The information required by this Item is omitted pursuant to General Instruction I to Form 10-K.
On September 17, 2003, MONY Group entered into an Agreement and Plan of Merger with AXA Financial, Inc. (“AXA Financial”) and AIMA Acquisition Co., which was subsequently amended on February 22, 2004 (hereafter referred to collectively as the “AXA Agreement”), pursuant to which MONY Group will become a wholly owned subsidiary of AXA Financial in a cash transaction valued at approximately $1.5 billion. Under the terms of the AXA Agreement, which has been approved by the boards of directors of AXA Financial and MONY Group, MONY Group’s shareholders will receive $31.00 for each share of MONY Group’s common stock. The acquisition contemplated by the AXA Agreement is subject to various regulatory approvals and other customary conditions, including the approval of MONY Group’s shareholders. A special meeting of MONY Group’s shareholders is scheduled for May 18, 2004 to vote on the proposed acquisition of MONY Group by AXA Financial. The transaction is expected to close in the second quarter of 2004. See Note 18 to the MONY Holdings and Subsidiary Consolidated Financial Statements for further information regarding MONY Group’s pending merger transaction with AXA Financial.
• While the market value of assets funding the Company’s tax-qualified defined benefit pension liabilities (“RISPE”) exceeded the Company’s tax-qualified defined benefit Accumulated Benefit Obligation (“ABO”) at December 31, 2003, any unfunded ABO at December 31, 2004 will either cause the Company to contribute assets to the pension plan in an amount sufficient to eliminate any unfunded ABO or, as required by GAAP, the Company will be required to charge to comprehensive income the full amount of any prepaid benefit cost at such date. At December 31, 2003, prepaid benefit costs aggregated $132.5 million. While management expects that, in the event of an underfunded position, it would make a contribution to the Company’s pension plan to avoid such a charge to comprehensive
Benefits to policyholders were $841.5 million for 2003, an increase of $38.4 million, or 4.8%, from $803.1 million reported for 2002. The increase consisted primarily of higher benefits of $32.8 million, $7.8 million, and $2.2 million in the Protection Products, Accumulation Products, and Other Products segments, respectively, partially offset by a decrease in reconciling amounts of $4.4 million. The increase in the Protection Products segment of $32.8 million was primarily attributable to (i) a $24.5 million increase in death claims in USFL, attributable to an unusually high level of claims in the first half of 2003 compared to an unusually low level of claims in 2002 and an increase in USFL’s in-force block of business, (ii) an increase in death benefits on CSVUL and individual life outside the Closed Block of $3.3 million and $5.0 million, respectively, attributable primarily to increased sales of these products over the past few years, (iii) a $17.8 million increase in death benefits in the Closed Block, net of reinsurance, attributable to an unusually low level of claims in 2002, and (iv) a $6.8 million increase in reserves primarily due to the growth of the in-force block of business for USFL’s products and for individual life products outside the Closed Block. These increases were partially offset by a $21.7 million decrease in surrender benefits, primarily in the Closed Block, attributable to conservation efforts, and a $3.6 million decrease in death benefits on UL business. The decrease in death benefits on UL business is attributable to poor mortality experience in 2002 compared to 2003. The increase in the Accumulation Products segment was primarily due to higher reserves on individual annuity products and supplementary contracts of $9.0 million and $2.1 million, respectively, partially offset by lower benefit reserves of $3.4 million on the Company’s FPVA product as compared to the prior year. The increased reserves on individual annuities and supplementary contracts were attributable to higher sales of these accumulation products, while the lower reserves for guaranteed minimum death benefits (“GMDB”) on the Company’s FPVA products were due to improving market conditions. The reduction in GMDB reserves was partially offset by an increase in death benefit payouts. The increased benefits in the Other Products segment were primarily attributable to higher reserves for group health and an increase in claims experience.
Dividends to policyholders (all but a de minimus amount of which are recorded in the Protection Products segment) were $224.3 million for 2003, an increase of $36.3 million, or 19.3%, from $188.0 million reported for 2002. Dividends to policyholders can be broken down into two components, namely policyholder dividends payable in the current year and the change in the deferred dividend liability. The $36.3 million increase in dividends to policyholders was due to a period over period increase of $38.3 million in the deferred dividend liability, offset by a period over period decrease of $2.0 million in dividends paid to policyholders due to the run-off of the Closed Block business.
New Business Information for the year ended December 31, 2003 compared to the year ended December 31,
agency and the remaining 63.7% in other sectors, none of which exceeded 10.0% of total fixed maturity securities. At December 31, 2002, the portfolio of fixed maturity securities included 18.5% in consumer goods and services, 12.9% in asset and mortgage backed securities, 10.7% in other manufacturing and the remaining 57.9% in other sectors, none of which exceeded 10.0% of total fixed maturity securities.
The Company held approximately $992.8 million and $1,013.9 million of mortgage-backed and asset-backed securities as of December 31, 2003 and 2002, respectively. Of these amounts, $399.4 million and $305.5 million, or 40.2% and 30.4%, respectively, represented agency-issued pass-through and collateralized mortgage obligations secured by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Government National Mortgage Association and Canadian Housing Authority collateral. The balance of such amounts was comprised of other types of mortgage-backed and asset-backed securities. The Company believes that its active monitoring of the Company’s portfolio of mortgage-backed securities and the limited extent of the Companys’ holdings of more volatile types of mortgage-backed securities mitigate the Company’s exposure to losses from prepayment risk associated with interest rate fluctuations for this portfolio. At December 31, 2003 and 2002, 86.0% and 87.1%, respectively, of the Company’s mortgage-backed and asset-backed securities were assigned a NAIC Designation 1.
At December 31, 2003, the carrying value of the Company’s problem, potential problem and restructured loans was $0.0 million, $18.1 million and $5.7 million, respectively, net of valuation allowances of $0.0 million, $0.8 million and $2.1 million, respectively. Valuation allowances include impairment writedowns recorded prior to the adoption of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, of $2.1 million at December 31, 2003 and 2002.
As indicated in the above tables, there were 13 investment grade fixed maturity security positions that have been in an unrealized loss position for more than 12 months as of December 31, 2002. The aggregate gross pre-tax unrealized loss relating to these positions was $2.9 million ($1.9 million after-tax) as of such date. Of these positions: (i) two comprising approximately $0.5 million ($0.3 million after-tax) of the aforementioned aggregate unrealized loss, were not considered “other than temporarily impaired” principally because of the issuer’s financial strength as indicated by the fact that all such securities were rated “A” or better, (ii) eight comprising approximately $2.4 million ($1.6 million after-tax) of the aforementioned unrealized loss was not considered “other than temporarily impaired” because management is of the opinion that the unrealized loss position was primarily attributable to temporary market conditions affecting the related industry sectors, as well as the fact that management’s analysis of the issuer’s financial strength supported the conclusion that the security was not “other than temporarily impaired”, and (iii) three positions with negligible unrealized losses were U.S. Government securities.
(1) Expenses of approximately $6.0 million relating to the Final Value Payment are recorded in “Other operating costs and expenses” on the Company’s consolidated statement of income and comprehensive income for 2002.
The following table sets forth the withdrawal characteristics and the surrender and withdrawal experience of the Company’s total annuity reserves and deposit liabilities at December 31, 2003 and 2002.
The following table provides a summary of the Company’s material contractual obligations as of December 31, 2003, other than those arising from its ordinary product activities and from its pension obligations. See Note 11 to the MONY Holdings and Subsidiary Consolidated Financial Statements for details of the Company’s pension plans and other postretirement benefits.
• The reserve change in individual life contracts of $72.8 million and $63.6 million for the years ended December 31, 2003 and 2002, respectively, a change of $9.2 million. The increase in the change in reserves was due to higher premiums on universal life business.
The principal source of payment of principal and interest on the Insured Notes is interest income on the SRA and release of those assets as Closed Block liabilities are met over time. The SRA were initially selected by MONY Life prior to the effective date of the offering of the Insured Notes. The selection and the investment management of the SRA is required under the Indenture conform to the investment policy set forth in the Indenture.
• An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated and are continuing;
(1) The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of fixed maturity securities in the DSCA Sub-account OB at December 31, 2003 are $58.3 million, $2.8 million, $0.0 million and $61.1 million, respectively - see Note 21.
During 2002, the Company amended its Qualified Pension plan, which increased certain benefit liabilities payable thereunder. The amendment resulted in an increase of $3.7 million in the plan’s projected benefit obligation.
Effective December 31, 2002, the State of New York adopted certain provisions of NAIC SAP contained in SSAP No. 10-Income Taxes, which requires New York domiciled companies to record net deferred tax assets and deferred tax liabilities. Prior to December 31, 2002, New York prescribed practices prohibited New York domiciled companies from reporting DTA’s and DTL’s in a reporting entity’s Statement of Assets, Liabilities, Surplus and Other Funds.
Realized capital gains and losses on sales of investments are determined on the identified cost basis. Unrealized capital gains and losses are recorded directly to surplus. Investment income is recognized as earned. Investment income earned includes the amortization of premium and accretion of discount and excludes certain overdue due and accrued interest income. Prepayment penalties are recorded as investment income when received.
The Company received capital contributions from MONY Holdings of $43.7 million and $125.0 million in 2003 and 2002, respectively.
Company recorded an intercompany receivable of $17.2 million and $23.5 million at December 31, 2003 and 2002, respectively, related to these agreements.
The Company invests in mortgage loans collateralized by commercial and agricultural real estate. Such mortgage loans consist primarily of first mortgage liens on completed income-producing properties. As of December 31, 2003, $245.3 million of mortgage loans have terms that require amortization, and $1,142.4 million of mortgage loans require partial amortization or are non-amortizing. Mortgage loans delinquent over 90 days or in process of foreclosure were $3.8 million at December 31, 2003 and $7.0 million at December 31, 2002. Properties acquired through foreclosure during the year amounted to $0.0 million and $12.0 million in 2003 and 2002, respectively.
The amounts shown above are included in the Company’s statement of admitted assets, liabilities, capital and surplus as life insurance and annuity reserves ($1.2 billion) and separate account liabilities ($1.3 billion).
The Company does not hold any stock for the conversion of preferred stock, employee stock options, stock purchase warrants or any other such purpose. However, the MONY Group sponsors two stock option plans and a restricted stock plan for certain officers, employees, directors and qualifying agents of the Company and its subsidiaries. Pursuant to the 1998 Stock Incentive Plan, the MONY Group was restricted from issuing options for its common stock in excess of 2,361,908 shares through November 18, 2004. As of December 31,2003, options representing 2,414,138 shares of MONY Group’s common stock had been issued, which includes shares terminated and allowable for reissuance, under the 1998 Stock Incentive Plan. Pursuant to the 2002 Stock Option Plan, the MONY Group is restricted from issuing options for its common stock in excess of 5,000,000 shares. No stock option granted under the 2002 Stock Option Plan, even if vested, may be exercised, transferred or otherwise disposed of by the optionee prior to December 24, 2003. As of December 31, 2003, issued and outstanding options under the 2002 Stock Option Plan totaled 2,377,875 shares of the MONY Group’s common stock. All options issued under the plans are subject to certain vesting requirements and certain other forfeiture
The main components of the 2003 deferred tax amounts are as follows (in millions):
On June 7, 1996, the New York State Supreme Court certified one of those cases, Goshen v. The Mutual Life Insurance Company of New York and MONY Life Insurance Company of America (now known as DeFilippo, et al v. The Mutual Life Insurance Company of New York and MONY Life Insurance Company of