Other operating costs and expenses were $876.4 million for 2001, an increase of $363.2 million, or 70.8%, from $513.2 million for 2000. The increase consisted primarily of: (i) $65.1 million of reorganization and other charges recorded during the fourth quarter of 2001; (ii) $301.2 million of costs directly attributable to the Retail Brokerage and Investment Banking segment resulting from the acquisition of Advest; and (iii) $24.5 million of higher interest expense reported as a reconciling item. Details of the reorganization and other charges recorded in the fourth quarter as well as the segments to which they have been allocated are included in Note 24 to the Consolidated Financial Statements. The $24.5 million increase in interest expense relates to the MONY Group’s debt issuances in March and December of 2000 (See Note 14 to the Consolidated Financial Statements). These increases were partially offset in 2001 by lower compensation costs of approximately $25.3 million, of which $20.3 million, $3.8 million, and $1.3 million are reflected in the Protection Products, Accumulation Products, and Other Products segments, respectively.
Other expenses were $6.1 million for the year ended December 31, 2002, a decrease of $0.9 million from $7.0 million reported in the prior year. The decrease is primarily attributable to a decrease in premium taxes as a result of lower premiums.
Benefits to policyholders and interest credited to policyholders’ account balances were $606.9 million for the year ended December 31, 2001, a decrease of $14.0 million from $620.9 million reported for the year ended December 31, 2000. The decrease of $14.0 million primarily consists of: (i) an $8.8 million increase in death benefits compared to the prior year (death benefits were $187.8 million and $179.0 million for the years ended December 31, 2001 and 2000, respectively); (ii) a $19.6 million decrease in surrenders compared to the prior year as a result of an improvement in persistency experience (surrender benefits were $355.8 million and $375.4 million for the years ended December 31, 2001 and 2000, respectively); and (iii) a $2.4 million decrease in the change in reserves compared to the prior year (the change in reserves was $52.6 million and $55.0 million for the years ended December 31, 2001 and 2000, respectively).
MONY Life’s cash inflows are provided mainly from life insurance premiums, annuity considerations and deposit funds, investment income, and maturities and dispositions of invested assets. Cash outflows primarily relate to the liabilities associated with its various life insurance and annuity products, dividends to policyholders, dividends to MONY Holdings (if declared and paid), operating expenses, income taxes, and principal and interest payments on its inter-company surplus notes and demand notes outstanding. The life insurance and annuity liabilities relate to the Company’s obligation to make benefit payments under its insurance and annuity contracts, as well as the need to make payments in connection with policy surrenders, withdrawals and loans. The Company develops an annual cash flow projection which shows expected asset and liability cash flows on a monthly basis. At the end of each quarter actual cash flows are compared to projections, projections for the balance of the year are adjusted in light of the actual results, if appropriate, and investment strategies are also changed, if appropriate. The quarterly cash flow reports contain relevant information on all the following: new product sales and deposits versus projections, existing liability cash flow versus projections and asset portfolio cash flow versus projections. An interest rate projection is a part of the internal cash flow projections for both assets and liabilities. Actual changes in interest rates during the year and, to a lesser extent, changes in rate expectations will impact the changes in projected asset and liability cash flows during the course of the year. When the Company is formulating its cash flow projections, it considers, among other things, its expectations about sales of the Company’s products, its expectations concerning customer behavior in light of current and expected economic conditions, its expectations concerning competitors and the general outlook for the economy and interest rates. See “- Investments - General.” In 2002, MONY Life paid a dividend to MONY Holdings in the amount of $90.0 million, of which $15.6 million was retained by MONY Holdings in its DSCA Sub-account CBB (see Note 20 to the Consolidated Financial Statements) and $74.4 million was paid by MONY Holdings in the form of a dividend to MONY Group. Also in 2002, MONY Group contributed $125.0 million to MONY Holdings, which in turn contributed such amount to MONY Life to support its capital and surplus.
The yield on general account invested assets (including net realized gains and losses on investments) was 5.2%, 6.1% and 9.1% for the years ended December 31, 2002, 2001 and 2000, respectively.
Fixed maturity securities consist of publicly traded and privately placed debt securities, and redeemable preferred stock which represented 66.3% and 62.8% of total invested assets excluding trading securities at December 31, 2002 and 2001, respectively.
As of December 31, 2002 the carrying value of potential problem commercial mortgages aggregated $104.7 million, net of $6.5 million in valuation allowances, and restructured loans aggregated $20.3 million, net of $8.0 million in valuation allowances.
The following table sets forth the components of other invested assets as at December 31, 2002 and 2001.
On November 30, 2001, the Company acquired Lebenthal & Co., Inc. (“Lebenthal”), a New York based full service investment firm specializing in municipal bonds, in exchange for approximately $20.9 million of consideration (including transaction and other acquisition related expenses) consisting of cash of approximately $4.2 million and approximately 0.5 million shares of common stock of the MONY Group with a fair value of approximately $16.7 million. In addition to being widely known for its expertise in tax exempt municipal bond investing, Lebenthal also manages three open-end municipal bond mutual funds. Lebenthal distributes its products and services to a nationwide customer base through its staff of account executives. Goodwill recorded in connection with the transaction approximated $15.0 million. In connection with the transaction, a retention program was established for certain Lebenthal personnel, which is expected to cost, on a present value basis, approximately $2.5 million over a five-year period commencing from the date the transaction was consummated.
Net investment income for the years ended December 31, 2002, 2001 and 2000 was derived from the following sources:
At December 31, 2002 and 2001, there was $6.7 million and $0.0 million, respectively, of fixed maturity securities which had been non-income producing for the twelve months preceding such dates.
Amounts in 2002 include fixed maturity securities of $58.3 million at amortized cost and $61.8 million at estimated fair value included in the DSCA sub-account OB (see Note 20).
An analysis of the valuation allowances for 2002, 2001 and 2000 is as follows:
Set forth in the table below is certain financial information with respect to the Company’s reportable segments as of and for each of the years ended December 31, 2002, 2001, and 2000, as well as amounts not allocated to the segments. Except for various allocations discussed below, the accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company evaluates the performance of each operating segment based on profit or loss from operations before income taxes and nonrecurring items (e.g. items of an unusual or infrequent nature). The Company does not allocate nonrecurring items to the segments. In addition, unless otherwise noted, all segment revenues are from external customers.
Amounts reported as “reconciling” in 2001 primarily relate to: (i) contracts issued by MONY Life relating to its employee benefit plans, (ii) revenues and expenses of the MONY Group and (iii) charges totaling $56.8 million pre-tax relating to the Company’s 2001 restructure charge (see Note 24).
The Company’s qualified plan had assets of $345.7 million and $419.5 million at December 31, 2002 and 2001, respectively. The projected benefit obligation and accumulated benefit obligation for the qualified plan were $365.2 million and $338.9 million at December 31, 2002 and $343.5 million and $310.6 million at December 31, 2001, respectively.
purpose of facilitating this transaction. In connection with the transaction, the Company and AEGON have entered into certain service agreements. These agreements, among other things, provide that the Company will continue to manage the transferred assets, and that AUSA will continue to provide certain administrative services to the Company’s remaining group pension contracts not included in the transfer.
Aggregate contractual long term debt service payments on the Company’s debt at December 31, 2002 for the succeeding five years are $71.4 million, $57.8 million, $331.9 million, $37.4 million and million, respectively, and $807.0 million thereafter.
The Company’s fixed maturity securities are diversified by industry type. The industries (excluding U.S. Treasury securities and obligations of U.S. government agencies) that comprise 10.0% or more of the carrying value of the fixed maturity securities at December 31, 2002 are Consumer Goods of $1,457.6 million (18.3%), Non-Government Asset/Mortgage Backed securities of $1,016.2 million (12.8%), and Other Manufacturing of $848.0 million (10.6%).
The following table summarizes the significant components of goodwill, along with additions and amortization by segment for the periods presented.