The Company’s administrative offices are located at MONY Life’s office, located at 1740 Broadway, New York, New York and consists of approximately 264,570 square feet. MONY Life also has office facilities in Syracuse, New York, for use in its insurance operations, which consist of approximately 578,970 square feet in the aggregate. MONY Life also leases all 110 of its agency and its subsidiary offices, which consist of approximately 573,636 square feet in the aggregate. The Company believes that such properties are suitable and adequate for its current and anticipated business operations.
The Company’s primary business is to provide asset accumulation and life insurance products to business owners, growing families, and pre-retirees. The Company’s insurance and financial products are marketed and distributed directly to individuals primarily through MONY Life’s career agency sales force and its complementary distribution channels. These products are sold in 49 states (not including New York), the District of Columbia, the U.S. Virgin Islands and Puerto Rico.
policyholders’ account balances and the rate of earnings on its investments, (iv) the persistency of its policies (which affects the ability of the Company to recover the costs incurred to sell a policy) and (v) its ability to manage the market and credit risks associated with its invested assets. External factors, such as legislation and regulation of the insurance marketplace and products, may also affect the Company’s profitability.
Variable universal life (“VUL”) and corporate 	sponsored variable universal life (“CSVUL”) product 	fees were $54.4 million for 2000, an increase of $17.5 million, 	from $36.9 million reported in the comparable prior year period. 	The increase in fees is primarily due to higher charges for the 	cost of insurance, administrative charges and loading charges of 	$5.1 million, $5.1 million and $4.5 million.
UL product fees were $50.4 million for 2000, a decrease of $0.5 	million, from $50.9 million reported in the comparable prior 	year period. The decrease is primarily due to reduced 	administrative charges, loading and surrender charges of $1.1 	million and an increased cost of insurance charges and lower 	unearned revenue (amount assigned to the policyholders for 	future services) of $0.6 million.
Interest credited to policyholders’ account balances was $62.4 million for 2000, a decrease of $1.1 million, or 1.7%, from $63.5 million reported in the comparable prior year period. The decrease was primarily due to lower interest credited on single premium deferred annuity (“SPDA”) account balances and other declining lines of business and modest
Variable universal life (“VUL”) and corporate 	sponsored variable universal life (“CSVUL”) product 	fees were $36.9 million for 1999, an increase of $16.2 million, 	from $20.7 million reported in the comparable prior year period. 	The increase in fees is primarily due to higher charges for the 	cost of insurance, loading and surrender charges of $8.8 	million, $3.5 million and $1.6 million, respectively, and 	reduced unearned revenue (amounts assigned to the policyholders 	for future services) of $2.9 million.
Net realized losses on investments were $0.3 million for 1999, a decrease of $7.4 million or 104.2%, compared to a net realized gain of $7.1 million reported in the comparable prior year period. The decrease is primarily due to lower sales/prepayments gains on fixed maturities of $3.2 million, lower sales gains on real estate and real estate partnerships of $2.0 million, higher losses on provisions for allowances on mortgage loans and real estate of $1.2 million and lower mortgage sales gains of $1.0 million. The following table sets forth the components of net realized losses by investment category for 2000 compared to 1999.
Amortization of deferred policy acquisition costs (“DAC”) was $43.5 million for 1999, an increase of $8.0 million, or 22.5%, from $35.5 million reported in the comparable prior year period. The increase in DAC amortization was the result of $4.5 million higher amortization related to the Company’s VUL business as a result of better mortality and rapid growth in the product, $1.6 million related to the modified co-insurance agreement between USFL and the Company for traditional life products and an increase of $1.4 million due to higher expected gross profits in the FPVA business offset by the effect of the FPVA exchange program.
Other operating costs and expenses were $73.8 million for 1999, a decrease of $1.8 million, or 2.4%, from $75.6 million reported in the comparable prior year period. The decrease is due to higher capitalized slightly offset by higher general expenses and commissions.
The Company’s cash inflows are provided mainly from annuity considerations and deposit funds, investment income and maturities and sales of invested assets and term life insurance premiums. Cash outflows primarily relate to the liabilities associated with its various life insurance and annuity products, operating expenses and income taxes. 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 of 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 initial annual 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.
Subject to discretionary withdrawal - with market 	value adjustment or at carrying value less surrender charge
Excludes approximately $767.1 million and $724.9 million in 2000 	and 1999 respectively relating to surrenders associated with an 	exchange program offered by the Company wherein contract holders 	surrendered old FPVA contracts and reinvested the proceeds in a 	new enhanced FPVA product offered by the Company.
While the RBC guidelines are intended to be a regulatory tool only, and are not intended as a means to rank insurers generally, comparisons of RBC ratios of life insurers have become generally available. The Company’s adjusted RBC capital ratio at December 31, 1998 and December 31, 1997 were in excess of the minimum required RBC.
The Company’s investment operations are managed by MONY Life’s investment area pursuant to an agreement between the Company and MONY Life dated January 1, 1982. The investment area reports directly to the Chief Investment Officer of MONY Life. The investment area, in consultation with the product actuaries of MONY Life is responsible for determining, within specified risk tolerances and investment guidelines, the general asset allocation, duration and other characteristics of the Company’s investment portfolio.
The following table summarizes the invested assets held in the general account of the Company at the dates indicated.
The yield on general account invested assets (including net realized gains and losses on investments) was 6.7%, 7.1%, and 7.6% for the years ended December 31, 2000, 1999, and 1998 respectively.
The Securities Valuation Office of the NAIC evaluates the bond investments of insurers for regulatory reporting purposes and assigns securities to one of six investment categories called “NAIC Designations”. The NAIC Designations closely mirror the Nationally Recognized Securities Rating Organizations’ credit ratings for marketable bonds. NAIC Designations 1 and 2 include bonds considered investment grade (“Baa” or higher by Moody’s, or “BBB” or higher by S&P) by such rating organizations. NAIC Designations 3 through 6 are referred to as below investment grade (“Ba” or lower by Moody’s, or “BB” or lower by S&P).
At December 31, 2000, the percentage, based on estimated fair value, of total public and private placement fixed maturities that were investment grade (NAIC Designation 1 or 2) was 88.8% compared to 94.8% for December 31, 1999. The fixed maturities portfolio was comprised, based on estimated fair value, of 47.0% in public fixed maturities and 53.0% in private fixed maturities at December 31, 2000 and 51.4% in public fixed maturities and 48.6% in private fixed maturities at December 31, 1999. Generally, private placements provide the Company with broader access to management information, negotiated loan covenants, call protection features and, where applicable, a high level of collateral. Nevertheless, privately placed securities are generally not freely tradable because of restrictions under federal and state securities laws and the absence of a liquid trading market.
The Company defines potential problem securities in the fixed maturity category as securities of companies that are deemed to be experiencing significant operating problems or difficult industry conditions. Typically these securities are experiencing or anticipating liquidity constraints, having difficulty meeting projections/budgets and would most likely be considered a below investment grade risk. The fair value of potential problem fixed maturities was $6.2 million and $6.4 million at December 31, 2000 and 1999, respectively.
The Company defines restructured securities in the fixed maturity category as securities where a concession has been granted to the borrower related to the borrower’s financial difficulties that the Company would not have otherwise considered. The Company restructures certain securities in instances where a determination was made that greater economic value will be realized under the new terms than through liquidation or other disposition. The terms of the restructure generally involve some or all of the following characteristics: a reduction in the interest rate, an extension of the maturity date and a partial forgiveness of principal and/or interest. There were no restructured fixed maturities at December 31, 2000 and 1999, respectively.
The following table sets forth the total carrying values of the Company’s fixed maturity portfolio, as well as its problem, potential problem and restructured fixed maturities.
The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity dates, (excluding scheduled sinking funds) as of December 31, 2000 and 1999 are as follows:
The Company held approximately $219.6 million and $217.5 million of mortgage-backed and asset-backed securities as of December 31, 2000 and 1999, respectively. Of such amounts, $59.3 million and $82.4 million or 27.0% and 37.9%,
In 1992, the Company discontinued making new commercial mortgage loans, except to honor outstanding commitments or safeguard the values of existing investments. In 1999, due to improved market conditions, the need to maintain a diversified investment portfolio and advantageous yields, the Company began to originate new commercial mortgage loans.
Following is a summary of the Company’s commercial mortgage loans by geographic area and property type as of December 31, 2000 and 1999.
The Company’s commercial mortgage loan portfolio is managed by a group of experienced real estate professionals. These professionals monitor the performance of the loan collateral, physically inspect properties, collect financial information from borrowers and keep in close contact with borrowers and the local broker communities to assess the market conditions and evaluate the impact of such conditions on property cash flows. The Company’s real estate professionals identify problem and potential problem mortgage assets and develop workout strategies to deal with borrowers’ financial weakness, whether by foreclosing on properties to prevent a deterioration in collateral value, or by restructuring mortgages with temporary cash flow difficulties.
The carrying value of commercial mortgage loans at December 31, 2000 was $49.0 million, which amount is net of valuation allowances aggregating $0.8 million, which represents management’s, best estimate of cumulative impairments at such 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.
At December 31, 2000, the carrying value of restructured loans was $8.2 million, net of valuation allowances of $0.2 million. There were no problem or potential problem loans at December 31, 2000.
In addition to valuation allowances and impairment writedowns recorded on specific commercial mortgage loans classified as problem and restructured mortgage loans, the Company records a non-asset specific estimate of expected losses on all other such mortgage loans based on its historical loss experience for such investments. As of December 31, 2000 and 1999, such reserves were $0.6 million and $0.6 million, respectively.
The carrying value of the Company’s agricultural mortgage loans was $67.1 million and $112.2 million at December 31, 2000 and 1999, respectively, representing 57.8% and 68.0% of total mortgage assets. The agricultural mortgage portfolio is diversified both geographically and by type of product. The security for these loans includes row crops, permanent plantings, dairies, ranches and timber tracts. Due to strong agricultural markets and advantageous yields, the Company expects to continue to invest in agricultural mortgage investments. Less than 6.0% of total agricultural loans outstanding at both December 31, 2000 and 1999 were delinquent or in process of foreclosure.
The Company defines problem, potential problem and restructured agricultural mortgages in the same manner as it does for commercial mortgages. The following table presents the carrying amounts of problem, potential problem and restructured agricultural mortgages relative to the carrying value of all agricultural mortgages as of the dates indicated.
Problem agricultural mortgages included delinquent mortgage 	loans of $4.0 million and $1.1 million at December 31, 2000 	and 1999, respectively, and there were no mortgage loans in the 	process of foreclosure at such dates.
In addition to valuation allowances and impairment writedowns recorded on specific agricultural mortgage loans classified as problem, potential problem, and restructured mortgage loans, the Company records a non-asset specific estimate of expected losses on all other agricultural mortgage loans based on its historical loss experience for such investments. As of December 31, 2000 and 1999, such reserves were $0.6 million and $1.1 million, respectively.
Equity real estate is categorized as either “Real estate held for investment” or “Real estate to be disposed of”. Real estate to be disposed of consists of properties for which the Company has commenced marketing efforts. The carrying value of real estate held for investment totaled $3.1 million and $5.3 million as of December 31, 2000 and 1999, respectively. The carrying value of real estate to be disposed of aggregated $2.3 million and $1.6 million as of December 31, 2000 and 1999, respectively.
Includes $0.7 million and $1.2 million at December 31, 2000 	and 1999, respectively, relating to impairments taken upon 	foreclosure of mortgage loans.
All of the Company’s fixed maturity securities are classified as available for sale and, accordingly, are marked to market, with unrealized gains and losses excluded from earnings and reported as a separate component of accumulated other comprehensive income. Securities whose value is deemed other than temporarily impaired are written down to fair value. The writedowns are recorded as realized losses and included in earnings. The cost basis of such securities is adjusted to fair value. The new cost basis is not changed for subsequent recoveries in value. For the years ended December 31, 2000, 1999 and 1998 such writedowns aggregated $2.6 million, 0.0 million and $0.4 million, respectively.
The carrying value of real estate held for investment is generally adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Such impairment adjustments are recorded as realized investment losses and, accordingly, are reflected in the Company’s results of operations. There were no impairment adjustments for the years ended December 31, 2000, 1999 and 1998. At December 31, 2000 and 1999, the carrying value of real estate held for investment was $3.1 million and $5.3 million, or 0.2% and 0.4% of invested assets at such dates, respectively. The aforementioned carrying values are net of cumulative impairments of $1.0 million and $1.0 million, respectively, and net of accumulated depreciation of $1.0 million and $1.9 million, respectively. However, there can be no assurance that additional provisions for impairment adjustments with respect to real estate held for investment will not need to be made. Any such adjustments may have a material adverse effect on the Company’s financial position and results of operations.