· the Group Pension Profits, (See Note 11 to the Generally Accepted Accounting Principles Consolidated Financial Statements of MONY Holdings), and
Changes in the factors discussed above (particularly, a sustained or continuing decline in the prices of securities or a deterioration in the credit quality of issuers or a deterioration in industry or issuer fundamentals or in the macro economic outlook) may significantly affect the Company determination of whether a security is “other than temporarily impaired”, which may require the Company to recognize an “other than temporary impairment” charge that could be material to its financial position and results of operations. See Management’s Discussion and Analysis of Financial Condition and Results of Operations - Investments - Other Than Temporary Impairment Charges On Investments in Fixed Maturity Securities and Common Stocks.
Includes $61.8 million in fixed maturities and $2.1 million in cash and cash equivalents in the Debt Service Coverage Account sub-account OB and $9.4 million in cash and cash equivalents included in the Debt Service Coverage Account sub-account CBB.
In accordance with our ongoing strategy to strengthen our financial position, we expect to continue to selectively sell equity real estate.
Gross Unrealized Losses on Fixed Maturity Securities As of December 31, 2002 Outside the Closed Block
Presented below is a discussion and analysis of the invested assets comprising the Closed Block on a statutory basis. Following this discussion and analysis is a discussion and analysis of the invested assets comprising the Surplus and Related Assets on a statutory basis.
The statutory basis book value of the Surplus and Related Assets at December 31, 2002 was approximately $1.7 billion.
The decrease in Group Operation’s premiums and deposits of $23.8 million, from $140.8 million for the year ended December 31, 2001 to $117.0 million for the year ended December 31, 2002, is primarily due to lower group pension deposits received in 2002.
The Company held $150 million face amount of Series A notes at December 31, 2002.
Excludes approximately $8.7 million and $29.2 million for the years ended December 31, 2002 and 2001, respectively, relating to surrenders associated with an exchange program offered by MONY Life wherein contract holders surrendered old flexible premium variable annuity contracts and reinvested the proceeds in a new enhanced flexible premium variable annuity product offered by MONY Life.
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for intangible and long-lived assets in 2002.
· Management, having the authority to approve the action, commits the organization to a plan to sell the property;
For participating traditional life policies, DPAC is amortized over the expected life of the contracts (30 years) as a constant percentage based on the present value of estimated gross margins expected to be realized over the life of the contracts using the expected investment yield. At December 31, 2002, the expected investment yield for the Closed Block was 7.26% for 2003 with subsequent years grading down to an ultimate aggregate yield of 7.13% in 2013. Estimated gross margins include anticipated premiums and investment results less claims and administrative expenses, changes in the net level premium reserve and expected annual policyholder dividends.
On January 1, 2001 the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133 requires all derivatives to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based on the hedge relationship that exists, if there is one. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133, are required to be reported in earnings. The Company’s use of derivative
The amortized cost, gross unrealized gains and losses, and estimated fair value of fixed maturity securities available-for-sale as of December 31, 2002 and 2001 are as follows:
Proceeds from sales of equity securities during 2002, 2001 and 2000 were $16.5 million, $31.0 million and $499.2 million, respectively. Gross gains of $2.7 million, 3.1 million and $81.2 million and gross losses of $2.8 million, $9.5 million and $57.8 million were realized on these sales during 2002, 2001, and 2000, respectively.
During 2002, 2001, and 2000, the Company recognized $11.3 million, $12.8 million and $19.5 million, respectively, of interest income on impaired loans.
At December 31, 2002 and 2001, the Company had restructured mortgage loans of $29.8 million and $66.3 million, respectively. Interest income of $1.5 million, $4.3 million and $6.8 million was recognized on restructured mortgage loans in 2002, 2001, and 2000, respectively. Gross interest income on these loans that would have been recorded in accordance with the original terms of such loans amounted to approximately $4.0 million, $7.2 million and $9.5 million in 2002, 2001 and 2000, respectively.
The Company’s Other Products segment primarily consists of a securities broker-dealer operation, an insurance brokerage operation, and the run-off businesses. The securities broker-dealer operation markets the Company’s proprietary investment products and, in addition, provides customers of the Company’s protection and accumulation products access to other non-proprietary investment products (including stocks, bonds, limited partnership interests, tax-exempt unit investment trusts and other investment securities). The insurance brokerage operation provides the Company’s career agency force with access to variable life, annuity, small group health and specialty insurance products written by other carriers to meet the insurance and investment needs of its customers. The run-off businesses primarily consist of group life and health business, as well as group pension business that was not included in the Group Pension Transaction (See Note 11).
Substantially all of the Company’s revenues are derived in the United States. Revenue derived from outside the United States is not material and revenue derived from any single customer does not exceed 10.0% of total consolidated revenues.
The assets of the qualified pension plan are primarily invested in MONY Pooled Accounts which include common stock, real estate, private placement debt securities and bonds. At December 31, 2002 and 2001, $304.7 million and $415.3 million, respectively, were invested in the MONY Pooled Accounts. Benefits of $30.2 million, $27.9 million and $33.9 million were paid by this plan for the years ended December 31, 2002, 2001, and 2000, respectively.
Aggregate contractual long term debt service payments on the Company’s debt at December 31, 2002 for the succeeding five years are approximately $38.6 million, $38.6 million, $38.6 million, $38.6 million and $38.6 million, respectively, and $770.2 million thereafter.
· An asset valuation reserve (“AVR”), based upon a formula prescribed by the NAIC, is established as a liability to offset potential non-interest related investment losses, and changes in the AVR are charged or credited to surplus; whereas under GAAP, no such reserve is required.
· Bonds and redeemable preferred stocks in good standing are generally carried at amortized cost under SAP; whereas under GAAP, bonds and redeemable preferred stocks are classified as available for sale and carried at fair value. The related change in unrealized gains and losses, net of related deferred taxes and an adjustment for deferred policy acquisition costs, is reported as a component of other comprehensive income in equity in accordance with GAAP.
· Subsidiaries are reported using the equity method of accounting; whereas under GAAP, all entities in which a company has control and a majority economic interest are consolidated.
· Surplus notes are reported as surplus for statutory purposes and as debt for GAAP.
Real estate held for the production of income is carried at cost less accumulated depreciation. Impairments on real estate held for the production of income are taken when a property’s total expected future cash flows are lower then its carrying value and are recorded in net realized capital losses. Real estate held for sale is carried at estimated fair value. Fair value reserves are set up to record any valuation allowances on real estate held for sale.
Prior to January 1, 2001, the Company used the constant-yield method of depreciation for substantially all investments in real estate and real estate joint ventures acquired prior to January 1, 1991. As of January 1, 2001, the Company converted to straight-line depreciation for all investments in real estate and real estate joint ventures acquired prior to January 1, 1991 that are being held for income production. Real estate classified as held for sale is not being depreciated. Real estate assets and improvements are generally depreciated over ten to forty year periods and leasehold improvements are depreciated over the lives of the leases. Deprecation expense related to wholly owned investments in real estate was $1.9 million and $2.3 million in 2002 and 2001, respectively; accumulated depreciation was $26.8 million and $25.5 million at December 31, 2002 and 2001, respectively
The amortized cost of fixed maturity securities and estimated fair value by maturity as of December 31, 2002 are summarized as follows (in millions):
City. Debt service under the bonds is funded by lease payments by the Company to the NY IDA bond trustee for the benefit of the bondholder, MLOA (See Note 21). The carrying value of these bonds was $1.3 million and $1.4 million at December 31, 2002 and 2001 respectively.
Due and accrued income was excluded from surplus for all investment income due and accrued with amounts that are 90 days past due with the exception of mortgage loans in default. Investment income due and accrued that was excluded from surplus as a non-admitted asset was $7.8 million at December 31, 2002.
The Company had net unrealized losses of $133.8 million and $196.6 million for the years 2002 and 2001, respectively. The change in gains and losses for the years ended December 31 are detailed by asset type in the table below (in millions):
The fair values of mortgage loans are estimated by discounting expected future cash flows, using current interest rates for similar loans to borrowers with similar credit risk. Loans with similar characteristics are aggregated for purposes of the calculations. The fair value of mortgage loans in process of foreclosure is the estimated fair value of the underlying collateral. The fair value of mortgage loans was $1,670.5 million and $1,742.3 million at December 31, 2002 and 2001, respectively.
Approximately 43.4% of the Company’s real estate and mortgage portfolios are invested in office building properties. As of December 31, 2002 and 2001, the real estate and mortgage loan portfolio was diversified as follows:
Tabular Interest, Tabular less actual reserve released, and Tabular Cost have been determined by formulas as described in the Annual Statement instructions.
During 1994, the Company entered into an agreement to reinsure approximately 50 percent of its block of paid-up life insurance policies. The Company transferred assets equal to the total liabilities ceded into a segregated portfolio within its general account to secure benefit payments from the reinsurer and established a funds held liability to the reinsurer for a corresponding amount. Reserves ceded under this agreement were $62.6 million and $67.5 million at December 31, 2002 and 2001, respectively.
On March 8, 2000, MONY Life repurchased all of its outstanding $115.0 million face amount 9.5% coupon surplus notes, which were issued in 1997, and approximately $116.5 million face amount of its $125.0 million face amount 11.25% coupon surplus notes, which were issued in 1994 (the “9.5% Notes” and the “11.25% Notes”, respectively). In the third quarter of 2000, MONY Life repurchased another $6.5 million face amount of
In early January 2000, MONY and the Superintendent wrote to the District Court seeking a pre-motion conference preliminary to the filing of a motion to dismiss the federal complaint on jurisdictional, federal abstention and timeliness grounds and for failure to state a claim. Following receipt of those letters, plaintiffs’ counsel offered voluntarily to dismiss their complaint and a stipulation and order to that effect was thereafter filed and approved by the court.
On November 16, 1998, the Company established a closed block (“the “Closed Block”) of certain participating insurance policies as defined in the Plan (the “Closed Block Business”). In conjunction therewith, the Company allocated assets to the Closed Block expected to produce cash flows which, together with anticipated revenues from the Closed Block Business, are reasonably expected to be sufficient to support the Closed Block Business, including but not limited to, provision for payment of claims and surrender benefits, certain expenses and taxes, and for continuation of current payable dividend scales in effect at the date of Demutualization, assuming the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The assets allocated to the Closed Block and the aforementioned revenues inure solely to the benefit of the owners of policies included in the Closed Block.