Management’s discussion and analysis is omitted pursuant to General Instruction I(2)(a) of Form 10-K. The management narrative for AXA Equitable Life Insurance Company and its consolidated subsidiaries that follows should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements and information discussed under “Forward-looking Statements” and “Risk Factors” included elsewhere in this Form 10-K.
The global financial markets have been experiencing severe declines and disruption, accompanied by high levels of volatility and illiquidity for over a year. The Company’s businesses and consolidated results of operations have been and will likely continue to be adversely affected by this environment as described in this Management Narrative and elsewhere herein (see, e.g., “Business,” “Risk Factors” and the Notes to Consolidated Financial Statements). Some of the more significant effects include, but are not limited to, the following:
AXA Bermuda has a dynamic hedging program to mitigate the GMDB/GMIB market risk, consistent with a derivatives use plan similar to the Company’s. For further information regarding this transaction, see Note 11 of Notes to Consolidated Financial Statement included elsewhere herein.
In 2008, pre-tax earnings from continuing operations in the Insurance segment increased $3.19 billion to $4.49 billion as compared to $1.30 billion in 2007. The pre-tax earnings increase principally resulted from higher net investment income, higher commissions, fees and other income and lower compensation and benefits being partially offset by higher policyholders’ benefits and higher DAC amortization.
For 2008, commission costs decreased $307.1 million to $1.44 billion in 2008 from $1.74 billion in 2007 due to lower sales of interest-sensitive life and variable annuity products.
Members of the Insurance Group monitor their respective regulatory capital requirements on an ongoing basis taking into account the prevailing conditions in the capital markets. Lower interest rates and dramatic declines in the equity markets have substantially increased the reserve requirements and capital needed to support the variable annuity business. The significant decline in the value of the AllianceBernstein Units has reduced regulatory capital levels. As part of the efforts to manage capital requirements, during fourth quarter 2008, the proceeds from AXA Financial’s $3.00 billion of new borrowings from AXA were used to enhance the capitalization of certain of its insurance subsidiaries, including a $1.00 billion contribution to AXA Equitable through the purchase of surplus notes.
Future capital requirements will depend on future capital market conditions, which are highly volatile and unpredictable. Management believes that the Insurance Group should continue to have the ability to meet the capital requirements necessary to support its business. For additional information, see “Item 1A - Risk Factors”.
Other liquidity sources include dividends and distributions from AllianceBernstein. In 2008, the Company received cash distributions from AllianceBernstein and AllianceBernstein Holding of $461.6 million as compared to $620.3 million in 2007. The decline in cash distribution is expected to continue in 2009.