and a $14.3 million increase in the change in life reserves. The increase in the change in annuity
reserves is primarily due to increases in the reserves as a result of increased sales of fixed annuity products, the introduction of a new variable annuity product in 2001 and a 2002 increase in reserves for guaranteed minimum death benefits.
Separate account withdrawals and other transfers increased in the three months ended September 30, 2002 by $50.8 million, while separate account deposits decreased by $99.9 million.





Commissions decreased in the third quarter of 2002, principally due to the continued change in the product sales mix. Annuity product commissions were relatively unchanged, while life insurance
commissions decreased $0.9 million, or 5%, in the third quarter of 2002. The overall decrease in commissions as a percentage of sales is primarily due to the continued shift in the sales mix to annuity products, which have lower commission rates
than life products.





Operating expenses, state taxes, licenses and fees decreased in 2002, primarily due to lower first year life
insurance premium. Management fees charged by MassMutual include increases in agency allowances and other expenses associated with the production of new business.





The decrease in the federal income tax benefit for the three months ended September 30, 2002 is primarily attributable to the $1.8 million decrease in the pre-tax net loss from operations and the
timing of the tax deductibility of acquisition costs and reserves. Management projects that the




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Company will be able to utilize a significant portion of its available tax benefits in the current year, as the Company will be included in the consolidated MassMutual tax return for 2002.





Realized capital gains, after the transfer to the IMR, increased $48.3 million for the three month period ended September 30, 2002. The
increase in gains is primarily due to increased mark to market adjustments for derivative instruments.





For the Nine Months Ended September 30, 2002





Compared to the Nine
Months Ended September 30, 2001





The following table sets forth the components of the
Companys net loss:





Nine Months Ended September 30,2002


2001


% Change($ In Millions)Revenue:Premium income

$
1,431.4


$
1,062.5


35
%Net investment income


104.9



86.0


22Fees and other income


44.6



58.8


(24
)Total revenue


1,580.9



1,207.3


31Benefits and Expenses:Policyholders benefits and payments


491.1



358.2


37Addition to policyholders reserves and funds


954.0



694.5


37Commissions


96.3



92.6


4Operating expenses, state taxes, licenses and fees


128.2



137.4


(7
)Federal income tax benefit


(5.6
)


(6.4
)

(13
)Total benefits and expenses


1,664.0



1,276.3


30Net loss from operations


(83.1
)


(69.0
)

20Net realized capital gain (loss)


62.2



(1.1
)

NMNet loss

$
(20.9
)

$
(70.1
)

(70
)%





NM = not meaningful, or in excess of 200%.





The decrease in net loss for the first nine months of 2002 is primarily attributable to increased realized capital gains and investment income, partially offset
by earnings strain associated with the continued growth in the Companys annuity and life insurance businesses, an increase in annuity reserves for guaranteed minimum death benefits, higher surrender benefits and lower expense allowances on
reinsurance ceded.It is generally expected that the increase in policyholders reserves and costs related to the production of new business will exceed the amount of premium earned in the first year of a policy, causing operating
losses. Management expects losses may continue in conjunction with future growth.





Costs related to the production of new business
include commissions and other variable producer compensation, management fees assessed by MassMutual and business issuance and processing costs, which include policy assembly and other customer service activities, including fluctuations in the
market value of variable funds during the processing of deposits. During the nine months ended September 30, 2002, costs related to the production of new business as a percentage of premiums were lower than the nine months of 2001, primarily due to
the continued shift in the product mix from life insurance products to fixed annuity products, as well as a reduction in first year premium from life insurance products.




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##### Table of Contents




The following table sets forth, premium data for the Companys products:





Nine Months Ended September 30,2002


2001


% Change($ In Millions)Premium Income:Universal, variable, term & corporate owned life insurance

$
380.1


$
361.2


5
%Annuities and supplementary contracts


1,125.7



794.0


42Total direct premiums


1,505.8



1,155.2


30Less: reinsurance ceded


(74.4
)


(92.7
)

(20
)Total

$
1,431.4


$
1,062.5


35
%





Premium income increased in 2002 primarily due to increases in premium received from
annuity products, as well as life insurance products. Increases in annuity product premium over 2001 were primarily due to an increase in sales of fixed annuity products due to market conditions and the sales of a new variable annuity product, which
began in July 2001. Life insurance premium increased in 2002 primarily due to increased universal life insurance sales.





The
Companys business mix has shifted as a result of increasing sales of annuity products. Annuity products comprised 79% of total premium income for the nine months ended September 30, 2002, compared to 75% in 2001. Universal life and other life
products were 21% of total premium income for the nine months ended September 30, 2002, compared to 25% in 2001.





The components of net
investment income are set forth in the table below:





Nine Months Ended September 30,2002


2001


% Change($ In Millions)Gross Investment Income:Bonds

$
66.8


$
55.6


20
%Mortgage loans


18.8



16.7


13Policy loans


7.4



7.2


3Other investments


10.5



3.7


184Cash and short-term investments


4.7



5.8


(19
)Total gross investment income


108.2



89.0


22Investment expenses


(2.9
)


(2.2
)

32Interest Maintenance Reserve (IMR) amortization


(0.4
)


(0.8
)

(50
)Net investment income

$
104.9


$
86.0


22
%





Net investment income increased for the nine months ended September 30, 2002, primarily
due to a 49% increase in average invested assets, partially offset by a decrease in the annualized gross yield for the investment portfolio to 6.4% in 2002 from 7.8% in 2001. Increased asset levels are primarily due to general account business
growth and capital contributions received in December 2001. Annualized gross investment yields decreased as older, higher yielding bonds mature and are replaced with new bonds that have lower yields. Additionally, common stock of subsidiary does not
generate dividend income until a dividend is declared. After expenses and IMR amortization, net annualized yields were 6.2% and 7.6% for the nine month periods ended September 30, 2002 and 2001, respectively. Fluctuations in market conditions will
impact future investment results.





The annualized yield on each investment category, before federal income taxes, is calculated as: (a)
two times gross investment income (b) divided by the sum of assets at the beginning of the period and assets at the end of the period, less gross investment income, (c) multiplied by four thirds.





The increase in 2002 gross investment income from bonds is primarily due to a 30% increase in average invested bonds, partially offset by a decrease in the annualized yield to 7.1% from 7.8%
at September 30, 2001. The increase in gross investment income from mortgage loans is primarily due to a 22% increase in average invested mortgage loans, partially offset by a decrease in the annualized




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yield from 7.9% in 2001 to 7.2% in 2002. The increase in gross investment income from other investments is primarily due to increases in derivative instrument holdings. The decrease in gross
investment income from cash and short-term investments is primarily due to the decrease in the annualized yield.





The components of fees
and other income are set forth in the table below:





Nine Months Ended September 30,2002


2001


% Change($ In Millions)Fees

$
54.3


$
49.2


10
%Commissions and expense allowances on reinsurance ceded


10.5



31.5


(67
)Reserve adjustments on reinsurance ceded


(20.2
)


(21.9
)

(8
)Total fees and other income

$
44.6


$
58.8


(24
)%





Fees and other income decreased in the first nine months of 2002, as compared to 2001,
primarily due to a decrease in commissions and expense allowances on reinsurance ceded attributable to a decrease in the activity related to the coinsurance agreements between MassMutual and the Company. This decrease is partially offset by higher
administrative fees collected from the management of investment accounts and lower reserve adjustments on reinsurance ceded. See Related Party Transactions footnote for a more detailed description of the Companys modified
coinsurance agreements with MassMutual.





Policyholders benefits and payments increased in 2002, primarily due to an increase in
annuity surrenders and benefit payments on individual annuity products. Annuity surrenders increased $116.8 million, or 41%, while annuity benefit payments increased $22.4 million, or 135%, from 2001, primarily due to lower market returns on
separate account assets and continued business growth.





Addition to policyholders reserves and funds includes transfers to and from
the separate accounts, based upon policyholder elections, and a $456.0 million increase in the change in general account reserves. The increase in 2002 in the change in general account reserves is primarily attributable to a $396.1 million increase
in the change in annuity reserves and a $59.9 million increase in the change in life reserves. The increase in the change in annuity reserves is primarily due to increases in the reserves as a result of increased sales of fixed annuity products, the
introduction of a new variable annuity product in 2001 and a 2002 increase in reserves for guaranteed minimum death benefits. Separate account withdrawals and other transfers increased in 2002 by $85.4 million, while separate account deposits
decreased by $111.1 million.





Commissions increased, primarily due to increased sales of annuity insurance products. Annuity product
commissions increased $15.7 million, or 47%, partially offset by a decrease in life insurance commissions of $12.0 million in 2002. The overall decrease in commissions as a percentage of sales is primarily due to a continued shift in the sales mix
to annuity products, which have lower commission rates than life products.





Operating expenses, state taxes, licenses and fees decreased
in 2002, primarily due to lower first year life insurance premium. Management fees charged by MassMutual include increases in agency allowances and other expenses associated with the production of new business.





The decrease in the federal income tax benefit for the nine months ended September 30, 2002 is primarily attributable to the timing of the tax deductibility of
acquisition costs and reserves. Management projects that the Company will be able to utilize a significant portion of its available tax benefits in the current year, as the Company will be included in the consolidated MassMutual tax return for 2002.




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Realized capital gains, after the transfer to the IMR, increased $63.3 million for the nine months ended
September 30, 2002. This increase is primarily due to increased mark to market adjustments for derivative instruments, partially offset by higher losses from the sale of bonds. In 2001, the Company had realized capital losses of $1.1 million, after
the transfer to the IMR. These losses were primarily comprised of credit related mortgage losses, which are not transferred to the IMR.





Statements of Financial Position





Assets





Total assets at September 30, 2002, increased by $412.0 million, or 8%, from December 31, 2001 primarily due to the growth in the Companys
general account and the contribution of MML Bay State Life Insurance Company (Bay State) to the Company by MassMutual, partially offset by decreases in the Companys separate account assets.





General account assets increased 46% from December 31, 2001, primarily due to increases in all categories of invested assets. These increases in investments were
primarily the result of the Companys continued growth, the investment of cash flow generated by the Companys operations and the contribution of Bay State to the Company by MassMutual. The portfolio of general account invested assets is
managed to support product liabilities in light of yield, liquidity and diversification considerations. The general investment account portfolio does not include the Companys separate account invested assets. The Companys separate
account assets decreased $479.9 million or 14% primarily due to unfavorable market conditions and increased variable annuity surrenders.





Bonds increased 20% from December 31, 2001. During the nine months ended September 30, 2002, $636.2 million of bonds were purchased, while maturities and sales proceeds totaled $395.5 million.





Common stocksubsidiary is $191.5 million at September 30, 2002 due to the contribution of Bay State to the Company by MassMutual during the third quarter
of 2002. See Investment in Unconsolidated Subsidiary footnote for additional information on this transaction.





The increase
in mortgage loans is primarily attributed to increasing investments in mortgage loans due to favorable market conditions. For the nine months ended September 30, 2002, $114.7 million of mortgage loans were issued while there were $59.8 million of
mortgage loan sales, maturities and repayments.





The Companys cash and derivative positions are increasing primarily due to the
increase in fixed annuity sales and a decrease in the supply of fixed income investments, such as bonds. The offerings of the public bond markets have become less attractive as bonds with lower credit risk are priced at very tight spreads over the
Treasury rate. The Company uses a combination of derivatives and short-term investments to synthetically create temporary investment positions, which are highly liquid and of high quality. These synthetic investments perform similar to bonds and are
held to improve the quality and performance of the general investment account until other suitable investments become available.





Other
investments, consisting of financial options, forwards, interest rate swaps, interest rate caps and floors, common and preferred stocks, and a joint venture interest increased, primarily due to increases in the market value of derivative instruments
and increases in receivables for securities sold. At September 30, 2002, the Company had interest rate swaps, financial options and currency swaps with notional amounts of $888.0 million, $469.5 million and $14.8 million, respectively. At December
31, 2001, the Company had interest rate swaps, financial options and currency swaps with notional amounts of $594.9 million, $669.5 million and $11.9 million, respectively.





Investments and insurance amounts receivable decreased 22% from December 31, 2001. This decrease is primarily due to a $14.9 million decrease in amounts recoverable from reinsurance.




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##### Table of Contents




Liabilities





As with assets, the 2002 increase in total liabilities from December 31, 2001 to September 30, 2002 occurred in the general account, partially offset by a
decrease in separate account liabilities.





Policyholders reserves and funds at September 30, 2002 increased 42% primarily due to
the new sales of fixed annuity products, sales of life insurance products, and interest credited.





Transfers due from separate accounts
decreased from December 31, 2001. Transfers due from separate accounts represents policyholders account values in excess of statutory benefit reserves. This decrease is consistent with the decline in separate account liabilities and is
primarily attributable to market conditions.





Other liabilities increased 40% during the first nine months of 2002, primarily due
to increases in payables for securities purchased of $7.3 million and remittances and items not allocated of $5.1 million.





Shareholders Equity





The increase in shareholders equity from December
31, 2001 to September 30, 2002 is primarily due to:





|· |  | an increase in additional paid-in capital of $191.5 million from the contribution of Bay State to the Company by MassMutual, and
|- |  | --------------------------------------------------------------------------------------------------------------------------------

|· |  | an increase of $1.6 million due to a change in deferred income taxes,
|- |  | ---------------------------------------------------------------------




partially offset by:





|· |  | a net loss of $20.9 million,
|- |  | ----------------------------

|· |  | a decrease of $31.7 million due to changes in reserve valuation bases;
|- |  | ----------------------------------------------------------------------

|· |  | a decrease of $8.3 million due to a change in non-admitted assets,
|- |  | ------------------------------------------------------------------

|· |  | a decrease of $2.2 million, due to a change in net unrealized gains and losses, and
|- |  | -----------------------------------------------------------------------------------

|· |  | a decrease of $1.6 million, due to a change in the asset valuation and other investment reserves.
|- |  | -------------------------------------------------------------------------------------------------




Liquidity and Capital Resources





Liquidity





Cash and short-term investments increased $345.7 million, or 165%, from
the prior year end as a result of an increase in net cash provided by operating activities, partially offset by a decrease in net cash used in investing activities.





Net cash provided by operating activities increased $440.7 million, or 200%, for the nine months ended September 30, 2002. This increase is primarily due to increased fixed annuity sales, a new
variable annuity product, increased life insurance premium, higher investment income and lower operating expenses, partially offset by lower fees and other income and increased commissions.





Loans and purchases of investments increased $309.2 million, or 65%, while sales and maturities of investments and receipts from repayments of loans increased $203.5 million, or 77%,
primarily due to increased bond activity caused by changes in market conditions.




21




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##### Table of Contents




Capital Resources





The Board of Directors of MassMutual has authorized the contribution of funds to the Company sufficient to meet the capital requirements of all states in which
the Company is licensed to do business. MassMutuals management is committed to keeping a prudent amount of surplus in the Company.





As of September 30, 2002, the Companys total adjusted capital (TAC) as defined by the NAIC was $335.5 million. The NAIC developed the Risk Based Capital (RBC) model to compare the total adjusted capital
with a standard design in order to reflect an insurance companys risk profile. Although management believes that there is no single appropriate means of measuring RBC needs, management feels that the NAIC approach to RBC measurement is
reasonable, and the Company manages its capital position with significant attention to maintaining adequate total adjusted capital relative to RBC. The Companys total adjusted capital was in excess of all annual RBC standards at December 31,
2001. NAIC RBC does not establish quarterly standards with which TAC can be compared. Management believes that the Company enjoys a strong capital position in light of its risks and the Company is well positioned to meet policyholder and other
obligations.




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##### Table of Contents

Part I


Item 3





Quantitative and Qualitative Disclosure about Market Risk





The Companys market risk and financial
instrument holdings as of September 30, 2002, are similar to its market risk and financial instrument holdings as of December 31, 2001, a description of which is included in the Companys Annual Report on Form 10-K for the year ended December
31, 2001. However in the nine months ended September 30, 2002, the Companys investments in bonds, cash and short-term investments and interest rate swaps grew, which changed its exposure to changes in interest rates and the notional amounts of
its swap positions.





At December 31, 2001, a hypothetical 10% parallel increase in interest rates would decrease the net fair value of
the Companys financial instruments by $29.6 million. As of September 30, 2002, a hypothetical 10% parallel increase in interest rates would decrease the net fair value of the Companys financial instruments by $38.2 million. Based upon
the information and assumptions used in the Companys asset/liability analysis, the absolute level of interest rates has decreased and the portfolio has both grown and lengthened in duration.





A change in interest rates of 10% would not have a material impact on the Companys future earnings or cash flows. A significant portion of the
Companys liabilities are not considered financial instruments and are excluded from the above analysis. Because of the Companys asset/liability management, a corresponding change in the fair values of these liabilities, based on the
present value of estimated cash flows, would significantly offset the net decrease in fair value estimated above.





The Company also
utilizes derivative financial instruments to manage market risks, primarily to reduce interest rate and duration imbalances determined in asset/liability analyses. The Company uses interest rate swap agreements and options to reduce interest rate
exposures arising from mismatches between assets and liabilities and to modify portfolio profiles to manage other risks identified.





The
Company had outstanding swaps with notional amounts of $888.0 million at September 30, 2002, and $594.9 million at December 31, 2001. The Companys credit risk exposure was limited to the fair value of $58.7 million at September 30, 2002 and
$6.7 million at December 31, 2001.




23




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##### Table of Contents




Part I


Item 4





Controls and Procedures





Our Chief Executive Officer, Chief Financial Officer, and other persons performing similar functions are responsible for establishing and maintaining disclosure internal controls. They have
designed such controls and procedures for the Company to ensure that all material information regarding this filing is made known to them by others within the organization. Disclosure controls and procedures are controls and procedures that are
designed to ensure that information required to be disclosed by the Company in the reports that we file or submit, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions
rules and forms.





Within 90 days of the filing date of this report, the Companys Chief Executive Officer, Chief Financial Officer,
and other persons performing similar functions completed an evaluation of the Companys disclosure controls. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer have determined the Companys
disclosure controls to be functioning properly and effectively. They did not discover any significant deficiencies or material weakness within the controls and procedures that require modification.





Since the completion of that evaluation, there have been no significant changes in internal controls or in other factors that could significantly affect these
controls.




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##### Table of Contents

Part II


Item 6





C.M. Life Insurance Company


Exhibits and Reports on Form 8-K


September 30, 2002





(a) Exhibit Index





Exhibit No.

Description of Exhibits99.1

Certification of the Principal Executive Officer, Robert J. OConnell, of C.M. Life Insurance Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certification of the Principal Financial Officer, Howard E. Gunton, of C.M. Life Insurance Company pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.3

Certification of the Principal Executive Officer, Robert J. OConnell, of C.M. Life Insurance Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.99.4

Certification of the Principal Financial Officer, Howard E. Gunton, of C.M. Life Insurance Company pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.





(b) Reports on Form 8-K





No reports on Form 8-K were filed by the Registrant with the Securities and Exchange Commission during the nine month period ended September 30, 2002.





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on  its behalf by the undersigned, thereunto duly authorized.





C.M. LIFE INSURANCE COMPANY (Registrant)





Date: November 12, 2002

By:

/s/    ROBERT J.
OCONNELL Robert J.
OConnell Chairman, President and Chief Executive Officer (Officer)Date: November 12, 2002

By:

/s/    HOWARD E. GUNTON Howard E. Gunton Executive Vice President
and Chief Financial Officer(Principal Financial Officer)










25