The Company derives its revenues principally from: (i) premiums on individual life insurance, (ii) insurance, administrative, and surrender charges on universal life and annuity products, (iii) asset management fees from separate account and mutual fund products and (iv) net investment income on general account assets. The Company’s expenses consist of insurance benefits provided to policyholders, interest credited on policyholders’ account balances, dividends to policyholders, the cost of selling and servicing the various products sold by the Company, including commissions to sales representatives (net of any deferrals) and general business expenses.
Declines in Securities Market Prices Could Increase the Company’s Liabilities and Expenses
Presently there is a significant debate within industry, the accounting profession and among securities analysts and regulators as to the propriety of the current generally accepted accounting practice provided in Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (“Opinion No. 25”), which provides for the application of the intrinsic value based method of accounting. For certain stock based compensation plans (including certain stock option plans), the guidance provided in Opinion No. 25 does not require companies to recognize compensation expense. Recently, certain companies, in response to this debate, have announced their intention to adopt the generally accepted accounting guidance prescribed under SFAS 123, which provides for the application of the fair value based method of accounting. In accordance with this method, all forms of employee stock-based compensation are measured at fair value at the date of grant and expensed over the requisite service or vesting period. If MONY Life chooses to adopt these provisions of SFAS No. 123 or if it becomes required to adopt such provisions as a result of action by the Financial Accounting Standards Board (“FASB”), the adoption will result in additional expenses charged to the Company under its service agreement with MONY Life in an amount that may be material to the Company’s results of operations (see Note 3 to the Financial Statements).
The Company values DPAC and insurance reserves in accordance with the relevant GAAP pronouncements: generally, SFAS 60 for term and whole life insurance products and SFAS 97 for universal life and investment-type contracts. The valuation of DPAC and insurance reserves requires management to assume future investment yields, mortality rates, lapse rates, expense levels, policyholder dividends and where flexibility is allowed, policyholder premium payment behavior. For many of the Company’s products, amortization of DPAC varies with profit margins of the policies and contracts supporting the DPAC balances. The Company must periodically evaluate the recoverability of DPAC and the adequacy of its reserves based on historical and projected future results. Changes in management’s assumptions or actual results that differ significantly from management’s estimates may materially affect the Company’s financial position and results of operations. See - Potential Forward Looking Risks Affecting Profitability - Declines in Securities Market Prices Could Reduce the Value of Certain Intangible Assets on the Company’s Balance Sheet - The Company Might Have to Write-Off Deferred Policy Acquisition Costs Sooner Than Planned.
Net investment income was $118.5 million for 2003, an increase of $11.0 million, or 10.2%, from $107.5 million reported for 2002. The increase in net investment income related primarily to a higher average invested asset balance, offset by a decline in interest rates.
Interest credited to policyholders’ account balances was $91.5 million for 2003, an increase of $15.7 million, or 20.7%, from $75.8 million reported for 2002. The increase was primarily due to higher interest
The carrying value of commercial mortgage loans at December 31, 2003 was $316.4 million, which is net of valuation allowances aggregating $3.9 million, representing management’s best estimate of cumulative impairments at that date. However, there can be no assurance that increases in valuation allowances will not be necessary. Any such increases may have a material adverse effect on the Company’s financial position and results of operations.
The Company defines problem, potential problem and restructured agricultural mortgages in the same manner as it does for commercial mortgages. Total problem, potential problem and restructured agricultural mortgages as at December 31, 2003 and 2002 were $2.8 million and $2.8 million, respectively. Problem agricultural mortgages included delinquent mortgage loans of $0.0 million and $0.6 million at December 31, 2003 and 2002, respectively, and there were no mortgage loans in the process of foreclosure at such dates.
• The property is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets.
Policy acquisition costs deferred and amortized in 2003, 2002 and 2001 are as follows:
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% or more of the carrying value of the fixed maturity securities at December 31, 2003 are consumer goods and services of $346.8 million (20.0%). At December 31, 2002, the industries (excluding U.S. Treasury securities and obligations of U.S. government agencies) that comprise 10% or more of the carrying value were consumer goods and services of $351.3 million (22.9%), and non-government asset/mortgage backed securities of $157.6 million (10.2%)
By order dated November 4, 2003, Vice Chancellor Stephen P. Lamb, to whom the cases had been assigned, consolidated all ten actions under the caption In re The MONY Group Inc., Shareholders Litigation, Consolidated C.A. No. 20554-NC, and ordered plaintiffs to file a consolidated amended complaint. On or about November 5, 2003, plaintiffs filed a Consolidated Class Action Complaint on behalf of a putative class consisting of all MONY Group stockholders, excluding the defendants and their affiliates. The consolidated complaint alleges that the $31.00 cash price per share to be paid to MONY Group stockholders in connection with the proposed merger is inadequate and that MONY Group’s directors breached their fiduciary duties in negotiating and approving the merger agreement by, among other things, (i) failing to maximize stockholder value, (ii) improperly diverting merger consideration from MONY Group’s stockholders to MONY Group’s management by amending and extending management’s change-in-control agreements, (iii) failing to comply with Delaware law in determining the “fair value” of MONY Group’s stock and (iv) disseminating incomplete