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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
COMMISSION FILE NUMBER: 333-65423
MONY LIFE INSURANCE COMPANY OF
AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARIZONA 86-0222062
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1290 AVENUE OF THE AMERICAS,
NEW YORK, NEW YORK 10104
(212) 554-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
No voting or non-voting common equity of the Registrant is held by
non-affiliates of the Registrant as of June 30, 2004. Indicate by check mark
whether the Registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2). Yes __ No X
As of March 30, 2005, 2,500,000 shares of the Registrant's Common Stock were
outstanding.
REDUCED DISCLOSURE FORMAT:
Registrant meets the conditions set forth in General Instruction I(1)(a) and (b)
of Form 10-K and is therefore filing this Form with the Reduced Disclosure
Format.
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TABLE OF CONTENTS
PAGE
PART I
Item 1: Business ....................................................................................................... 1-1
Overview ....................................................................................................... 1-1
Recent Events .................................................................................................. 1-1
Products ....................................................................................................... 1-1
General Account Investment Portfolio ........................................................................... 1-3
Competition .................................................................................................... 1-3
Regulation ..................................................................................................... 1-3
Employees ...................................................................................................... 1-5
Parent Company ................................................................................................. 1-5
Other Information .............................................................................................. 1-5
Item 2: Properties ..................................................................................................... 2-1
Item 3: Legal Proceedings .............................................................................................. 3-1
Item 4: Submission of Matters to a Vote of Security Holders* ........................................................... 4-1
PART II
Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ... 5-1
Item 6: Selected Financial Data* ....................................................................................... 6-1
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management Narrative") . 7-1
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..................................................... 7A-1
Item 8. Financial Statements and Supplementary Data .................................................................... FS-1
Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure ........................... 9-1
Item 9A. Controls and Procedures ........................................................................................ 9A-1
Item 9B. Other Information .............................................................................................. 9B-1
PART III
Item 10. Directors and Executive Officers of the Registrant* ............................................................ 10-1
Item 11. Executive Compensation* ........................................................................................ 11-1
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters* ................ 12-1
Item 13: Certain Relationships and Related Transactions* ................................................................ 13-1
Item 14: Principal Accounting Fees and Services ......................................................................... 14-1
PART IV
Item 15: Exhibits and Financial Statement Schedules ..................................................................... 15-1
Signatures ................................................................................................................. S-1
Index to Exhibits .......................................................................................................... E-1
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*Omitted pursuant to General Instruction I to Form 10-K
PART I
PART I, ITEM 1.
BUSINESS(1)
OVERVIEW
MONY Life Insurance Company of America ("MLOA") is an Arizona stock life
insurance company and a wholly owned subsidiary of MONY Life. MLOA's
primary business is to provide life insurance and annuity products to both
individuals and businesses. MLOA is licensed to sell its products in 49
states (not including New York), the District of Columbia and Puerto Rico.
As of December 31, 2004, MLOA had approximately 280,000 insurance policies
and contracts in force.
MONY Life is a wholly owned subsidiary of AXA Financial, Inc. (the "Holding
Company") and the Holding Company is a wholly owned subsidiary of AXA, a French
holding company for an international group of insurance and related financial
services companies. AXA is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and files annual reports on Form
20-F. For additional information regarding AXA, see "Parent Company".
RECENT EVENTS
On July 8, 2004, the Holding Company completed its acquisition of MONY
(the "MONY Acquisition"). For additional information regarding the MONY
Acquisition, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 of Notes to Financial
Statements.
PRODUCTS
Prior to the MONY Acquisition, MLOA offered a broad portfolio of life
insurance products consisting primarily of variable universal life
insurance ("VUL") and universal life insurance (including group universal
life insurance). In addition, MLOA has offered whole life and a variety of
term life insurance products. MLOA has also offered a variety of annuity
products, such as flexible premium variable annuities, flexible premium
deferred annuities and single premium immediate annuities. For additional
information regarding certain features of MLOA's variable annuity
products, see Note 8 of Notes to Financial Statements.
Variable life and variable annuity contractholders have a broad selection
of investment accounts representing a range of investment objectives in
which to invest the assets held under their contracts. Since the merger in
2004 of two MONY affiliated mutual fund families into EQ Advisors Trust
("EQAT"), the investment options available to MLOA's variable life and
variable annuity contractholders are comprised of EQAT's proprietary fund
family and various non-proprietary fund families. MLOA's variable life
insurance contracts have as many as 81 investment options and MLOA's
variable annuity contracts have as many as 68 investment options.
Depending on the investment options available under the specific contract,
variable contractholders may allocate their funds among a wide variety of
these investment options.
In connection with the MONY Acquisition, management continues to evaluate
the products sold by MLOA as part of an overall review of insurance
products offered by AXA Equitable and the Holding Company's other
insurance subsidiaries with a view towards reducing duplication of
products, improving the quality of the product line-up and enhancing the
overall profitability of AXA Financial. This evaluation has resulted in
the recent discontinuation of new sales of certain insurance and annuity
products offered by MLOA, including all non-variable universal life
products, all single premium immediate annuity products and most variable
annuity products. It is contemplated that new sales of certain other life
insurance and annuity products offered by MLOA will be discontinued during
2005 and possibly thereafter. Since this review of products is ongoing,
and since future decisions with regard to product development depend on
factors and considerations not yet known, management is unable to predict
the extent to which, if at all, MLOA will continue to issue significant
amounts of new business.
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(1) As used in this Form 10-K, the term "AXA Financial" refers to AXA
Financial, Inc., a Delaware corporation incorporated in 1991 and its
consolidated subsidiaries, including AXA Equitable Life Insurance Company ("AXA
Equitable"). The term "MONY" refers to The MONY Group Inc., a Delaware
corporation acquired by the Holding Company on July 8, 2004, that merged with
and into the Holding Company on July 22, 2004, and the term "MONY Companies"
means MONY Life Insurance Company ("MONY Life"), MLOA, Advest, Inc. ("Advest"),
U.S. Financial Life Insurance Company ("USFL")and the other subsidiaries of MONY
acquired by AXA Financial in the MONY Acquisition. The term "Separate Accounts"
refers to the separate account investment assets of MLOA excluding the assets
held in those separate accounts on which MLOA bears the investment risk. The
term "General Account Investment Assets" refers to assets held in the General
Account associated with MLOA's continuing operations.
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DISTRIBUTION
Retail distribution of MLOA's insurance products is accomplished principally
through MONY Life financial professionals. As of December 31, 2004, MONY Life
had approximately 920 financial professionals. MONY Life financial professionals
receive sales compensation based on a percentage of the premiums paid on each
product they sell. The percentage paid to MONY Life financial professionals is
directly linked to their production levels. MONY Life financial professionals
who sell variable products are also registered representatives of MONY
Securities Corporation, MLOA's broker-dealer affiliate.
MLOA also distributes its products on a wholesale basis, principally through
MONY Life's MONY Partners division, to third-party broker-dealers and insurance
brokerage general agencies.
MLOA's products are also distributed by financial professionals associated with
Advest and AXA Network, LLC ("AXA Network"), both of which are subsidiaries of
the Holding Company. Financial professionals of AXA Network who sell variable
products are also registered representatives of AXA Advisors, LLC ("AXA
Advisors"), a broker-dealer subsidiary of the Holding Company.
During the second quarter of 2005, MONY Life financial professionals are
expected to become financial professionals of AXA Network and AXA Advisors. In
addition, AXA Distributors, LLC, an AXA Financial broker-dealer and insurance
agency, is also expected to replace MONY Partners as the wholesale distributor
of insurance products of MLOA during the second quarter of 2005.
REINSURANCE
Prior to the MONY Acquisition, MLOA maintained a variety of indemnity
reinsurance agreements with reinsurers to control its loss exposure. These
reinsurance arrangements obligated the reinsurer to pay a portion of any death
claims in excess of the amount retained by MLOA in exchange for an agreed-upon
premium. Prior to the MONY Acquisition, MLOA's general practice was to retain no
more than of $4 million on single-life policies and $6 million on second-to-die
policies.
Following the MONY Acquisition, MLOA has continued to reinsure most of its
new variable life, universal life and term life policies on an excess of
retention basis, retaining up to a maximum of $4 million on single-life
policies and $6 million on second-to-die policies. For amounts in excess
of those limits, reinsurance is now ceded to AXA Equitable up to a maximum
of $15 million on single-life policies and $20 million on second-to-die
policies. For amounts issued in excess of those limits, reinsurance from
unaffiliated third parties is sought. A contingent liability exists in
respect to such reinsurance should the reinsurers be unable to meet their
obligations. MLOA evaluates the financial condition of its reinsurers in
an effort to minimize its exposure to significant losses from reinsurer
insolvencies. MLOA is not a party to any risk reinsurance arrangement with
any reinsurer pursuant to which the amount of reserves on reinsurance
ceded to such reinsurer equals more than 4.3% of the total policy life
reserves of MLOA (including Separate Accounts).
MLOA also continues to reinsure a percentage of its exposure on variable
annuity products that offer guaranteed minimum income benefit ("GMIB")
features and/or guaranteed minimum death benefit ("GMDB") features. At
December 31, 2004, MLOA had fully reinsured, subject to certain maximum
amounts or caps in any one period, the GMIB benefit and reinsured
approximately 10% of its net amount at risk to the GMDB obligation on
annuity contracts in force as of December 31, 2004. Prior to the MONY
Acquisition, MLOA had ceded a greater portion of its GMDB exposure.
For additional information about reinsurance strategies implemented by MLOA, see
Note 12 of Notes to Financial Statements.
In addition, MLOA has entered into certain arrangements with USFL, an affiliated
insurance company, whereby MLOA has provided reinsurance to USFL. In December
2004, USFL recaptured all of the term life policies in force at that time that
had previously been assumed by MLOA under a modified coinsurance ("MODCO")
agreement. USFL's MODCO reinsurance arrangements remain in effect for universal
life insurance policies previously assumed and for new level term and universal
life business issued on or subsequent to January 1, 2005. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - General", "- Liquidity and Capital Resources" and
Note 11 of Notes to Financial Statements. Other than in respect of the MODCO
agreement with USFL, MLOA does not assume reinsurance from any other insurance
company.
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GENERAL ACCOUNT INVESTMENT PORTFOLIO
GENERAL. The General Account consists of a diversified portfolio of
principally fixed-income investments.
The following table summarizes General Account Investment Assets by asset
category at December 31, 2004:
MONY LIFE INSURANCE COMPANY OF AMERICA
GENERAL ACCOUNT INVESTMENT ASSETS
NET AMORTIZED COST (1)
(DOLLARS IN MILLIONS)
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AMOUNT % OF TOTAL
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Fixed maturities (2)................... $ 1,891.1 72.3%
Mortgages.............................. 373.2 14.3
Equity real estate..................... 1.5 0.1
Other equity investments............... 57.7 2.2
Policy loans........................... 93.0 3.5
Cash and short-term investments (3).... 199.4 7.6
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Total.................................. $ 2,615.9 100.0%
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(1) Net amortized cost is the cost of the General Account Investment
Assets (adjusted for impairments in value deemed to be other than
temporary, if any) less depreciation and amortization, where
applicable, and less valuation allowances on mortgage and real estate
portfolios.
(2) Excludes net unrealized gains of $36.1 million on fixed maturities
classified as available for sale. Fixed maturities includes
approximately $133.6 million, net amortized cost of below investment
grade securities.
(3) Comprised of "Cash and cash equivalents" and short-term investments
included within the "Other invested assets" caption on the
balance sheet.
As part of MLOA's investment management process, management, with the assistance
of its investment advisors, constantly monitors General Account investment
performance. This internal review process culminates with a quarterly review of
assets that determines whether any investments are other than temporarily
impaired and whether specific investments should be put on an interest
non-accrual basis.
COMPETITION
There is strong competition among insurers, banks, brokerage firms and
other financial institutions and providers seeking clients for the types
of products that have been provided by MLOA. Competition is particularly
intense among a broad range of financial institutions and other financial
service providers for retirement and other savings dollars. The principal
competitive factors affecting MLOA's business are price, financial and
claims-paying ratings; size, strength, professionalism and objectivity of
the sales force; product quality, range and features/functionality;
crediting rates on fixed products; visibility and brand recognition in the
marketplace; and reputation and quality of service.
As noted above, ratings are an important factor in establishing the competitive
position of insurance companies. As of March 30, 2005 the financial strength or
claims-paying rating of MLOA was "A+" from Standard & Poor's Corporation (5th
highest of 20 ratings; with stable outlook), "Aa3" from Moody's Investors
Service (4th highest of 22 ratings; with stable outlook), "A+" from A.M. Best
Company, Inc. (2nd highest of 15 ratings; with stable outlook), and "AA" from
Fitch Investors Service, L.P. (3rd highest of 24 ratings; with stable outlook).
REGULATION
STATE SUPERVISION. MLOA is licensed to transact insurance business in all states
other than New York and is subject to extensive regulation and supervision by
insurance regulators in these states and the District of Columbia and Puerto
Rico. MLOA is domiciled in Arizona and is primarily regulated by the Director of
Insurance of the Arizona Department of Insurance. The extent of state regulation
varies, but most jurisdictions have laws and regulations governing sales
practices, standards of solvency, levels of reserves, risk-based capital,
permitted types and concentrations of investments, and business conduct to be
maintained by insurance companies as well as agent licensing, approval of policy
forms and, for certain lines of insurance, approval or filing of rates. MLOA is
required to file detailed annual financial statements, prepared on a statutory
accounting
1-3
basis, with supervisory agencies in each of the jurisdictions in which it does
business. Such agencies may conduct regular or targeted examinations of the
operations and accounts of MLOA and may make occasional requests for particular
information from MLOA. Recently, the insurance industry has seen an increase in
inquiries from state attorneys general and insurance commissioners regarding
compliance with certain state insurance and securities laws. For example,
certain attorneys general and insurance commissioners have requested information
from insurance companies regarding collusive bidding and revenue sharing
practices and practices associated with replacements and exchanges of life
insurance and annuities. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Forward Looking Statements and Risk Considerations."
HOLDING COMPANY AND SHAREHOLDER DIVIDEND REGULATION. Several states,
including Arizona, regulate transactions between an insurer and its
affiliates under insurance holding company acts. These acts contain
certain reporting requirements and restrictions on provision of services
and on transactions, such as intercompany service agreements, asset
transfers, reinsurance, loans and shareholder dividend payments by
insurers. Depending on their size, such transactions and payments may be
subject to prior notice to, or approval by, the Arizona Department of
Insurance. In 2004, MLOA did not make any shareholder dividend payments.
STATUTORY SURPLUS AND CAPITAL. Insurance regulators have the discretionary
authority to limit or prohibit new issuances of business to policyholders
within their jurisdiction when, in their judgment, such regulators
determine that the issuing company is not maintaining adequate statutory
surplus or capital.
FEDERAL TAX INITIATIVES. Although the Federal government generally does not
directly regulate the insurance business, many Federal tax laws affect the
business in a variety of ways. There are a number of existing, newly enacted or
recently proposed Federal tax initiatives that may significantly affect MLOA. In
June 2001, legislation was enacted which, among other things, provides several
years of lower rates for estate, gift and generation skipping taxes ("GST") as
well as one year of estate and GST repeal (in 2010) before a return to 2001 law
for the year 2011 and thereafter. Recently, legislation has been proposed
regarding extending or making permanent the repeal of the estate and generation
skipping taxes. If enacted, this legislation would have an adverse impact on
sales and surrenders of life insurance in connection with estate planning. Other
provisions of the 2001 legislation increased amounts which may be contributed to
tax qualified retirement plans and could have a positive impact on funding
levels of tax qualified retirement products. In 2003, reductions in income tax
rates on long-term capital gains and qualifying corporate dividends were enacted
which could adversely impact the relative attractiveness of cash value life
insurance and annuity products (and may adversely impact the sales of such
products) relative to other investment alternatives which may qualify for these
lower rates. While set to expire, there are proposals to extend or make such
reduced rates permanent. Other provisions of recently enacted and proposed
legislation and Treasury regulations relate to the business use of life
insurance, split-dollar arrangements, creation of new tax favored savings
accounts and modifications to nonqualified deferred compensation plans and
qualified plan rules. These provisions could adversely affect the sale of life
insurance to businesses, as well as the attractiveness of qualified plan
arrangements, cash value life insurance and annuities. The U.S. Congress may
also consider proposals such as Social Security reform or comprehensive overhaul
of the Federal tax law (whether in response to recommendations of a Presidential
Advisory Panel on Federal Tax Reform or otherwise), which, if enacted, could
adversely impact the attractiveness of cash value life insurance, annuities and
tax qualified retirement products. Management cannot predict what other
proposals may be made, what legislation, if any, may be introduced or enacted or
what the effect of any such legislation might be.
SECURITIES LAWS. MLOA and certain policies and contracts offered by MLOA
are subject to regulation under the Federal securities laws administered
by the Securities and Exchange Commission (the "SEC") and under certain
state securities laws. The SEC conducts regular examinations of MLOA's
operations, and from time to time makes requests for particular
information from MLOA. The SEC and other governmental regulatory
authorities, including state securities administrators, may institute
administrative or judicial proceedings which may result in censure, fines,
the issuance of cease-and-desist orders or other sanctions.
MLOA is also registered as an investment advisor under the Investment
Advisers Act of 1940, as amended (the "Investment Advisers Act"). The
investment advisory activities of MLOA are subject to various Federal and
state laws and regulations. These laws and regulations generally grant
supervisory agencies broad administrative powers, including the power to
limit or restrict the carrying on of business for failure to comply with
such laws and regulations. In case of such an event, the possible
sanctions that may be imposed include the suspension of individual
employees, limitations on engaging in business for specific periods,
revocation of registration as an investment advisor, censures and fines.
Sales of variable insurance and annuity products are regulated by the SEC
and the National Association of Securities Dealers (the "NASD").
Currently, the SEC, the NASD and other regulators are investigating
certain sales practices involving certain sales of variable annuities and
transactions in which an existing variable annuity is replaced by, or
exchanged for, a new variable annuity.
1-4
Certain Separate Accounts of MLOA are registered as investment companies
under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). Separate Account interests under certain annuity contracts
and insurance policies issued by MLOA are also registered under the
Securities Act of 1933, as amended.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking Statements
and Risk Considerations".
PRIVACY OF CUSTOMER INFORMATION.
Federal and state law and regulation require financial institutions to
protect the security and confidentiality of customer information and to
notify customers about their policies and practices relating to their
collection, disclosure and protection of customer information. Federal and
state laws also regulate disclosures of customer information. Congress and
state legislatures are expected to consider additional regulation relating
to privacy and other aspects of customer information.
EMPLOYEES
MLOA has no employees. MLOA has service agreements with affiliates pursuant to
which MLOA is provided services necessary to operate its business. For
additional information, see Note 11 of Notes to Financial Statements.
PARENT COMPANY
AXA, the ultimate parent company of MLOA, is the holding company for an
international group of insurance and related financial services companies
engaged in the financial protection and wealth management business. AXA is
the largest French insurance group and one of the largest insurance groups
in the world. AXA operates primarily in Western Europe, North America, and
the Asia/Pacific region and, to a lesser extent, in other regions
including the Middle East, Africa and South America. AXA has five
operating business segments: life and savings, property and casualty,
international insurance (including reinsurance), asset management, and
other financial services.
Neither AXA nor any affiliate of AXA has any obligation to provide
additional capital or credit support to MLOA.
OTHER INFORMATION
All of MLOA's officers, including its chief executive officer, chief
financial officer and controller, are subject to the Policy Statement on
Ethics (the "Code"), a code of ethics as defined under Regulation S-K.
The Code complies with Section 406 of the Sarbanes-Oxley Act of 2002 and is
available on the Holding Company's website at www.axa-financial.com. MLOA
intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K
regarding certain amendments to or waivers from provisions of the Code that
apply to its chief executive officer, chief financial officer and controller by
posting such information on the Holding Company's website at the above address.
1-5
PART I, ITEM 2.
PROPERTIES
AXA Equitable leases on a long-term basis approximately 810,000 square feet of
office space located at 1290 Avenue of the Americas, New York, NY, which serves
as the Holding Company's, AXA Equitable's, MONY Life's and MLOA's headquarters.
Management believes this facility is adequate for its present needs in all
material respects.
2-1
PART I, ITEM 3.
LEGAL PROCEEDINGS
The matters set forth in Note 15 of Notes to Registrant's Financial Statements
for the year ended December 31, 2004 (Part II, Item 8 of this report) are
incorporated herein by reference.
3-1
PART I, ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I to Form 10-K.
4-1
PART II, ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
All of MLOA's outstanding equity securities are owned by MONY Life and,
consequently, there is no public market for these securities. In 2004, MLOA did
not pay any shareholder dividends. Future dividend decisions will be made by the
Board of Directors on the basis of a number of factors, including the operating
results and financial requirements of MLOA and the impact of regulatory
restrictions.
5-1
PART II, ITEM 6.
SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I to Form 10-K.
6-1
PART II, ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IS OMITTED PURSUANT TO GENERAL INSTRUCTION I (2)(A) OF FORM 10-K. THE
MANAGEMENT NARRATIVE FOR MLOA THAT FOLLOWS SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND RELATED NOTES AND INFORMATION DISCUSSED UNDER
FORWARD-LOOKING STATEMENTS INCLUDED ELSEWHERE IN THIS FORM 10-K.
GENERAL
On July 8, 2004, the acquisition of MONY by the Holding Company was completed
and, under the terms of the related merger agreement, the Holding Company paid
or made provisions to pay MONY shareholders approximately $1.5 billion in cash,
representing $31.00 for each share of MONY's common stock. MONY shareholders
also received a dividend from MONY totaling $0.34755 per share. The acquisition
was accounted for using the purchase method under Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". In connection with the acquisition, MLOA
adjusted the cost basis of its assets and liabilities to fair value on the
acquisition date (the "Purchase Adjustments"). AXA Financial is in the process
of completing the valuations of a portion of the assets acquired and liabilities
assumed; thus the allocation of the purchase price is subject to refinement.
MLOA has a modified co-insurance ("MODCO") agreement with USFL, an affiliate,
whereby MLOA had reinsured 90% of all level term life insurance policies written
by USFL after January 1, 1999 and all term life and universal life insurance
policies written by USFL after January 1, 2000. During third and fourth quarters
2004, MLOA experienced declines in statutory surplus caused by first year
statutory business strain and the establishment of additional liabilities for
statutory purposes on level term business written by USFL due to updated
mortality assumptions.
In order to strengthen the statutory surplus position of MLOA, AXA Financial
completed the following transactions in December 2004:
o USFL recaptured all of the term life policies in force as of
December 31, 2004 that had previously been assumed by MLOA under
the MODCO agreement, which resulted in the recognition by MLOA in 2004
of a $9.0 million pre-tax gain. The MODCO reinsurance arrangement
remainsin effect for the universal life insurance policies previously
assumed and for new level term and universal life business issued
on or subsequent to January 1, 2005.
o MONY Life contributed 1.2 million units (the "Alliance Units") of
Alliance Capital Management L.P. ("Alliance Capital"), an affiliate,
which it had received from AXA Financial, to MLOA, increasing MLOA's
statutory surplus by $37.2 million.
In connection with the MONY Acquisition, management continues to evaluate the
products sold by MLOA as part of an overall review of products offered by AXA
Equitable and its other affiliates with a view towards reducing duplication of
products, improving the quality of the product line-up and enhancing the overall
profitability of AXA Financial. This evaluation has resulted in the recent
discontinuation of new sales of certain insurance and annuity products offered
by MLOA, including all non-variable universal life products, all single premium
immediate annuity products and most variable annuity products. It is
contemplated that new sales of certain other life insurance and annuity products
offered by MLOA will be discontinued during 2005 and possibly thereafter. Since
this review of products is ongoing, and since future decisions with regard to
product development depend on factors and considerations not yet known,
management is unable to predict the extent to which, if at all, MLOA will
continue to issue meaningful amounts of new business.
The earnings narrative that follows discusses the results for 2004 compared to
the 2003 results.
RESULTS OF OPERATIONS
The acquisition of MONY by the Holding Company on July 8, 2004, resulted in a
new basis of accounting for the successor period beginning July 1, 2004.
Information relating to all predecessor periods prior to completion of the
acquisition is presented using MLOA's historical basis of accounting. For
accounting purposes (due to convenience and immateriality of the results of the
MONY Companies from July 1 through July 8), the Holding Company has consolidated
the MONY Companies and reflected its results from July 1, 2004 in its
consolidated Statements of Earnings and consolidated Cash Flows. MLOA's activity
for the period from July 1, 2004 through July 8, 2004 is therefore included in
the successor period and excluded from the predecessor period. To assist in the
comparability of MLOA's financial results and discussions, results of operations
for the year ended December 31, 2004 include results for six months of the
Predecessor and six months of the Successor and are designated as "combined", as
follows:
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Six Months Six Months Twelve Months Year
Ended Ended Ended Ended
June 30, December 31, December 31, December 31,
2004 2004 2004 2003
------------ ------------ ------------ ------------
(PREDECESSOR) (SUCCESSOR) (COMBINED) (PREDECESSOR)
(IN MILLIONS)
REVENUES:
Universal life and investment-type product policy fee income........ $ 82.7 $ 80.8 $ 163.5 $ 166.2
Premiums............................................................ 77.4 85.0 162.4 141.0
Net investment income............................................... 64.3 62.8 127.1 118.5
Investment (losses) gains, net...................................... (0.7) (4.6) (5.3) 11.8
Other income........................................................ 7.4 26.7 34.1 17.2
----------- ----------- ----------- -----------
231.1 250.7 481.8 454.7
----------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Policyholders' benefits............................................. 80.8 91.2 172.0 156.8
Interest credited to policyholders' account balances................ 54.1 50.0 104.1 91.5
Commissions......................................................... 37.5 29.6 67.1 73.0
Amortization of deferred policy acquisition costs................... 34.7 5.7 40.4 55.2
Capitalization of deferred policy acquisition costs ................ (93.8) (87.5) (181.3) (193.7)
Amortization of value of business acquired.......................... -- 16.7 16.7 --
Other operating costs and expenses.................................. 143.1 106.1 249.2 240.7
----------- ----------- ----------- -----------
256.4 211.8 468.2 423.5
----------- ----------- ----------- -----------
(Loss)/earnings from continuing operations before income taxes...... (25.3) 38.9 13.6 31.2
Income tax benefit/(expense)........................................ 10.5 (12.4) (1.9) (4.9)
----------- ----------- ----------- -----------
Net (loss)/earnings from continuing operations...................... (14.8) 26.5 11.7 26.3
Loss from real estate to be disposed of, net of taxes............... -- -- -- (0.1)
Cumulative effect on prior periods of the adoption of SOP 03-1, net
of taxes......................................................... 3.8 -- 3.8 --
----------- ----------- ----------- -----------
Net (Loss)/Earnings................................................. $ (11.0) $ 26.5 $ 15.5 $ 26.2
=========== =========== =========== ===========
COMBINED TWELVE MONTHS OF DECEMBER 31, 2004 COMPARED TO YEAR ENDED
DECEMBER 31, 2003
Earnings before income taxes and cumulative effect of a change in accounting
principle for the January 1, 2004 adoption of SOP 03-1 were $13.6 million for
the combined twelve months of 2004, a decrease of $17.6 million from earnings
before income taxes of $31.2 million for 2003. Net earnings for MLOA totaled
$15.5 million for the combined twelve months of 2004, down from $26.2 million
for 2003. In first quarter 2004, MLOA recorded earnings of $3.8 million (net of
related income taxes of $2.1 million) for the cumulative effect of the January
1, 2004 adoption of SOP 03-1. For further information see "Accounting Changes"
in Note 3 of Notes to Financial Statements.
REVENUES. Total revenues for the combined twelve months of 2004 increased $27.1
million as compared to 2003.
Universal life and investment type policy fee income was $163.5 million, $2.7
million lower than in 2003, principally due to adjustments in the predecessor
period related to prior quarters' calculations of reinsurance reserve credits
partially offset by increased Flexible Premium Variable Annuity ("FPVA") fees.
Premiums totaled $162.4 million for the combined twelve months of 2004, a $21.4
million increase from the prior year, principally due to an increase in premiums
assumed under the MODCO agreement with USFL attributable to growth in USFL's
in-force block of business.
Net investment income was $127.1 million, $8.6 million higher than in 2003. The
increase was principally due to increased income on fixed maturities and
mortgage loans on real estate as a result of higher average fixed maturities
asset balances and a decrease in investment related expenses attributable to
cost reductions associated with AXA Financial's integration of the MONY
Companies.
Investment losses, net were $5.3 million in the combined twelve months of 2004
compared to net gains of $11.8 million in 2003. The net losses in the combined
twelve months of 2004 were principally due to impairments on fixed maturities of
$5.1 million. The net gains in 2003 were principally attributable to bond and
mortgage prepayments.
There was a $16.9 million increase in other income to $34.1 million in the
combined twelve months of 2004 from $17.2 million in 2003. The increase was
principally attributable to the impact of the $9.0 million gain recognized on
the recapture of the reinsurance agreement with USFL, higher reinsurance expense
allowances recognized under a new reinsurance treaty
7-2
entered into on January 1, 2004 and an insurance recovery recorded in first
quarter 2004, partially offset by a $2.2 million decrease in the gain on the
embedded derivative related to the reinsurance agreement with USFL.
BENEFITS AND OTHER DEDUCTIONS. Total benefits and other deductions for the
combined twelve months of 2004 increased $44.7 million to $468.2 million from
$423.5 million in 2003.
Policyholders' benefits increased $15.2 million to $172.0 million in the
combined twelve months of 2004, resulting principally from an increase in
assumed benefits under the MODCO treaty with USFL offset by a decrease in the
change in reserves due to reduced sales of certain annuity products and better
mortality experience.
The $12.6 million increase in interest credited to policyholders' account
balances to $104.1 million for the combined twelve months of 2004 was
principally due to growth in the Variable Universal Life ("VUL"), Corporate
Sponsored Variable Universal Life ("CSVUL") and Flexible Premium Deferred
Annuity ("FPDA") product lines primarily in the predecessor period, and
adjustments in the predecessor period related to prior quarters' calculations of
interest credited on certain life insurance and annuity products.
Commissions decreased $5.9 million during the combined twelve months of 2004 to
$67.1 million principally due to a decrease in sales of life insurance and
annuity products in the successor period as certain products offered by MLOA are
substituted by AXA Financial's products.
Amortization of deferred policy acquisition costs ("DAC") decreased $14.8
million to $40.4 million for the combined twelve months of 2004 due principally
to the impact of new basis accounting in the successor period offset by
increased amortization on life insurance and annuity products in the predecessor
period as a result of lower amortization in the first six months of 2003 due to
the unlocking impact from the recognition of higher expected future margins
driven by higher fees related to variable annuity contracts.
Amortization of value of business acquired ("VOBA") resulting from the new
purchase accounting basis in the successor period was $16.7 million. VOBA, which
is established in accordance with business combination purchase accounting
guidance, is based on the present value of future profits embedded in the
acquired contracts. VOBA is determined by estimating the net present value of
future cash flows expected to result from contracts in force at the date of the
transaction. VOBA will be amortized over the expected life of the contracts
(approximately 10-30 years). VOBA is subject to loss recognition testing at the
end of each accounting period according to the type of contract involved using
the methods described below as applicable.
DAC and VOBA for universal life and investment-type policies are amortized over
the expected total life of the contract group as a constant percentage of
estimated gross profits. Estimates and assumptions underlying these DAC and VOBA
amortization rates are reassessed and updated at the end of each reporting
period ("DAC and VOBA unlocking"). The effect of DAC and VOBA unlocking is
reflected in earnings in the period such estimated gross profits are revised. A
decrease in expected gross profits would accelerate DAC and VOBA amortization.
Conversely, an increase in expected gross profits would slow down DAC and VOBA
amortization.
Expected gross profits for variable and interest-sensitive life insurance and
variable annuities arise principally from investment results, Separate Account
fees, mortality and expense margins and surrender charges. Based on historical
and anticipated future experience other significant assumptions underlying gross
profit estimates relate to contract persistency and General Account investment
spreads. A significant assumption in the development of expected gross profits
and, therefore, the amortization of DAC and VOBA on these products relates to
projected future Separate Account performance. Expected future gross profit
assumptions related to Separate Account performance are set by management using
a long-term view of expected average market returns by applying a reversion to
the mean approach. In applying this approach to develop estimates of future
returns, it is assumed that the market will return to an average gross long-term
return estimate, developed with reference to historical long-term equity market
performance and subject to assessment of the reasonableness of resulting
estimates of future return assumptions. For purposes of making this
reasonableness assessment, management has set limitations as to maximum and
minimum future rate of return assumptions, as well as a limitation on the
duration of use of these maximum or minimum rates of return. Currently, the
average gross long-term annual return estimate is 9.0% (6.90% net of product
weighted average Separate Account fees), and the gross maximum and minimum
annual rate of return limitations are 15.0% (12.65% net of product weighted
average Separate Account fees) and 0% (-2.35% net of product weighted average
Separate Account fees), respectively. The maximum duration over which these rate
limitations may be applied is 5 years. This approach will continue to be applied
in future periods. If actual market returns continue at levels that would result
in assuming future market returns of 9% for more than 5 years in order to reach
the average gross long-term return estimate, the application of the 5 year
maximum duration limitation would result in an acceleration of DAC and VOBA
amortization. Conversely, actual market returns resulting in assumed future
market returns of 0% for more than 5 years would result in a required
deceleration of DAC and VOBA amortization. As of December 31, 2004, current
projections of future average gross market returns assume a 2.3% return for 2005
which is within the maximum and minimum limitations and assume a reversion to
the mean of 9.0% after 1.5 years.
7-3
In addition, projections of future mortality assumptions related to variable and
interest-sensitive life products are based on a long-term average of actual
experience. This assumption is updated quarterly to reflect recent experience as
it emerges. Improvement of life mortality in future periods from that currently
projected would result in future deceleration of DAC and VOBA amortization.
Conversely, deterioration of life mortality in future periods from that
currently projected would result in future acceleration of DAC and VOBA
amortization. Generally, life mortality experience has been improving in recent
years.
DAC capitalization of $181.3 million for the combined twelve months of 2004
decreased $12.4 million, from $193.7 million in 2003, due to a decrease in
commissions and deferrable operating expenses in the successor period.
Other operating costs and expenses totaled $249.2 million for the combined
twelve months of 2004, an increase of $8.5 million from $240.7 million in 2003.
The increase was principally due to an increase in expenses related to services
rendered by MONY Life on MLOA's behalf (primarily salaries, incentive
compensation and rent) during the predecessor period, partially offset by a
decrease in the successor period attributable to cost reductions associated with
AXA Financial's integration of the MONY Companies.
FEDERAL INCOME TAXES. Federal income tax expense totaled $1.9 million for the
combined twelve months of 2004 as compared to the $4.9 million reported in 2003.
The 2004 tax decrease resulted principally from the tax benefit recorded on the
loss in the 2004 predecessor period partially offset by increased earnings in
the successor period. See Note 9 of Notes to Financial Statements for details of
the sources of the differences between the statutory federal income tax rate of
35.0% and MLOA's effective tax rate.
PREMIUMS AND DEPOSITS. Total premiums and deposits for insurance and annuity
products, excluding reinsurance assumed under the MODCO treaty with USFL, for
the combined twelve months of 2004 decreased from prior year levels by $181.4
million to $772.4 million. The decrease was principally attributable to a
decrease in new sales of certain insurance and annuity products issued by MLOA
as a result of certain products offered by AXA Financial being substituted for
similar products previously offered by MLOA. Sales of annuities in the combined
twelve months of 2004 totaled $279.9 million, a 38.8% decrease from the prior
year, as a result of the decrease in MLOA's product sales during the successor
period and lower fixed annuity sales reflecting the lower interest rate
environment.
SURRENDERS AND WITHDRAWALS. When totals for the combined twelve months of 2004
are compared to the prior year, surrenders and withdrawals increased from $402.9
million to $486.1 million with respective increases of $63.2 million and $20.4
million reported for individual annuities and variable and interest-sensitive
life products offset by a $0.4 million decrease reported for traditional life
insurance products. The annualized annuities surrender rate increased to 11.9%
in the 2004 combined period from 11.4% in 2003, while the individual life
surrender rates showed an increase to 3.55% from 2.99%. The dollar increase in
annuity surrenders resulted from higher account balances driven by market
appreciation and positive net cash flows. The trends in surrender and withdrawal
rates described above continue to fall within the range of expected experience.
The increase in surrenders and withdrawals on life products was substantially
related to a large COLI surrender.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of MLOA's cash flows are premiums, deposits and charges on
policies and contracts, investment income, repayments of principal and proceeds
from sales of fixed maturities, sales of General Account Investment Assets and
capital contributions from MONY Life.
MLOA's liquidity requirements principally relate to the liabilities associated
with its various life insurance and annuity products and operating expenses,
including debt service on its note payable to an affiliate. MLOA's liabilities
include the payment of benefits under life insurance and annuity products, as
well as cash payments in connection with policy surrenders, withdrawals and
loans.
SOURCES OF LIQUIDITY. MLOA's primary source of short-term liquidity to support
its insurance operations is a pool of highly liquid, high quality short-term
instruments structured to provide liquidity in excess of the expected cash
requirements. At December 31, 2004, this asset pool included an aggregate of
$198.0 million in highly liquid short-term investments, as compared to $159.0
million at December 31, 2003. In addition, a substantial portfolio of public
bonds including U.S. Treasury and agency securities and other investment grade
fixed maturities is available to meet MLOA's liquidity needs.
Management believes there is sufficient liquidity in the form of short-term
assets and its bond portfolio together with cash flows from operations and
scheduled maturities of fixed maturities to satisfy MLOA's liquidity needs.
During third and fourth quarters 2004, MLOA experienced declines in statutory
surplus caused by first year statutory business strain and the establishment of
additional liabilities for statutory purposes on level term business written by
USFL due to updated mortality assumptions. In order to strengthen the statutory
surplus position of MLOA, AXA Financial completed the following transactions in
December 2004:
7-4
o USFL recaptured all of the term life policies in force as of
December 31, 2004 that had previously been assumed by MLOA under
the MODCO agreement, which resulted in a $62.8 million increase in
MLOA's statutory surplus. The MODCO reinsurance arrangement
remains in effect for the universal life insurance policies
previously assumed and for new level term and universal life
business issued on or subsequent to January 1, 2005.
o MONY Life contributed 1.2 million units of Alliance Capital
("Alliance Units"), an affiliate, which it had received from AXA
Financial, to MLOA, increasing MLOA's statutory surplus by $37.2
million.
In 2003, MLOA received cash contributions from MONY Life of $100.0 million to
support its statutory capital and surplus.
Management is reviewing on an ongoing basis the extent to which MLOA will
continue to offer new life insurance and annuity products. It is currently
anticipated that the number of products offered by MLOA and the volume of
product sales will decline over time as MLOA's products are substituted by AXA
Financial products with a view towards reducing duplication of products,
improving the quality of the product line-up and enhancing the overall
profitability of AXA Financial.
SUPPLEMENTARY INFORMATION
At December 31, 2004, MLOA had a $36.8 million, 6.8% note payable outstanding
with MONY Benefits Management Corp. ("MBMC"), an affiliate. Principal and
interest are payable quarterly to MBMC.
A schedule of future payments under certain of MLOA's contractual obligations
follows:
CONTRACTUAL OBLIGATIONS - DECEMBER 31, 2004
(IN MILLIONS)
PAYMENTS DUE BY PERIOD
-----------------------------------------------------
LESS THAN OVER
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS
----- --------- ---------- --------- -------
Note payable to affiliate (1)...................... $49.8 $ 5.4 $ 16.2 $ 10.8 $17.4
- --------------
(1) Reflects aggregate contractual debt service payments on the note payable
to an affiliate. The aggregate maturities of the note payable to an
affiliate based on required remaining principal payments for each of the
next five years are $3.0 million for 2005, $3.2 million for 2006, $3.4
million for 2007, $3.6 million for 2008, $3.9 million for 2009 and $19.7
million thereafter. The table assumes that the note payable is held to
maturity.
MLOA also has contractual obligations to the policy and contractholders of its
various life insurance and annuity products and/or their designated
beneficiaries. These obligations include paying death claims and making annuity
payments. The timing of such payments depends upon such factors as the mortality
and persistency of its customer base.
In addition, MLOA has financial obligations under contingent commitments at
December 31, 2004 including guarantees or commitments to fund private fixed
maturities, agricultural loans and floating rate commercial mortgages.
Information on these contingent commitments can be found in Notes 11, 13 and 15
of Notes to Financial Statements.
Further, MLOA is exposed to potential risk related to its own ceded reinsurance
agreements with other insurers and to insurance guaranty fund laws in 49 states
(not including New York), the District of Columbia and Puerto Rico. Under these
laws, insurers doing business in these states can be assessed amounts up to
prescribed limits to protect policyholders of companies that become impaired or
insolvent.
CRITICAL ACCOUNTING ESTIMATES
MLOA's management narrative is based upon MLOA's financial statements that have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions (including normal, recurring
accruals) that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, MLOA evaluates its estimates, including
those related to investments, recognition of insurance income and related
expenses, DAC and VOBA, future policy benefits, and pension cost. MLOA bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. The results of such factors
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates under different assumptions or conditions.
7-5
MLOA believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
INVESTMENTS - MLOA records an investment impairment charge when it believes an
investment has experienced a decline in fair value that is other than temporary.
Identifying those situations requires management's careful consideration of the
facts and circumstances, including but not limited to the duration and extent to
which the fair value has been depressed, the financial position, cash flows, and
near-term earnings potential of the issuer, as well as MLOA's ability and intent
to retain the investment to allow sufficient time for any anticipated recovery
in fair value. The basis for measuring fair value may require utilization of
investment valuation methodologies, such as discounted cash flow analysis, if
quoted market prices are not readily available.
RECOGNITION OF INSURANCE INCOME AND RELATED EXPENSES - Profits on
non-participating traditional life policies and annuity contracts with life
contingencies emerge from the matching of benefits and other expenses against
the related premiums. Profits on universal life and investment-type contracts
emerge from the matching of benefits and other expenses against the related
contract margins. This matching is accomplished by means of the provision for
liabilities for future policy benefits and the deferral, and subsequent
amortization of policy acquisition costs. Secular trends and MLOA's own
mortality, morbidity, persistency and claims experience have a direct impact on
the benefits and expenses reported in any given period.
DAC AND VOBA - For universal life and investment-type contracts, DAC and VOBA
amortization may be affected by changes in estimated gross profits and margins
principally related to investment results, Separate Account fees, mortality and
expense margins, lapse rates and anticipated surrender charges. Should revisions
to estimated gross profits or margins be required, the effect is reflected in
earnings in the period such estimated gross profits are revised. Additionally,
the level of operating expenses that can be deferred is another significant
factor in MLOA's reported profitability in any given period. VOBA was recorded
in conjunction with the acquisition of MONY and represents the present value of
estimated future profits from the insurance and annuity policies in-force when
the business was acquired by AXA Financial.
FUTURE POLICY BENEFITS - Future policy benefit liabilities for traditional
policies are based on actuarial assumptions as to such factors as mortality,
morbidity, persistency, interest and expenses. Determination of the GMDB/GMIB
liabilities is based on models that involve numerous estimates and subjective
judgments, including those regarding expected market rates of return and
volatility, contract surrender rates, mortality experience and, for GMIB, GMIB
election rates. Premium deficiency reserves are based upon estimates of future
gross premiums, expected policy benefits and other expenses.
PENSION COST - Although MLOA has no employees, under service agreements with
affiliated companies, MLOA pays for services provided on its behalf, including
pension plan and other postretirement benefits (see Note 11 of Notes to
Financial Statements). Net periodic pension cost is the aggregation of the
compensation cost of benefits promised, interest cost resulting from deferred
payment of those benefits, and investment results of assets dedicated to fund
those benefits. Each cost component is based on the affiliated companies' best
estimate of long-term actuarial and investment return assumptions. Actual
experience different from that assumed generally is recognized prospectively
over future periods; however, significant variances could result in immediate
recognition if they exceed certain prescribed thresholds or in conjunction with
a reconsideration of the related assumptions.
PURCHASE ADJUSTMENTS - The determination of the purchase adjustments relating to
investments reflects management's reliance on independent price quotes where
available. Other purchase adjustments required significant management estimates
and assumptions. The purchase adjustments related to VOBA and liabilities,
including policyholder reserves, required management to exercise judgment to
assess the value of these items. MLOA's purchase adjustments resulted in a
revalued balance sheet, which may result in future earnings trends which differ
significantly from historical trends.
FORWARD-LOOKING STATEMENTS AND RISK CONSIDERATIONS
MLOA's management has made in this report, and from time to time may make in its
public filings and press releases as well as in oral presentations and
discussions, forward-looking statements concerning operations, economic
performance and financial position. Forward-looking statements include, among
other things, discussions concerning MLOA's potential exposure to market risks,
as well as statements expressing management's expectations, beliefs, estimates,
forecasts, projections and assumptions, as indicated by words such as
"believes," "estimates," "intends," "anticipates," "expects," "projects,"
"should," "probably," "risk," "target," "goals," "objectives," or similar
expressions. MLOA claims the protection afforded by the safe harbor for
forward-looking statements contained in Section 21E of the Exchange Act, and
assumes no duty to update any forward-looking statement. Forward-looking
statements are based on management's expectations and beliefs concerning future
developments and their potential effects, and are subject to risks and
uncertainties. Actual results could differ materially from those anticipated by
forward-looking statements due to a number of important factors including those
discussed elsewhere in this report and in MLOA's other public filings, press
releases, oral presentations and discussions. The following discussion
highlights some of the more important risk and other factors that could cause
such differences and/or, if realized, could have a material adverse effect on
MLOA's financial position and/or results of operations.
7-6
MARKET RISK. MLOA's businesses are subject to market risks arising from its
insurance asset/liability management. The primary market risk exposures result
from interest rate fluctuations, equity price movements and changes in credit
quality. The nature of these risks is discussed under the caption
"Quantitative and Qualitative Disclosures About Market Risk" contained herein
and in Note 13 of Notes to Financial Statements.
Increased volatility of equity markets can impact MLOA's profitability. In
addition to impacts on equity securities held in MLOA's General Account,
significant changes in equity markets impact asset-based policy fees charged on
variable life and annuity products. Moreover, for variable life and annuity
products with GMDB/GMIB and other guaranteed features, sustained periods with
declines in the value of underlying Separate Account investments would increase
MLOA's net exposure to guaranteed benefits under those contracts (increasing
claims and reserves, net of any reinsurance) at a time when fee income for these
benefits is also reduced from prior period levels.
Equity market volatility also may impact DAC and VOBA amortization on variable
and universal life insurance contracts and variable annuities. To the extent
that actual market trends, and reasonable expectations as to future performance
drawn from those trends, lead to reductions in the investment return and/or
other related estimates underlying the DAC and VOBA amortization rates, DAC and
VOBA amortization could be accelerated. Volatile equity markets can also impact
the level of contractholder surrender activity, which, in turn, can impact
future profitability.
Interest rate fluctuations, equity price movements and changes in credit quality
may also affect invested assets held in the qualified pension plan which could
impact future pension plan costs charged to MLOA under its service agreements
with affiliates pursuant to which personnel services, employee benefits,
facilities, supplies and equipment are provided to MLOA to conduct its business.
The effects of significant equity market fluctuations on MLOA's operating
results can be complex and subject to a variety of estimates and assumptions,
such as assumed rates of long-term equity market performance, making it
difficult to reliably predict effects on operating earnings over a broad range
of equity market performance alternatives. Further, these effects may not always
be proportional for market increases and market decreases.
Margins on interest-sensitive annuities and universal life insurance can be
affected by interest rate fluctuations. In a declining interest rate
environment, credited rates can generally be adjusted more quickly than the
related invested asset portfolio is affected by declining reinvestment rates,
tending to result in higher net interest margins on interest-sensitive products
in the short term. However, under scenarios in which interest rates fall and
remain at significantly lower levels, minimum guarantees on interest-sensitive
annuities and universal life insurance (generally 3.0% to 6.0%) could cause the
spread between the yield on the portfolio and the interest rate credited to
policyholders to deteriorate and in some cases, potentially, to become negative.
For both interest-sensitive annuities and universal life insurance, a rapid and
sustained rise in interest rates poses risks of deteriorating spreads and high
surrenders. In such an environment, there is pressure to increase credited rates
on interest-sensitive products to match competitors' new money rates. However,
such changes in credited rates generally occur more quickly than the earned
rates on the related invested asset portfolios reflect changes in market yields.
The greater and faster the rise in interest rates, the more the earned rates
will tend to lag behind market rates.
OTHER RISKS. MLOA's future sales of life insurance and annuity products are
dependent on numerous factors including: implementation of AXA Financial's
integration strategy for MLOA, including the contemplated discontinuation of new
sales of certain life insurance and annuity products offered by MLOA; the
intensity of competition from other insurance companies, banks and other
financial institutions; conditions in the securities markets; the strength and
professionalism of distribution channels; the continued development of existing
and additional channels; the financial and claims-paying ratings of MLOA; its
reputation and visibility in the market place; its ability to develop,
distribute and administer competitive products and services in a timely,
cost-effective manner; its ability to obtain reinsurance for certain products,
the offering of which products depends upon the ability to reinsure all or a
substantial portion of the risks; its investment management performance; and
unanticipated changes in industry trends.
In addition, the nature and extent of competition and the markets for products
sold by MLOA may be materially affected by changes in laws and regulations,
including changes relating to savings, retirement funding and taxation.
Management cannot predict what proposals may be made, what legislation, if any,
may be introduced or enacted or what the effect of any such legislation might
be. See "Business - Regulation" contained herein.
The profitability of MLOA depends on a number of factors including: levels of
gross operating expenses and the amount which can be deferred as DAC and
software capitalization; successful implementation of expense-reduction
initiatives, including those anticipated from the integration of the businesses
of AXA Financial and MLOA; secular trends; increased costs and impact of
compliance, regulatory examinations and oversight; the ability to reach sales
targets for key products including the continuing market receptivity of its
variable annuity products; MLOA's mortality, morbidity, persistency and claims
experience; margins between investment results
7-7
from MLOA's General Account Investment Assets and interest credited on
individual insurance and annuity products, which are subject to contractual
minimum guarantees; the level of claims and reserves on contracts with GMDB/GMIB
and other guaranteed features, the impact of related reinsurance and the
effectiveness of any program management implements to hedge certain risks
associated with such features; the account balances against which policy fees
are assessed on universal and variable life insurance and variable annuity
products; the pattern of DAC and VOBA amortization which is based on models
involving numerous estimates and subjective judgments including those regarding
investment, mortality and expense margins, expected market rates of return,
lapse rates and anticipated surrender charges; the adequacy of reserves and the
extent to which subsequent experience differs from management's estimates and
assumptions, including future reinvestment rates, used in determining those
reserves; and the effects of any future terrorist attacks or the war on
terrorism. With regard to terrorism generally, in August 2004, the Federal
government announced a heightened threat level for financial institutions.
Recoverability of DAC and VOBA is dependent on future contract cash flows
(including premiums and deposits, contract charges, benefits, surrenders,
withdrawals, and expenses), which can be affected by equity market and interest
rate trends as well as changes in contract persistency levels. The performance
of MLOA's General Account Investment Assets depends, among other things, on
levels of interest rates and the markets for equity securities and real estate,
the need for asset valuation allowances and writedowns, and the performance of
equity investments that have created, and in the future may create, significant
volatility in investment income.
DISCLOSURE AND INTERNAL CONTROL SYSTEM. There are inherent limitations in the
effectiveness of any system of disclosure and internal controls, including the
possibilities of faulty judgments in decision-making, simple error or mistake,
fraud, the circumvention of controls by individual acts or the collusion of two
or more people, or management override of controls. Accordingly, even an
effective disclosure and internal control system can provide only reasonable
assurance with respect to disclosures and financial statement preparation.
Furthermore, because of changes in conditions, the effectiveness of a disclosure
and internal control system may vary over time.
TECHNOLOGY AND INFORMATION SYSTEMS. Information systems are central to, among
other things, designing and pricing products, marketing and selling products and
services, processing policyholder and investor transactions, client
recordkeeping, communicating with retail sales associates, employees and
clients, and recording information for accounting and management purposes in a
secure and timely manner. These systems are maintained to provide customer
privacy and are tested to ensure the viability of business resumption plans. Any
significant difficulty associated with the operation of such systems, or any
material delay or inability to develop needed system capabilities, could have a
material adverse effect on MLOA's results of operations and, ultimately, its
ability to achieve its strategic goals.
LEGAL ENVIRONMENT. A number of lawsuits have been filed against life and health
insurers and affiliated distribution companies involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents and
other matters. Some of the lawsuits have resulted in the award of substantial
judgments against other insurers, including material amounts of punitive
damages, or in substantial settlements. In some states, juries have substantial
discretion in awarding punitive damages. MLOA, like other life insurers, is
involved in such litigation and MLOA's results of operations and financial
position could be affected by defense and settlement costs and any unexpected
material adverse outcome in such litigations as well as in other material
litigations pending against MLOA. The frequency of large damage awards,
including large punitive damage awards that bear little or no relation to actual
economic damages incurred by plaintiffs in some jurisdictions, continues to
create the potential for an unpredictable judgment in any given matter. In
addition, examinations by Federal and state regulators and other regulatory and
related agencies, including, among others, state insurance departments and state
securities agencies, could result in adverse publicity, sanctions and fines. In
the last year, MLOA has provided information and documents to the SEC, the NASD
and state attorneys general and insurance and securities regulators on a wide
range of issues, including supervisory issues, valuation, suitability,
replacements and exchanges of variable life insurance and annuities and related
matters. At this time, management cannot predict what other actions the SEC,
NASD and/or other regulators may take or what the impact of such actions might
be. Fines and other sanction could result from pending regulatory matters. For
further information, see "Business - Regulation" and "Legal Proceedings"
contained herein.
FUTURE ACCOUNTING PRONOUNCEMENTS. In the future, new accounting pronouncements,
as well as new interpretations of accounting pronouncements, may have material
effects on MLOA's statements of operations and shareholder's equity. See Note 3
of Notes to Financial Statements for pronouncements issued but not effective at
December 31, 2004.
REGULATION. The businesses conducted by MLOA are subject to extensive regulation
and supervision by state insurance departments and Federal and state agencies
regulating, among other things, insurance and annuities, securities
transactions, investment companies, investment advisors and anti-money
laundering compliance programs. Changes in the regulatory environment could have
a material impact on operations and results. The activities of MLOA are subject
to the supervision of the insurance regulators of each of the 49 states (not
including New York), the District of Columbia and Puerto Rico. See "Business -
Regulation" contained herein.
7-8
PART II, ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MLOA's operations are subject to financial, market, political and economic
risks, as well as to risks inherent in the business operations. The discussion
that follows provides additional information on market risks arising from its
insurance asset/liability management activities. Primary market risk exposure
results from interest rate fluctuations and changes in credit quality.
MLOA's results of operations significantly depend on profit margins between
investment results from General Account Investment Assets and interest credited
on individual insurance and annuity products. Management believes its fixed rate
liabilities should be supported by a portfolio principally composed of fixed
rate investments that generate predictable, steady rates of return. Although
these assets are purchased for long-term investment, the portfolio management
strategy considers them available for sale in response to changes in market
interest rates, changes in prepayment risk, changes in relative values of asset
sectors and individual securities and loans, changes in credit quality outlook
and other relevant factors. See the "Investments" section of Note 3 of Notes to
Financial Statements for the accounting policies for the investment portfolios.
The objective of portfolio management is to maximize returns, taking into
account interest rate and credit risks. Insurance asset/liability management
includes strategies to minimize exposure to loss as interest rates and economic
and market conditions change. As a result, the fixed maturity portfolio has
modest exposure to call and prepayment risk and the vast majority of mortgage
holdings are fixed rate mortgages that carry yield maintenance and prepayment
provisions.
MLOA's assets with interest rate risk include fixed maturities and mortgage
loans that make up 93.8% of the carrying value of General Account Investment
Assets at December 31, 2004. As part of its asset/liability management,
quantitative analyses are used to model the impact various changes in interest
rates have on assets with interest rate risk. The table that follows shows the
impact an immediate 100 basis point increase in interest rates at December 31,
2004 and 2003 would have on the fair value of fixed maturities and mortgage
loans:
DECEMBER 31, 2004 December 31, 2003
------------------------- --------------------------
BALANCE AFTER Balance After
FAIR +100 BASE Fair +100 Base
VALUE POINT CHANGE Value Point Change
--------- ------------- --------- --------------
($ IN MILLIONS)
Fixed maturities...................... $ 1,927.2 $ 1,850.8 $ 1,734.0 $ 1,657.7
Mortgage loans on real estate......... 378.0 365.1 445.7 428.8
--------- --------- --------- ---------
Total........................... $ 2,305.2 $ 2,215.9 $ 2,179.7 $ 2,086.5
========= ========= ========= =========
A 100 basis point fluctuation in interest rates is a hypothetical rate scenario
used to demonstrate potential risk; it does not represent management's view of
future market changes. While these fair value measurements provide a
representation of interest rate sensitivity of fixed maturities and mortgage
loans, they are based on various portfolio exposures at a particular point in
time and may not be representative of future market results. These exposures
will change as a result of ongoing portfolio activities in response to
management's assessment of changing market conditions and available investment
opportunities.
At years end 2004 and 2003, the aggregate carrying value of policyholders'
liabilities were $2,492.7 million and $2,235.3 million, respectively, including
$1,019.8 million and $855.9 million of liabilities, respectively, related to the
General Account's investment contracts. The aggregate fair value of those
investment contracts at years end 2004 and 2003 were $1,159.1 million and
$1,043.2 million, respectively. The impact of a relative 1% decrease in interest
rates would be an increase in the fair value of those investment contracts to
$1,291.1 million and $1,173.1 million, respectively. Those investment contracts
represent only a portion of total policyholders' liabilities. As such,
meaningful assessment of net market risk exposure cannot be made by comparing
the results of the invested assets sensitivity analyses presented herein to the
potential exposure from the policyholders' liabilities quantified in this
paragraph.
Asset/liability management is integrated into many aspects of MLOA's operations,
including investment decisions, product development and determination of
crediting rates. As part of the risk management process, numerous economic
scenarios are modeled, including cash flow testing required for insurance
regulatory purposes, to determine if existing assets would be sufficient to meet
projected liability cash flows. Key variables include policyholder behavior,
such as persistency, under differing crediting rate strategies. On the basis of
these more comprehensive analyses, management believes there is minimal solvency
risk to MLOA with respect to interest rate movements of 100 basis points from
year end 2004 levels.
7A-1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MONY LIFE INSURANCE COMPANY OF AMERICA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Registered Public Accounting Firm - Successor period.................................................... F-1
Report of Independent Registered Public Accounting Firm - Predecessor periods................................................. F-1
Financial Statements:
Balance Sheets, December 31, 2004 (Successor) and December 31, 2003 (Predecessor)........................................ F-2
Statements of Operations, Six Months Ended December 31, 2004 (Successor), Six Months Ended June 30, 2004 (Predecessor),
and Years Ended December 31, 2003 and 2002 (Predecessor).............................................................. F-3
Statements of Shareholder's Equity, Years Ended December 31, 2004, 2003 and 2002......................................... F-4
Statements of Cash Flows, Six Months Ended December 31, 2004 (Successor), Six Months Ended June 30, 2004 (Predecessor),
and Years Ended December 31, 2003 and 2002 (Predecessor).............................................................. F-5
Notes to Financial Statements............................................................................................ F-7
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules...................................... F-28
Financial Statement Schedules:
Schedule I - Summary of Investments - Other Than Investments in Related Parties, December 31, 2004............................ F-29
Schedule IV - Reinsurance, Six Months Ended December 31, 2004 (Successor), Six Months Ended June 30, 2004 (Predecessor), and
Years Ended December 31, 2003 and 2002 (Predecessor).......................................................................... F-30
FS-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
MONY Life Insurance Company of America:
In our opinion, the accompanying balance sheet and the related statement of
operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of MONY Life Insurance Company of
America (Successor Company) at December 31, 2004, and the results of its
operations and its cash flows for the period from July 1, 2004 through December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 31, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
MONY Life Insurance Company of America:
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of MONY Life Insurance Company of
America (Predecessor Company) at December 31, 2003, and the results of its
operations and its cash flows for the period from January 1, 2004 through June
30, 2004 and for each of the years in the two year period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the financial statements, in 2004 MONY Life Insurance
Company of America changed its method of accounting for variable interest
entities and certain nontraditional long-duration contracts and for Separate
Accounts, in 2003 changed its method of accounting for embedded derivatives
arising from the modified co-insurance arrangement and in 2002 changed its
method of accounting for long-lived assets.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 31, 2005
F-1
MONY LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
2004 2003
-------------- --------------
(SUCCESSOR) (PREDECESSOR)
( IN MILLIONS)
ASSETS
Investments:
Fixed maturities available-for-sale, at estimated fair value............................. $ 1,927.2 $ 1,734.0
Mortgage loans on real estate............................................................ 373.2 419.6
Policy loans............................................................................. 93.0 86.1
Real estate held for the production of income............................................ 1.5 2.2
Other invested assets.................................................................... 57.7 16.7
-------------- --------------
Total investments................................................................. 2,452.6 2,258.6
-------------- --------------
Cash and cash equivalents................................................................... 199.4 180.9
Accrued investment income................................................................... 27.8 29.5
Amounts due from reinsurers................................................................. 75.6 59.6
Deferred policy acquisition costs........................................................... 57.3 758.1
Value of business acquired.................................................................. 354.8 --
Other assets................................................................................ 6.6 12.2
Separate Accounts' assets................................................................... 3,732.2 3,504.0
-------------- --------------
TOTAL ASSETS ............................................................................. $ 6,906.3 $ 6,802.9
============== ==============
LIABILITIES
Policyholders' account balances............................................................. $ 2,133.2 $ 1,962.4
Future policy benefits...................................................................... 320.4 186.6
Other policyholders' liabilities............................................................ 39.1 86.3
Other liabilities........................................................................... 59.7 108.7
Note payable to affiliate................................................................... 36.8 39.6
Income taxes payable........................................................................ 45.2 149.7
Separate Accounts' liabilities.............................................................. 3,732.2 3,504.0
-------------- --------------
Total liabilities.................................................................... 6,366.6 6,037.3
-------------- --------------
Commitments and contingencies (Notes 10, 13, 14 and 15)
SHAREHOLDER'S EQUITY
Common stock, $1.00 par value; 5.0 million shares authorized, 2.5 million issued and
outstanding.............................................................................. 2.5 2.5
Capital in excess of par value.............................................................. 495.8 599.7
Retained earnings........................................................................... 26.5 139.2
Accumulated other comprehensive income...................................................... 14.9 24.2
-------------- --------------
Total shareholder's equity........................................................... 539.7 765.6
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................................. $ 6,906.3 $ 6,802.9
============== ==============
See Notes to Financial Statements.
F-2
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
SIX MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2004 2003 2002
------------ ------------ ------------ ------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
(IN MILLIONS)
REVENUES:
Universal life and investment-type product policy fee income...... $ 80.8 $ 82.7 $ 166.2 $ 153.8
Premiums.......................................................... 85.0 77.4 141.0 100.6
Net investment income............................................. 62.8 64.3 118.5 107.5
Investment (losses) gains, net.................................... (4.6) (0.7) 11.8 (10.2)
Other income...................................................... 26.7 7.4 17.2 5.7
----------- ----------- ----------- -----------
250.7 231.1 454.7 357.4
----------- ----------- ----------- -----------
BENEFITS AND EXPENSES:
Policyholders' benefits........................................... 91.2 80.8 156.8 127.8
Interest credited to policyholders' account balances.............. 50.0 54.1 91.5 75.8
Commissions....................................................... 29.6 37.5 73.0 54.8
Amortization of deferred policy acquisition costs................. 5.7 34.7 55.2 81.8
Capitalization of deferred policy acquisition costs .............. (87.5) (93.8) (193.7) (172.6)
Amortization of value of business acquired........................ 16.7 -- -- --
Other operating costs and expenses................................ 106.1 143.1 240.7 214.9
----------- ----------- ----------- -----------
211.8 256.4 423.5 382.5
----------- ----------- ----------- -----------
Earnings/(loss) from continuing operations
before income taxes............................................ 38.9 (25.3) 31.2 (25.1)
Income tax (expense)/benefit...................................... (12.4) 10.5 (4.9) 8.8
----------- ----------- ----------- -----------
Net earnings/(loss) from continuing operations.................... 26.5 (14.8) 26.3 (16.3)
Loss from real estate to be disposed of, net of taxes............. -- -- (0.1) (0.8)
Cumulative effect on prior periods of the adoption of
SOP 03-1, net of taxes......................................... -- 3.8 -- --
----------- ----------- ----------- -----------
Net Earnings/(Loss)............................................... $ 26.5 $ (11.0) $ 26.2 $ (17.1)
=========== =========== =========== ===========
See Notes to Financial Statements.
F-3
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK OF PAR EARNINGS INCOME/(LOSS) EQUITY
----------- ----------- ----------- ------------- -------------
(IN MILLIONS)
PREDECESSOR BALANCE, DECEMBER 31, 2001..................... $ 2.5 $ 349.7 $ 130.1 $ 4.7 $ 487.0
Capital contributions...................................... 150.0 150.0
Comprehensive income:
Net loss............................................. (17.1) (17.1)
Other comprehensive income........................... 20.0 20.0
----------- ----------- ------------ ----------- -----------
Comprehensive income........................... 2.9
----------- ----------- ------------ ----------- -----------
PREDECESSOR BALANCE, DECEMBER 31, 2002..................... 2.5 499.7 113.0 24.7 639.9
Capital contributions...................................... 100.0 100.0
Comprehensive income:
Net earnings......................................... 26.2 26.2
Other comprehensive loss............................. (0.5) (0.5)
----------- ----------- ------------ ----------- ------------
Comprehensive income........................... 25.7
----------- ----------- ------------ ----------- -----------
PREDECESSOR BALANCE, DECEMBER 31, 2003..................... 2.5 599.7 139.2 24.2 765.6
Comprehensive loss:
Net loss............................................. (11.0) (11.0)
Other comprehensive loss............................. (11.4) (11.4)
----------- ----------- ------------ ----------- -----------
Comprehensive loss............................. (22.4)
----------- ----------- ------------ ----------- -----------
PREDECESSOR BALANCE, JUNE 30, 2004......................... 2.5 599.7 128.2 12.8 743.2
Effect of push-down accounting of AXA Financial's purchase
price on MLOA's net assets.............................. -- (153.0) (128.2) (12.8) (294.0)
----------- ----------- ------------ ----------- -----------
SUCCESSOR BALANCE, JULY 1, 2004............................ 2.5 446.7 -- -- 449.2
Capital contributions...................................... 49.1 49.1
Comprehensive income:
Net earnings......................................... 26.5 26.5
Other comprehensive income........................... 14.9 14.9
----------- ----------- ------------ ----------- -----------
Comprehensive income........................... 43.1
----------- ----------- ------------ ----------- -----------
SUCCESSOR BALANCE, DECEMBER 31, 2004....................... $ 2.5 $ 495.8 $ 26.5 $ 14.9 $ 539.7
=========== =========== ============ =========== ===========
See Notes to Financial Statements.
F-4
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
SIX MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2004 2003 2002
------------ ------------ ------------ ------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
(IN MILLIONS)
Net earnings/(loss)................................................. $ 26.5 $ (11.0) $ 26.2 $ (17.1)
Adjustments to reconcile net earnings/(loss) to net cash
used in operating activities:
Interest credited to policyholders' account balances........... 46.6 50.5 84.5 72.5
Universal life and investment-type product policy fee income... (36.4) (37.6) (67.6) (66.9)
Change in accrued investment income............................ (3.0) 4.7 (1.7) (5.5)
Investment losses/(gains)...................................... 4.6 0.7 (17.3) 10.2
Change in deferred policy acquisition costs and VOBA........... (63.8) (60.8) (138.5) (90.8)
Change in future policy benefits............................... (6.3) (2.7) 7.0 22.8
Change in other policyholders liabilities...................... 6.4 (1.5) (2.8) 12.0
Provision for depreciation and amortization.................... 7.9 1.5 0.7 (2.0)
Cumulative effect of the adoption of SOP 03-1.................. -- (5.9) -- --
Loss on discontinued real estate operations.................... -- -- 0.1 1.2
Loss on recapture from reinsurance............................. 6.7 -- -- --
Other, net..................................................... (36.8) 49.1 81.7 (8.5)
--------- --------- --------- ---------
Net cash used in operating activities............................... (47.6) (13.0) (27.7) (72.1)
--------- --------- --------- ---------
Cash flows from investing activities:
Sales, maturities or repayments of:
Fixed maturity securities..................................... 188.7 431.5 358.7 258.3
Mortgage loans on real estate................................. 93.8 43.0 80.1 48.6
Other invested assets......................................... 4.3 0.1 0.3 2.6
Acquisitions of investments:
Fixed maturity securities..................................... (473.1) (272.4) (548.5) (505.6)
Mortgage loans on real estate................................. (18.7) (66.1) (139.1) (276.2)
Other invested assets......................................... (0.4) (0.2) (0.6) (1.3)
Policy loans, net............................................. (3.9) (3.0) (6.3) (8.2)
--------- --------- --------- ---------
Net cash (used in)/provided by investing activities................. (209.3) 132.9 (255.4) (481.8)
--------- --------- --------- ---------
F-5
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
(CONTINUED)
SIX MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2004 2003 2002
----------- ------------- ------------- -------------
(SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)
(IN MILLIONS)
Cash flows from financing activities:
Policyholders' account balances:
Deposits....................................................... 241.2 433.7 872.2 876.8
Withdrawals and transfers to Separate Accounts................. (193.5) (333.5) (538.8) (539.9)
Proceeds of demand note payable to affiliate...................... -- -- -- 121.0
Repayment of demand note payable to affiliate..................... -- -- -- (121.0)
Repayment of note to affiliate.................................... (1.4) (1.4) (2.6) (2.4)
Proceeds received from recapture of reinsurance with USFL......... 10.4 -- -- --
Capital contribution.............................................. -- -- 100.0 150.0
----------- ------------- ------------- -------------
Net cash provided by financing activities............................ 56.7 98.8 430.8 484.5
----------- ------------- ------------- -------------
Net (decrease)/increase in cash and cash equivalents................. (200.2) 218.7 147.7 (69.4)
Cash and cash equivalents, beginning of period....................... 399.6 180.9 33.2 102.6
----------- ------------- ------------- -------------
Cash and Cash Equivalents, End of Period............................. $ 199.4 $ 399.6 $ 180.9 $ 33.2
=========== ============= ============= =============
Supplemental cash flow information:
Interest Paid...................................................... $ 1.3 $ 1.3 $ 2.8 $ 3.0
=========== ============= ============= =============
Income Taxes Refunded.............................................. $ (48.2) $ -- $ (27.4) $ (36.9)
=========== ============= ============= =============
Schedule of non-cash financing activities:
Capital contribution of Alliance units from MONY Life.............. $ 49.1 $ -- $ -- $ --
=========== ============= ============= =============
Transfer of bonds from USFL due to recapture of
reinsurance with USFL (Note 11)................................... $ 84.6 $ -- $ -- $ --
=========== ============= ============= =============
See Notes to Financial Statements.
F-6
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
MONY Life Insurance Company of America ("MLOA"), an Arizona stock life
insurance company whose primary business is to provide life insurance and
annuity products to both individuals and businesses, is a wholly-owned
subsidiary of MONY Life Insurance Company ("MONY Life"). MONY Life is a
wholly-owned subsidiary of MONY Holdings, LLC ("MONY Holdings"), which is
a downstream holding company of AXA Financial, Inc. ("the Holding
Company", which together with its consolidated subsidiaries is referred to
herein as "AXA Financial").
2. MERGER OF MONY WITH AXA FINANCIAL
On July 8, 2004, the acquisition of The MONY Group Inc. ("MONY") by the
Holding Company was completed and, under the terms of the related merger
agreement, the Holding Company paid or made provisions to pay MONY
shareholders approximately $1.5 billion in cash, representing $31.00 for
each share of MONY's common stock. MONY shareholders also received a
dividend from MONY totaling $0.34755 per share.
The acquisition was accounted for using the purchase method under
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
In connection with the acquisition, MLOA adjusted the cost basis of its
assets and liabilities to fair value on the acquisition date (the
"Purchase Adjustments"). AXA Financial is in the process of completing the
valuations of a portion of the assets acquired and liabilities assumed;
thus, the allocation of the purchase price is subject to refinement.
Revisions to the assessments of fair values for Value of Business Acquired
("VOBA"), policyholders reserves, deferred taxes and other assets and
liabilities were made in the fourth quarter of 2004. The refinements to
the fair values resulted in adjustments, recorded in the fourth quarter of
2004, consisting of changes from initially determined values as of July 1,
2004, as follows:
ADJUSTMENTS TO FAIR
VALUE
AT JULY 1, 2004
INCREASE/(DECREASE)
---------------------
(IN MILLIONS)
ASSETS
Fixed maturities................................... $ (1.1)
Amounts due from reinsurers........................ 0.2
VOBA............................................... (18.6)
Other assets....................................... 2.3
------------
TOTAL ASSETS....................................... $ (17.2)
------------
LIABILITIES
Future policy benefits and other policyholders'
liabilities........................................ $ 43.1
Other liabilities.....