The Company's administrative offices are located at MONY Life's corporate office, located at 1740 Broadway, New York, New York and consists of approximately 265,613 square feet. MONY Life also has office facilities in Syracuse and New York for use in its insurance operations, which consist of approximately 577,646 square feet in the aggregate. MONY Life also leases all 105 of its
The following table sets forth selected financial data for the Company. The selected financial data as of December 31, 2001 and 2000 and for each of the years in the three-year period ended December 31, 2001 has been derived from audited financial statements herein. The selected financial data as of December 31, 1999, 1998 and 1997 and for each of the years ended December 31, 1998 and 1997 has been derived from audited financial statements not included herein. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", the Company's financial statements and related footnotes thereto and other financial information included elsewhere herein.
MLOA is a stock life insurance company organized in the state of Arizona. The Company is a wholly owned subsidiary of MONY Life Insurance Company ("MONY Life"), formerly The Mutual Life Insurance Company of New York, which converted from a mutual life insurance company to a stock life insurance company on November 16, 1998 (the "Demutualization"), and is domiciled in the state of New York. MONY Life is a wholly owned subsidiary of The MONY Group, Inc. (the "MONY Group"), a Delaware Corporation organized to be the parent holding company of MONY Life. The Company is a stock life insurance company organized in the state of Arizona and is the corporate successor of VICO Credit Life Insurance Company, incorporated in Arizona on March 6, 1969.
Preparation of the Company's financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant use of judgment. Differences between estimated and actual results and changes in facts and circumstances that cause management to revise its estimates may materially affect the Company's results of operations and financial position.
The Company records investments in fixed maturities available for sale, equity securities, and investments in limited partnership interests accounted for using the equity method at fair value in the balance sheet. In most cases, the Company determines fair values using quoted market prices. However, valuation of certain investments, such as private placement fixed maturities, requires
The Company records changes in the fair values of investments in fixed maturities available for sale and equity securities that are not considered to be other than temporarily impaired in other comprehensive income. For investments the Company considers to be other than temporarily impaired, the Company records an impairment loss, which is reflected in realized gains (losses) on investments. Determining if a security is other than temporarily impaired and the valuation of impaired securities requires use of estimates and significant judgment. The Company's financial position and operating results are therefore affected by changes in circumstances that affect the value of these investments and the Company's determination as to whether the investments are other than temporarily impaired.
The Company records mortgage loans on real estate at their unpaid principal balances. The Company records valuation allowances on mortgage loans based on specific identification of troubled mortgages and an estimate for incurred but not reported defaults. The Company derives its valuation allowance for troubled mortgages based on expected future cash flows or, if the mortgage is in foreclosure, based on the value of the underlying collateral. The Company bases its estimate for incurred but not reported defaults on historical default rates and the current mortgage portfolio composition. The Company's financial position and operating results are therefore sensitive to changes in the estimated cash flows of the troubled mortgages, the value of related collateral and changes in the economic environment in general.
The Company values DAC and insurance reserves in accordance with the relevant GAAP pronouncements: generally Financial Accounting Standards Board ("FASB") 60 for term and whole life insurance products, FASB 97 for universal life and investment-type contracts, and FASB 120 for traditional participating life insurance contracts. The valuation of DAC and insurance reserves requires management to make assumptions about future investment yields, mortality rates, lapse rates, expense levels, policyholder dividends and policy duration. For many of the Company's products, amortization of DAC varies with profit margins of the policies and contracts supporting the DAC balances. The Company must periodically evaluate the recoverability of DAC 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 operating results.
In addition to the items discussed above, the application of GAAP requires management to make other estimates and assumptions. For example, the recognition of deferred tax assets which depends upon management's assumption that future earnings will be sufficient to realize the deferred tax benefit. See Note 8 to the Financial Statements.
During the fourth quarter of 2001, the Company recorded charges aggregating approximately $20.7 million on a pre-tax basis. Of this amount approximately $14.8 million represented "Reorganization Charges" taken in connection with the Company's reorganization of certain of its lines of business and $2.5 million represented "Other Charges" unrelated to the Company's reorganization activities. The Reorganization Charges consisted of: (i) losses from abandonment of certain leased offices, (ii) the write-off of deferred acquisition costs as a result of the decision to exit certain lines of business, and (iii) certain other charges. The
The terrorist events of September 11th had no material effect on the Company's financial position at December 31, 2001 or its results of operations for the year then ended. The net effect of life insurance claims relating to the incident (after reinsurance and the release of related policy reserves) aggregated approximately $2.1 million pre-tax. In addition, the Company incurred business interruption losses. These losses principally arose from the temporary closing of the Company's New York corporate offices and lost revenues resulting from the volatility of the securities markets, and consumer uncertainty with respect to equity based products in the aftermath of September 11th. To date, no determination has been made with respect to the Company's ability to recover the aforementioned damages under its insurance coverages.
The following table presents the Company's results of operations for the years ended December 31, 2001, 2000 and 1999. The financial information herein is presented in accordance with GAAP unless otherwise noted.
UL and investment-type product fees were $159.7 million for 2001, an increase of $1.5 million, or 0.9%, from $158.2 million reported for 2000. The principal reasons for the change from period to period are as follows:
VUL and corporate sponsored variable universal life ("CSVUL") product fees were $67.2 million for 2001, an increase of $12.8 million from $54.4 million reported for 2000. The increase in fees is primarily due to higher cost of insurance, administrative and loading charges of $7.2 million, $3.7 million and $1.1 million, respectively.
Premium revenue was $56.3 million for 2001, an increase of $19.0 million from $37.3 million reported for 2000. Approximately $11.5 million of the increase was a result of increased premiums ceded from USFL under its modified co-insurance agreement with the Company. See "Business-Reinsurance". The remainder of the increase is a result of higher renewal premiums relating to level term business, which has been trending upward since the introduction of this product by the Company in the fourth quarter of 1997.
Net investment income was $93.8 million for 2001, an increase of $1.1 million, or 1.2%, from $92.7 million reported for 2000. The increase was primarily related to higher average invested assets of $150.8 million, partially offset by a 37 basis point decrease in portfolio yields.
For the Years Ended December 31, ------------------- 2001 2000 ------- ------- Fixed maturities .................... $ 4.7 $(5.3) Mortgage loans ...................... 0.8 0.1 Real estate ......................... (0.2) 0.1 ----- ----- $ 5.3 $(5.1) ===== =====
Benefits to policyholders were $97.9 million for 2001, an increase of $29.8 million, or 43.8%, from $68.1 million reported for 2000. The increase is due to, and consistent with, higher reserves for the traditional in-force block, a greater volume of activity on the assumed block of business, and the rapid growth of new reserves on level term supplemental contract benefits payments of $11.8 million.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
VUL and CSVUL product fees were $54.4 million for 2000, an increase of $17.5 million from $36.9 million reported for 1999. The increase in fees is primarily due to higher cost of insurance, administrative and loading charges of $5.1 million, $5.1 million and $4.5 million, respectively.
UL product fees were $50.4 million for 2000, a decrease of $0.5 million from $50.9 million reported for 1999. The decrease is primarily due to reduced administrative, loading, and surrender charges aggregating $1.1 million, partially offset by increased cost of insurance charges and lower unearned revenue (amount assigned to the policyholders for future services) of $0.6 million.
Premium revenue was $37.3 million for 2000, an increase of $28.1 million from $9.2 million reported for 1999. Approximately $22.2 million of the increase was a result of increased premiums ceded from USFL under its modified co-insurance agreement with the Company. The additional increase is a result of renewal premiums relating to level term business, which has been trending upward since the Company began offering this product in the fourth quarter of 1997.
Net realized losses on investments were $5.1 million for 2000, an increase of $4.8 million, from net realized losses of $0.3 million reported for 1999. The following table sets forth the components of net realized losses by investment category for 2000 and 1999.
Benefits to policyholders were $68.1 million for 2000, an increase of $24.5 million, or 56.2%, from $43.6 million reported for 1999. The increase in 2000 is primarily a result of (i) higher assumed benefits from USFL of $12.4 million, (ii) an increase in traditional death benefits of $8.9 million, and (iii) higher death benefits related to COLI business of $3.7 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 for 1999. The decrease was primarily due to: (i) lower interest credited on SPDA account balances and other declining lines of business, and (ii) modest declines in crediting rates which reduced interest crediting by approximately $4.5 million, partially offset by higher interest crediting on COLI of $3.6 million.
Amortization of DAC was $48.8 million for 2000, an increase of $5.3 million, or 12.2%, from $43.5 million reported for 1999. The increase in DAC amortization was primarily due to $4.7 million higher amortization related to the Company's VUL business as a result of improved mortality, and higher amortization of $2.6 million related to the modified co-insurance agreement between USFL and the Company. These increases were partially offset by a $2.4 million reduction in FPVA amortization, due to the growing levels of exchange activity to the new variable annuity products, where better persistency is expected.
Other operating costs and expenses were $88.6 million for 2000, an increase of $14.8 million, or 20.1%, from $73.8 million reported for 1999. The increase is due to higher general expenses, commissions and expenses related to assumed business from USFL.
The events most likely to cause an adjustment in the Company's investment policies are: (i) a significant change in its product mix, (ii) a significant change in the outlook for either the economy in general or for interest rates in particular, and (iii) a significant re-evaluation of the prospective risks and returns of various asset classes.
The following table sets forth, by product line, the actual amounts paid in connection with surrenders and withdrawals for the periods indicated.
For the Year Ended December 31, --------------------------------- 2001 2000 1999 -------- -------- -------- ($ in millions) Product Line: Variable and universal life .................... $ 66.2 $ 37.2 $ 36.0 Annuities(1) .............. 388.4 665.0 739.5 -------- -------- -------- Total ........... $ 454.6 $ 702.2 $ 775.5 ======== ======== ========
At December 31, 2001, the Company had commitments to issue $1.1 million of fixed and floating rate commercial mortgages ranging from 4.8% to 7.68%, and $3.5 million of fixed rate agricultural loans with periodic interest rate reset dates. The initial interest rates on such loans range from 6.87% to 7.25%. The Company had a commitment outstanding to purchase a private fixed maturity security as of December 31, 2001 of $8.0 million with an interest rate of 10.0%.
Of the $60.6 million in commercial mortgage loans outstanding in the Company's investment portfolio at December 31, 2001, $6.2 million, $0.0 million and $2.3 million are scheduled to mature in 2002, 2003 and 2004, respectively. See "Investments -- Mortgage Loans -- Commercial Mortgage Loans".
At December 31, 2001, aggregate maturities of long-term debt based on required remaining principal payments for the next five years are $2.4 million, $2.6 million, $2.8 million, $3.0 million and $3.2 million, respectively, and $30.6 million thereafter.
Aggregate contractual debt service payments on the Company's outstanding debt at December 31, 2001 are $5.4 million each year for the next five years and $39.0 million thereafter.
The NAIC established RBC requirements to help state regulators monitor and safeguard life insurers' financial strength by identifying those companies that may be inadequately capitalized. The RBC guidelines provide a method to measure the adjusted capital (statutory-basis capital and surplus plus the Asset Valuation Reserve and other adjustments) that a life insurance company should have for regulatory purposes, taking into consideration the risk characteristics of such company's investments and products. A life insurance company's RBC ratio will vary over time depending upon many factors, including its earnings, the nature, mix and credit quality of its investment portfolio and the nature and volume of the products that it sells.
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, 2001 and 2000 was 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 Company had total assets at December 31, 2001 of approximately $5.8 billion. Of the Company's total assets at such date, approximately $2.2 billion represented assets held in the Company's general account and approximately $3.6 billion were held in the Company's separate accounts.
Separate account assets, for which the Company does not generally bear investment risk, are managed in accordance with the prescribed investment strategy that applies to the specific separate account. Separate accounts are established in conformity with insurance laws and generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent that the value of such assets exceeds the separate account liabilities. Investments held in separate accounts and liabilities of the separate accounts are reported separately as assets and liabilities. Substantially all separate account assets are reported at estimated fair value. Investment income and gains or losses on the investments of separate accounts accrue directly to contract holders and, accordingly, are not reflected in the Company's statements of income and cash flows. Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues.
2001 2000 1999 ----- ----- ----- Fixed maturities ......................... 6.8% 7.2% 7.4% Mortgage loans on real estate ............ 7.2 7.9 8.1 Policy loans ............................. 6.1 7.0 6.9 Other invested assets .................... 7.9 12.7 20.9 Cash and cash equivalents ................ 4.4 7.8 4.3
Total invested assets before investment expenses ............................... 6.5 7.3 7.3 Investment expenses ................. (0.1) (0.1) (0.2) ---- ---- ---- Total invested assets after investment expenses ............................... 6.4% 7.2% 7.1% ==== ==== ====
At December 31, 2001, 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 87.2% compared to 88.8% for December 31, 2000. At December 31, 2001, the fixed maturities portfolio was comprised, based on estimated fair value, of 44.3% in public fixed maturities, and 55.7% in private fixed maturities, compared to 47.0% in public fixed maturities and 53.0% in private fixed maturities at December 31, 2000.
The Company reviews all fixed maturity securities at least once each quarter and identifies investments that management concludes require additional monitoring. Among the criteria are: (i) violation of financial covenants, (ii) public securities trading at a substantial discount as a result of specific credit concerns, and (iii) other subjective factors relating to the issuer.
Within its fixed maturities portfolio, the Company identifies "problem fixed maturity securities", "potential problem fixed maturity securities" and "restructured fixed maturity securities". See Note 5 to the Consolidated Financial Statements for a discussion of the criteria used in these identifications.
The Company has a well-diversified portfolio of fixed maturities. The portfolio at December 31, 2001 included 24.4% in consumer goods and services, 17.5% in asset and mortgage backed securities, and the remaining 58.1% in other sectors, none of which exceeded 10.0% of the total fixed maturities portfolio. At December 31, 2000, the portfolio included 19.7% in consumer goods and services, 21.6% in asset and mortgage backed securities, 12.2% in public utilities, and the remaining 46.5% in other sectors, none of which exceeded 10.0% of the total fixed maturities portfolio.
At December 31, 2001, the Company's largest unaffiliated single concentration of fixed maturities consisted of $34.6 million of carrying value of Federal Home Loan Mortgage Corporation ("FHLMC") fixed maturities which represented approximately 2.2% of total invested assets at December 31, 2001. The largest non-government issuer consists of $19.9 million of Waremart notes, which represent approximately 1.3% of total invested assets at December 31, 2001. See Note 10 to the Consolidated Financial Statements. No other individual non-government issuer represents more than 1.2% of invested assets.
The Company manages this prepayment and extension risk by investing in CMO tranches that provide for greater stability of cash
flows. The following table presents the mix of CMO tranches as of the dates indicated.
As of December 31, ------------------ 2001 2000 ------- ------- ($ in millions) Planned Amortization Class .......... $ 51.6 $ 79.3 Sequential .......................... 11.2 24.1 Other ............................... 15.1 0.0 ------- ------- Total CMOs ................ $ 77.9 $ 103.4 ======= =======
The Planned Amortization Class ("PAC") tranche is structured to provide more certain cash flows to the investor and therefore is subject to less prepayment and extension risk than other CMO tranches. In general, the Company's PACs are structured to provide average life stability for increases and decreases in interest rates of 100 to 200 basis points. PACs derive their stability from two factors: (i) early repayments are applied first to other tranches to preserve the PACs' originally scheduled cash flows as much as possible and (ii) cash flows applicable to other tranches are applied first to the PAC if the PAC's actual cash flows are received later than originally anticipated.
Asset-backed securities ("ABS") are purchased both to diversify the overall credit risks of the fixed maturity portfolio and to provide attractive returns. The ABS portfolio is diversified both by type of asset and by issuer. The largest asset class exposure in the ABS portfolio is to credit card receivables, representing 46.7% and 55.5% of total ABS at December 31, 2001 and 2000, respectively. These are comprised of pools of both general purpose credit card receivables such as Visa and Mastercard and private label credit card receivable pools. Other significant asset class exposures in the ABS portfolio included manufactured housing (20.4% and 2.5%, respectively), collateralized obligations (14.2% and 15.9%, respectively), and public utilities rate reduction receivables (12.3% and 13.4%, respectively). No other asset class exposures exceeded 10.0% of total ABS as of December 31, 2001 and 2000. Excluding the exposures to home equity loans (which represented 6.3% and 4.3%, respectively of the ABS portfolio as of December 31, 2001 and 2000), the ABS portfolio in general is insensitive to changes in interest rates. As of December 31, 2001 and 2000, respectively, the ABS portfolio did not contain any pools of assets outside of the United States.
The Company's commercial mortgage loan portfolio is geographically diversified throughout the United States. At December 31, 2001 and 2000, the highest concentration was in the southeast region, comprising 39.5% and 73.3% respectively, of the total.
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.
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-specific estimate of expected losses on all other such mortgage loans based on its historical loss experience for such investments. As of December 31, 2001 and 2000, such reserves were $0.7 million and $0.6 million, respectively.
The carrying value of the Company's agricultural mortgage loans was $72.2 million and $67.1 million at December 31, 2001 and 2000, respectively, representing 54.4% and 57.8% of total mortgage assets. The agricultural mortgage loan 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. Approximately 1.8% and 6.0% of total agricultural loans outstanding at both December 31, 2001 and 2000,
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 December 31, 2001 and 2000 were $2.2 million and $4.9 million, respectively. Problem agricultural mortgages included delinquent mortgage loans of $0.9 million and $4.0 million at December 31, 2001 and 2000, respectively, and there were mortgage loans in the process of foreclosure of $0.5 million and $0.0 million at such dates.
(1) Includes $0.7 million at December 31, 2001 and 2000, 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 and the new cost basis is not changed for subsequent recoveries in value. For the years ended December 31, 2001, 2000 and 1999 such writedowns aggregated $3.0 million, $2.6 million and $0.0 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. Real estate held for investment is included in "Other invested assets" in the Company's balance sheet. There were no impairment adjustments for the years ended December 31, 2001, 2000 and 1999. At December 31, 2001 and 2000, the carrying value of real estate held for investment was $3.7 million and $3.1 million, or 0.2% and 0.2%, 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 $1.2 million and $1.0 million, respectively, as of December 31, 2001 and 2000. However, there can be no assurance that additional provisions for
The carrying value of real estate to be disposed of at December 31, 2001 and 2000 was $2.3 million and $2.3 million, net of impairment adjustments of $0.0 million and $0.0 million, valuation allowances of $0.4 million and $0.2 million, and accumulated depreciation of $1.2 million and $1.2 million, respectively. Real estate to be disposed of is included in "Other invested assets" in the Company's balance sheet. Once management identifies a real estate property to be sold and commences a plan for marketing the property, the property is classified as to be disposed of and a valuation allowance is established and periodically revised, if necessary, to adjust the carrying value of the property to reflect the lower of its current carrying value or the fair value, less associated selling costs. See Note 2 to the Financial Statements. Increases in such valuation allowances are recorded as realized investment losses and, accordingly, are reflected in the Company's results of operations. For the years ended December 31, 2001, 2000 and 1999, such increases (decreases) in valuation allowances aggregated $(0.2) million and $(0.1) million, and $0.3 million, respectively.