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EX-31.1 - AXA EQUITABLE LIFE INSURANCE COe12919_ex31-1.txt
EX-32.2 - AXA EQUITABLE LIFE INSURANCE COe12919_ex32-2.txt
EX-32.1 - AXA EQUITABLE LIFE INSURANCE COe12919_ex32-1.txt
EX-31.2 - AXA EQUITABLE LIFE INSURANCE COe12919_ex31-2.txt

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________

FORM 10-Q

(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended    June 30, 2010

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________

Commission File No. 0-25280
 
 
AXA Equitable Life Insurance Company
 
 
(Exact name of registrant as specified in its charter)
 
 
 
New York
 
13-5570651
   
 
(State or other jurisdiction of
 
(I.R.S. Employer
   
 
incorporation or organization)
 
Identification No.)
   

 
1290 Avenue of the Americas, New York, New York
 
10104
 
 
(Address of principal executive offices)
 
(Zip Code)
 

 
(212) 554-1234
 
 
Registrant’s telephone number, including area code
 

 
Not applicable
 
(Former name, former address, and former fiscal year if changed since last report.)


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
o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes
o
No
o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
 
Accelerated filer  o
Non-accelerated filer  x  (Do not check if a smaller reporting company.)
 
Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes   o
No  x

As of August 9, 2010, 2,000,000 shares of the registrant’s Common Stock were outstanding.


Page 1 of 59
 
 

 


REDUCED DISCLOSURE FORMAT:

Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.



 
 
 

 

AXA EQUITABLE LIFE INSURANCE COMPANY
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010

TABLE OF CONTENTS


   
Page

PART I
FINANCIAL INFORMATION
 

Item 1:
Consolidated Financial Statements (Unaudited)
 
 
· Consolidated Balance Sheets, June 30, 2010 and December 31, 2009
 4
 
· Consolidated Statements of Earnings (Loss), Three Months and Six Months Ended
 
 
June 30, 2010 and 2009
 5
 
· Consolidated Statements of Equity, Six Months Ended
 
 
June 30, 2010 and 2009
 7
 
· Consolidated Statements of Cash Flows, Six Months Ended
 
 
June 30, 2010 and 2009
 8
 
· Notes to Consolidated Financial Statements
10
     
Item 2:
Management’s Discussion and Analysis of Financial Condition and
 
 
Results of Operations
50
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk*
57
     
Item 4(T):
Controls and Procedures
57
     
     
PART II
OTHER INFORMATION
 
     
Item 1:
Legal Proceedings
58
     
Item 1A:
Risk Factors
58
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds *
58
     
Item 3:
Defaults Upon Senior Securities *
58
     
Item 4:
(Removed and Reserved)
58
     
Item 5:
Other Information
58
     
Item 6:
Exhibits
58
     
SIGNATURES
 
59

*Omitted pursuant to General Instruction H to Form 10-Q.

 
2

 

 
FORWARD-LOOKING STATEMENTS
 

Some of the statements made in this report, including statements made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include, among other things, discussions concerning potential exposure of AXA Equitable Life Insurance Company and its subsidiaries to market risks and the impact of new accounting pronouncements, as well as statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by words such as “believes,” “estimates,” “intends,” “anticipates,” “plans,” “expects,” “projects,” “should,” “probably,” “risk,” “target,” “goals,” “objectives,” or similar expressions.  AXA Equitable Life Insurance Company 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.  Forward-looking statements are not a guarantee of future performance.  Actual results could differ materially from those anticipated by forward-looking statements due to a number of important factors, including those discussed under “Risk Factors” in Part I, Item 1A of AXA Equitable Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and elsewhere in this report.

 
3

 

PART I  FINANCIAL INFORMATION
Item 1:  Consolidated Financial Statements.

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(In Millions)
 
ASSETS
           
Investments:
           
Fixed maturities available for sale, at fair value
  $ 28,876.2     $ 27,470.2  
Mortgage loans on real estate
    3,560.3       3,554.8  
Equity real estate, held for the production of income
    109.0       98.5  
Policy loans
    3,605.4       3,616.8  
Other equity investments
    1,550.5       1,562.3  
Trading securities
    490.5       484.6  
Other invested assets
    1,654.8       1,482.6  
Total investments
    39,846.7       38,269.8  
Cash and cash equivalents
    3,450.1       1,791.7  
Cash and securities segregated, at fair value
    945.3       985.7  
Broker-dealer related receivables
    1,156.8       1,087.6  
Deferred policy acquisition costs
    7,746.9       7,745.2  
Goodwill and other intangible assets, net
    3,664.2       3,676.5  
Amounts due from reinsurers
    3,097.7       3,028.2  
Loans to affiliates
    1,046.6       1,048.3  
Other assets
    9,834.3       8,254.9  
Separate Accounts’ assets
    79,317.6       84,016.5  
                 
Total Assets
  $ 150,106.2     $ 149,904.4  
                 
LIABILITIES
               
Policyholders’ account balances
  $ 24,375.7     $ 24,107.3  
Future policy benefits and other policyholders liabilities
    18,754.4       17,726.7  
Broker-dealer related payables
    279.5       279.4  
Customers related payables
    1,643.7       1,430.7  
Amounts due to reinsurers
    69.6       81.2  
Short-term and long-term debt
    279.0       449.0  
Loans from affiliates
    1,325.0       1,325.0  
Income taxes payable
    4,566.2       3,356.0  
Other liabilities
    3,126.8       3,002.2  
Separate Accounts’ liabilities
    79,317.6       84,016.5  
Total liabilities
    133,737.5       135,774.0  
                 
Commitments and contingent liabilities (Note 11)
               
                 
EQUITY
               
AXA Equitable’s equity:
               
Common stock, $1.25 par value, 2.0 million shares authorized,
               
issued and outstanding
    2.5       2.5  
Capital in excess of par value
    5,595.4       5,582.3  
Retained earnings
    8,298.8       6,311.8  
Accumulated other comprehensive loss
    (647.9 )     (1,035.7 )
Total AXA Equitable’s equity
    13,248.8       10,860.9  
Noncontrolling interest
    3,119.9       3,269.5  
Total equity
    16,368.7       14,130.4  
                 
Total Liabilities and Equity
  $ 150,106.2     $ 149,904.4  
 
See Notes to Consolidated Financial Statements.
 
4

 
 
AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(UNAUDITED)

 
    Three Months Ended    
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
    2009     
2010
    2009   
     (In Millions)  
                         
REVENUES
                       
Universal life and investment-type
                       
product policy fee income
  $ 766.3     $ 732.6     $ 1,489.6     $ 1,410.3  
Premiums
    128.1       112.9       276.3       240.8  
Net investment income (loss):
                               
Investment income (loss) from
                               
derivative instruments
    1,259.9       (1,976.3 )     1,105.2       (1,753.8 )
Other investment income
    502.0       540.3       1,052.0       863.0  
Total net investment income (loss)
    1,761.9       (1,436.0 )     2,157.2       (890.8 )
Investment (losses) gains, net:
                               
Total other-than-temporary impairment losses
    (43.5 )     (65.7 )     (75.8 )     (93.2 )
Portion of loss recognized in other
                               
comprehensive income
    2.6       3.3       4.9       3.3  
Net impairment losses recognized
    (40.9 )     (62.4 )     (70.9 )     (89.9 )
Other investment gains, net
    14.2       9.9       44.6       175.9  
Total investment (losses) gains, net
    (26.7 )     (52.5 )     (26.3 )     86.0  
Commissions, fees and other income
    930.5       807.3       1,843.3       1,576.0  
Increase (decrease) in fair value
                               
of reinsurance contracts
    1,826.7       (1,198.1 )     1,779.8       (2,135.8 )
Total revenues
    5,386.8       (1,033.8 )     7,519.9       286.5  
                                 
BENEFITS AND OTHER DEDUCTIONS
                               
Policyholders’ benefits
    1,224.5       (92.6 )     1,808.5       488.8  
Interest credited to policyholders’
                               
account balances
    215.5       246.1       448.6       504.2  
Compensation and benefits
    441.6       476.2       921.6       938.5  
Commissions
    259.5       245.0       502.3       548.4  
Distribution related payments
    71.0       55.1       137.8       103.0  
Amortization of deferred sales commissions
    12.2       13.8       24.3       28.7  
Interest expense
    26.9       27.0       53.7       54.0  
Amortization of deferred policy acquisition costs
    515.5       (108.2 )     368.5       (73.6 )
Capitalization of deferred policy acquisition costs
    (226.7 )     (233.9 )     (439.4 )     (529.4 )
Rent expense
    56.0       60.2       124.8       124.7  
Amortization of other intangible assets
    5.7       6.3       11.8       12.2  
Other operating costs and expenses
    311.1       334.6       639.5       659.4  
Total benefits and other deductions
    2,912.8       1,029.6       4,602.0       2,858.9  













See Notes to Consolidated Financial Statements.

 
5

 


AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) - CONTINUED
(UNAUDITED)


   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(In Millions)
 
                         
Earnings (loss) from continuing operations
                       
before income taxes
  $ 2,474.0     $ (2,063.4 )   $ 2,917.9     $ (2,572.4 )
Income tax (expense) benefit
    (832.2 )     796.8       (808.2 )     1,003.1  
                                 
Earnings (loss) from continuing operations,
                               
net of income taxes
    1,641.8       (1,266.6 )     2,109.7       (1,569.3 )
Earnings from discontinued operations,
                               
net of income taxes
    -       3.5       -       8.6  
                                 
Net Earnings (loss)
    1,641.8       (1,263.1 )     2,109.7       (1,560.7 )
Less: net earnings attributable to the
                               
noncontrolling interest
    (50.9 )     (80.8 )     (122.7 )     (93.5 )
                                 
Net Earnings (loss) Attributable to AXA Equitable
  $ 1,590.9     $ (1,343.9 )   $ 1,987.0     $ (1,654.2 )
                                 
                                 
Amounts attributable to AXA Equitable:
                               
Earnings (loss)  from continuing operations,
                               
net of income taxes
  $ 1,590.9     $ (1,347.4 )   $ 1,987.0     $ (1,662.8 )
Earnings from discontinued operations,
                               
net of income taxes
    -       3.5       -       8.6  
                                 
Net Earnings (Loss)
  $ 1,590.9     $ (1,343.9 )   $ 1,987.0     $ (1,654.2 )

























See Notes to Consolidated Financial Statements.

 
6

 


AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

   
2010
   
2009
 
   
(In Millions)
 
       
EQUITY
           
AXA Equitable’s Equity:
           
Common stock, at par value, beginning of year and end of period
  $ 2.5     $ 2.5  
                 
Capital in excess of par value, beginning of year
    5,582.3       5,184.1  
Changes in capital in excess of par value
    13.1       443.4  
Capital in excess of par value, end of period
    5,595.4       5,627.5  
                 
Retained earnings, beginning of year
    6,311.8       8,412.6  
Net earnings (loss) attributable to AXA Equitable
    1,987.0       (1,654.2 )
Impact of implementing new accounting guidance, net of taxes
    -       62.0  
Retained earnings, end of period
    8,298.8       6,820.4  
                 
Accumulated other comprehensive loss, beginning of year
    (1,035.7 )     (2,235.6 )
Impact of implementing new accounting guidance, net of taxes
    -       (62.0 )
Other comprehensive income attributable to AXA Equitable
    387.8       519.8  
Accumulated other comprehensive loss, end of period
    (647.9 )     (1,777.8 )
                 
Total AXA Equitable’s equity, end of period
    13,248.8       10,672.6  
                 
Noncontrolling interest, beginning of year
    3,269.5       2,896.9  
Purchase of AllianceBernstein Units by noncontrolling interest
    5.2       -  
Exercise of AllianceBernstein Put
    -       135.0  
Dividends paid to noncontrolling interest
    (221.1 )     (86.7 )
Capital contributions
    -       3.5  
Net earnings attributable to noncontrolling interest
    122.7       93.5  
Other comprehensive (loss) income attributable to noncontrolling interest
    (48.3 )     35.8  
Other changes in noncontrolling interest
    (8.1 )     26.7  
                 
Noncontrolling interest, end of period
    3,119.9       3,104.7  
                 
Total Equity, End of Period
  $ 16,368.7     $ 13,777.3  


















See Notes to Consolidated Financial Statements.

 
7

 

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)

   
2010
   
2009
 
   
(In Millions)
 
             
Net earnings (loss)
  $ 2,109.7     $ (1,560.7 )
Adjustments to reconcile net earnings (loss) to net cash provided
               
by operating activities:
               
Interest credited to policyholders’ account balances
    448.6       504.2  
Universal life and investment-type product policy fee income
    (1,489.6 )     (1,410.3 )
Net change in broker-dealer and customer related receivables/payables
    58.6       (1,308.7 )
(Income) loss on derivative instruments
    (1,105.2 )     1,870.1  
Change in reinsurance recoverable with affiliate
    -       1,485.7  
Investment losses (gains), net
    26.3       (86.0 )
Change in segregated cash and securities, net
    40.4       1,326.5  
Change in deferred policy acquisition costs
    (70.9 )     (603.0 )
Change in future policy benefits
    760.3       (584.4 )
Change in income tax payable
    841.4       (952.9 )
Change in fair value of guaranteed minimum income
               
benefit reinsurance contracts
    (1,779.8 )     2,135.8  
Equity (income) loss in other limited partnerships
    (43.4 )     173.1  
Amortization of deferred sales commissions
    24.3       28.7  
Other depreciation and amortization
    83.8       75.6  
Amortization of reinsurance cost
    109.8       143.2  
Amortization of other intangible assets
    11.8       12.2  
Change in accounts payable and accrued expenses
    152.5       38.3  
Other, net
    120.5       54.8  
                 
Net cash provided by operating activities
    299.1       1,342.2  
                 
Cash flows from investing activities:
               
Maturities and repayments of fixed maturities
               
and mortgage loans on real estate
    998.8       906.0  
Sales of investments
    2,464.4       2,082.7  
Purchases of investments.
    (3,977.2 )     (2,080.0 )
Cash settlements related to derivative instruments
    259.1       (2,156.4 )
Increase in loans to affiliates
    -       (250.0 )
Change in short-term investments
    24.3       (12.6 )
Change in capitalized software, leasehold improvements
               
and EDP equipment
    (20.1 )     (100.2 )
Other, net
    28.2       (64.2 )
                 
Net cash used in investing activities
    (222.5 )     (1,674.7 )



 
8

 

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009 - CONTINUED
(UNAUDITED)

   
2010
   
2009
 
   
(In Millions)
 
             
Cash flows from financing activities:
           
Policyholders’ account balances:
           
Deposits
  $ 1,540.8     $ 2,064.6  
Withdrawals and transfers to Separate Accounts
    (184.6 )     (1,380.8 )
Net change in short-term financings
    (170.0 )     (.4 )
Decrease in collateralized pledged assets
    632.3       -  
Decrease in collateralized pledged liabilities
    (13.0 )     (252.8 )
Capital contribution
    -       438.9  
Distribution to non-controlling interests in consolidated subsidiaries
    (221.1 )     (86.7 )
Other, net
    (2.6 )     66.1  
                 
Net cash provided by financing activities
    1,581.8       848.9  
                 
Change in cash and cash equivalents
    1,658.4       516.4  
Cash and cash equivalents, beginning of year
    1,791.7       2,403.2  
                 
Cash and Cash Equivalents, End of Period
  $ 3,450.1     $ 2,919.6  
                 
Supplemental cash flow information
               
Interest Paid
  $ .2     $ 8.6  
Income Taxes (Refunded) Paid
  $ (211.8 )   $ 37.7  




























See Notes to Consolidated Financial Statements.

 
9

 



AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1)
ORGANIZATION AND BASIS OF PRESENTATION

The preparation of the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  The accompanying unaudited interim consolidated financial statements reflect all adjustments necessary in the opinion of management for a fair statement of the consolidated financial position of AXA Equitable and its consolidated results of operations and cash flows for the periods presented.  All significant intercompany transactions and balances have been eliminated in consolidation.  These statements should be read in conjunction with the audited consolidated financial statements of AXA Equitable for the year ended December 31, 2009.  The results of operations for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the full year.

On January 6, 2009, AXA America, the holding company for AXA Financial and an indirect wholly owned subsidiary of AXA, purchased the final 8.16 million AllianceBernstein Units from SCB Partners at a price of $18.349 per Unit pursuant to the final installment of the AB Put.  As a result of this transaction, minority interest subject to redemption rights totaling $135.0 million were reclassified as noncontrolling interest in first quarter 2009.

On March 30, 2009, AXA Financial Group sold 41.9 million AllianceBernstein Units to an affiliate of AXA.  As a result, AXA Financial Group’s consolidated economic interest in AllianceBernstein was reduced to 46.4% upon completion of this transaction.  AXA Equitable’s economic interest remains unchanged at 37.1%.  As AXA Equitable remains the General Partner of the limited partnership, AllianceBernstein continues to be consolidated in the Company’s financial statements.

As of June 30, 2010, AllianceBernstein had purchased 3.0 million Holding Units for $86.1 million to help fund anticipated obligations under its Holding Unit-based compensation awards and intends to make additional open-market purchases for this purpose during the second half of 2010.  During the first six months of 2010, AllianceBernstein granted approximately 1.4 million restricted Holding Units, funded by combination of 0.4 million newly-issued Holding Units and 1.0 million unallocated Holding Units held by AllianceBernstein in a consolidated rabbi trust and available for such purpose.  As a result, capital in excess of par value increased by $6.7 million and noncontrolling interest decreased by $6.7 million.  At June 30, 2010 and December 31, 2009 the Company’s economic interest in AllianceBernstein was 36.1% and 35.9%, respectively. At June 30, 2010 and December 31, 2009, respectively, AXA and its subsidiaries’ economic interest in AllianceBernstein was approximately 62.5% and 62.1%.

The terms “second quarter 2010” and “second quarter 2009” refer to the three months ended June 30, 2010 and 2009, respectively.  The terms “first half of 2010” and “first half of 2009” refer to the six months ended June 30, 2010 and 2009, respectively.

Certain reclassifications have been made in the amounts presented for prior periods to conform those periods to the current presentation.


2)  
ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS

Accounting Changes

Beginning second quarter 2009, the Company implemented the new guidance that modified the recognition guidance for OTTI of debt securities to make it more operational and expanded the presentation and disclosure of OTTI on debt and equity securities in the financial statements.  For AFS debt securities in an unrealized loss position, the total fair value loss is to be recognized in earnings as an OTTI if management intends to sell the debt security or more-likely-than-not will be required to sell the debt security before its anticipated recovery.  If these criteria are not met, both qualitative and quantitative assessments are required to evaluate the security’s collectability and determine whether an OTTI is considered to have occurred.
 
 
10

 
 
 
The guidance required only the credit loss component of any resulting OTTI to be recognized in earnings, as measured by the shortfall of the present value of the cash flows expected to be collected as compared to the amortized cost basis of the security, while the remainder of the fair value loss is recognized in OCI.  In periods subsequent to the recognition of an OTTI, the debt security is accounted for as if it had been purchased on the measurement date of the OTTI, with an amortized cost basis reduced by the amount of the OTTI recognized in earnings.

As required by the transition provisions of this guidance, at April 1, 2009, a cumulative effect adjustment was calculated for all AFS debt securities held for which an OTTI previously was recognized and for which there was no intention or likely requirement to sell the security before recovery of its amortized cost.  This resulted in an increase to Retained earnings of $62.0 million at that date with a corresponding decrease to AOCI to reclassify the noncredit portion of these previously recognized OTTI amounts.  In addition, at April 1, 2009, the amortized cost basis of the AFS debt securities impacted by the reclassification adjustment was increased by $107.9 million, equal to the amount of the cumulative effect adjustment, without giving effect to DAC and tax.  The fair value of AFS debt securities at April 1, 2009 was unchanged as a result of the implementation of this guidance.

Loss from continuing operations, net of income taxes, and Net loss attributable to AXA Equitable for second quarter and first six months of 2009 reflected increases of $3.3 million and $3.3 million respectively, from recognition in OCI of the noncredit portions of OTTI subsequent to initial implementation of this guidance at April 1, 2009.  The consolidated financial statements have been modified to separately present the total OTTI recognized in Investment (losses) gains, net, with an offset for the amount of noncredit OTTI recognized in OCI, on the face of the consolidated statements of earnings, and to present the OTTI recognized in AOCI on the face of the consolidated statements of equity and comprehensive income for all periods subsequent to implementation of this guidance.  In addition, Note 3 has been expanded to include new disclosures about OTTI for debt securities regarding expected cash flows, and credit losses, including the methodologies and significant inputs used to determine those amounts.

Effective April 1, 2009, the Company implemented additional guidance related to fair value measurements and disclosures when the volume and level of market activity for the asset or liability have significantly decreased in relation to normal market activity.  This modification retains the “exit price” objective of fair value measurement and provides specific factors to consider for distinguishing distressed or forced transactions not determinative of fair value from orderly transactions between market participants under prevailing market conditions.  Beginning in fourth quarter 2008, the Company concluded under previous guidance that markets for certain CMBS were inactive and, consequently, changed its methodology for measuring the fair value of the CMBS to minimize reliance on market trading activity and the pricing of isolated transactions.  Implementation of the revised guidance did not have an impact on the Company’s consolidated results of operations or financial position.

On June 12, 2009, the FASB issued new guidance that eliminates the concept of QSPEs and their exemption from consolidation in the financial statements of a transferor of financial assets.  In addition, the new guidance modifies and clarifies the conditions for derecognition of transferred financial assets, including partial transfers and subsequent measurement of retained interests.  Enhanced disclosure is required about financial asset transfers and any continuing involvement of the transferor.  For calendar-year consolidated financial statements, this new guidance became effective for interim and annual reporting periods beginning January 1, 2010.  Implementation of this guidance did not have a material effect on the Company’s consolidated financial statements.
 
 
11

 

Also issued by the FASB on June 12, 2009 was new guidance that modifies the approach and increases the frequency for assessing whether a VIE must be consolidated and requires additional disclosures about an entity’s involvement with VIEs.  The guidance removes the quantitative-based risks-and-rewards calculation for identifying the primary beneficiary and, instead, requires a variable-interest holder to qualitatively assess whether it has a controlling financial interest in a VIE, without consideration of kick-out and participating rights unless unilaterally held.  Continuous reassessments of whether an enterprise is the primary beneficiary of a VIE are required.  For calendar-year consolidated financial statements, this new guidance became effective for interim and annual reporting periods beginning January 1, 2010.  All existing consolidation conclusions were required to be recalculated under this new guidance, resulting in the reassessment of certain VIEs in which AllianceBernstein had a minimal financial ownership interest for potential consolidated presentation in the Company’s consolidated financial statements.  In January 2010, the FASB deferred portions of this guidance as they relate to asset managers.  As such, the Company determined that all entities for which the Company is a sponsor and/or investment manager, other than collateralized debt obligations and collateralized loan obligations (collectively “CDOs”), qualify for the scope deferral and continue to be assessed for consolidation under the previous guidance for consolidation of VIEs.  Implementation of this guidance did not have a material effect on the Company’s consolidated financial statements.

New Accounting Pronouncements

In January 2010, the FASB issued new guidance for accounting and reporting for decreases in ownership of a subsidiary.  This guidance clarifies the scope of a decrease in ownership provisions for consolidations and expands the disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets within the scope of consolidation.  This guidance is effective for interim and annual reporting periods ending on or after December 15, 2009.  Implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued new guidance for improving disclosures about fair value measurements.  This guidance requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, for Level 3 fair value measurements, a reporting entity should present separately information about purchases, sales, issuances and settlements.  This guidance is effective for interim and annual reporting periods ending on or after December 15, 2009 except for disclosures for Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010.  These new disclosures have been included in the Notes to the Company’s consolidated financial statements, as appropriate.

In March 2010, the FASB issued new guidance to eliminate the scope exception for embedded credit derivatives in beneficial interests in securitized financial assets, such as asset-backed securities, credit-linked notes, and collateralized loan and debt obligations, except for those created solely by subordination.  This guidance provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the extent of the embedded credit derivative scope exception.  This guidance is effective for the first interim reporting period beginning after June 15, 2010.  Management does not expect the implementation will have a material effect on the Company’s consolidated financial statements.
 
In April 2010, the FASB issued guidance on how investments held through Separate Accounts affect an insurer’s consolidation analysis of those investments.  This guidance clarifies that insurers would not be required in their evaluation of whether to consolidate investments to combine their General Account interest with the Separate Accounts in the same investment, unless the Separate Account interest is held for the benefit of a related party policyholder.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2010 with early adoption permitted with changes to be applied retroactively.  Management does not expect the implementation of this guidance will  have a material impact on the Company’s consolidated financial statements.

Also issued by the FASB in April 2010 was new guidance on stock compensation.  This guidance provides clarification that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market performance or service condition.  Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity.  This guidance is effective for the first interim reporting period beginning after December 15, 2010.  Management does not expect the implementation will have a material effect on the Company’s consolidated financial statements.
 
 
12

 


3)  
INVESTMENTS

Fixed Maturities and Equity Securities

The following table provides information relating to fixed maturities and equity securities classified as AFS:

Available-for-Sale Securities by Classification

       
Gross
   
Gross
             
   
Amortized
 
Unrealized
   
Unrealized
         
OTTI
 
   
Cost
 
Gains
   
Losses
   
Fair Value
   
in AOCI (3)
 
   
(In Millions)
 
                               
June 30, 2010:
                             
Fixed Maturities:
                             
Corporate
  $ 20,344.0     $ 1,486.0     $ 101.3     $ 21,728.7     $ .7  
U.S. Treasury, government
                                       
and agency(4)
    1,951.5       27.4       37.9       1,941.0       -  
States and political
                                       
subdivisions
    438.4       16.7       7.6       447.5       -  
Foreign governments
    324.2       49.0       .1       373.1       -  
Commercial mortgage-backed
    1,785.2       1.8       543.7       1,243.3       5.9  
Residential mortgage-backed (1)
    1,382.1       78.1       .1       1,460.1       -  
Asset-backed (2)
    275.2       14.9       16.0       274.1       7.6  
Redeemable preferred stock
    1,546.9       17.2       155.7       1,408.4       -  
Total Fixed Maturities
    28,047.5       1,691.1       862.4       28,876.2       14.2  
                                         
Equity securities
    28.5       .1       3.2       25.4       -  
                                         
Total at June 30, 2010
  $ 28,076.0     $ 1,691.2     $ 865.6     $ 28,901.6     $ 14.2  
                                         
December 31, 2009
                             
Fixed Maturities:
                             
Corporate
  $ 19,437.7     $ 991.5     $ 235.1     $ 20,194.1     $ .7  
U.S. Treasury, government
                                       
and agency
    1,830.1       12.4       152.5       1,690.0       -  
States and political
                                       
subdivisions
    388.6       7.3       14.2       381.7       -  
Foreign governments
    270.4       32.0       .1       302.3       -  
Commercial mortgage-backed
    1,979.6       2.2       492.0       1,489.8       1.8  
Residential mortgage-backed (1)
    1,604.6       46.2       .2       1,650.6       -  
Asset-backed (2)
    278.2       10.9       21.4       267.7       7.9  
Redeemable preferred stock
    1,707.6       8.5       222.1       1,494.0       -  
Total Fixed Maturities
    27,496.8       1,111.0       1,137.6       27,470.2       10.4  
                                         
Equity securities
    43.9       9.7       -       53.6       -  
                                         
Total at December 31, 2009
  $ 27,540.7     $ 1,120.7     $ 1,137.6     $ 27,523.8     $ 10.4  

 
 
 (1)   
Includes publicly traded agency pass-through securities and collateralized mortgage obligations
 (2)   
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans
 (3)   
Amounts represent OTTI losses in AOCI, which were not included in earnings in accordance with current accounting guidance.
 (4)   
Reflects $121.6 million of amortized cost of FDIC insured bonds that were reported as Corporate in 2009 and moved to U.S. Treasury, government and agency in 2010.
 
 
 
 
 
 
 
 
13

 

As further described in Note 7, the Company determines the fair values of fixed maturities and equity securities based upon quoted prices in active markets, when available, or through the use of alternative approaches when market quotes are not readily accessible or available.  These alternative approaches include matrix or model pricing and use of independent pricing services, each supported by reference to principal market trades or other observable market assumptions for similar securities.  More specifically, the matrix pricing approach to fair value is a discounted cash flow methodology that incorporates market interest rates commensurate with the credit quality and duration of the investment.

At June 30, 2010 and December 31, 2009, respectively, the Company had trading fixed maturities with an amortized cost of $158.2 million and $114.6 million and carrying values of $159.1 million and $125.9 million.  Gross unrealized gains on trading fixed maturities were $0.9 million and $12.3 million and gross unrealized losses were zero and $1.0 million at June 30, 2010 and December 31, 2009, respectively.

The contractual maturities of AFS fixed maturities (excluding redeemable preferred stock) at June 30, 2010 are shown in the table below.  Bonds not due at a single maturity date have been included in the table in the year of final maturity.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available-for-Sale Fixed Maturities
Contractual Maturities at June 30, 2010

   
Amortized
       
   
Cost
   
Fair Value
 
   
(In Millions)
 
       
Due in one year or less
  $ 1,787.9     $ 1,834.5  
Due in years two through five
    8,871.7       9,381.9  
Due in years six through ten
    7,994.7       8,616.2  
Due after ten years
    4,403.8       4,657.7  
Subtotal
    23,058.1       24,490.3  
Commercial mortgage-backed securities                      
    1,785.2       1,243.3  
Residential mortgage-backed securities
    1,382.1       1,460.1  
Asset-backed securities
    275.2       274.1  
Total
  $ 26,500.6     $ 27,467.8  

For the first half of 2010 and 2009, proceeds received on sales of fixed maturities classified as AFS amounted to $418.7 million and $1,590.7 million, respectively.  Gross gains of $18.3 million and $156.0 million and gross losses of $6.1 million and $9.0 million were realized on these sales for the first half of 2010 and of 2009, respectively.  The change in unrealized investment gains (losses) related to fixed maturities classified as AFS for the first half of 2010 and 2009 amounted to $855.3 million and $858.9 million, respectively.

The Company’s management, with the assistance of its investment advisors, monitors the investment performance of its portfolio and reviews AFS securities with unrealized losses for OTTI.  Integral to this review is an assessment made each quarter, on a security-by-security basis, by the Company’s Investments Under Surveillance Committee, of various indicators of credit deterioration to determine whether the investment security is expected to recover.  This assessment includes, but is not limited to, consideration of the duration and severity of the unrealized loss, failure, if any, of the issuer of the security to make scheduled payments, actions taken by rating agencies, adverse conditions specifically related to the security or sector, the financial strength, liquidity, and continued viability of the issuer and, for equity securities only, the intent and ability to hold the investment until recovery, and results in identification of specific securities for which OTTI is recognized.

If there is no intent to sell or likely requirement to dispose of the fixed maturity security before its recovery, only the credit loss component of any resulting OTTI is recognized in earnings and the remainder of the fair value loss is recognized in OCI.  The amount of credit loss is the shortfall of the present value of the cash flows expected to be collected as compared to the amortized cost basis of the security.  The present value is calculated by discounting management’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment.  Projections of future cash flows are based on assumptions regarding probability of default and estimates regarding the amount and timing of recoveries.  These assumptions and estimates require use of management judgment and consider internal credit analyses as well as market observable data relevant to the collectability of the security.  For mortgage and asset-backed securities, projected future cash flows also include assumptions regarding prepayments and underlying collateral value.
 
 
 
14

 
 

The Company recognized OTTI on AFS fixed maturities as follows:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(In Millions)
 
                         
Credit losses recognized in earnings
  $ 40.9     $ 62.4     $ 70.9     $ 89.9  
Non-credit losses recognized in OCI
    2.6       3.3       4.9       3.3  
Total OTTI
  $ 43.5     $ 65.7     $ 75.8     $ 93.2  


At June 30, 2010, no additional OTTI was recognized in earnings related to AFS fixed maturities as the Company did not intend to sell and did not expect to be required to sell these impaired fixed maturities prior to recovering their amortized cost.  At June 30, 2010, OTTI of $0.2 million was recognized on equity securities.

The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company at the dates indicated and the corresponding changes in such amounts.

Fixed Maturities - Credit Loss Impairments

             
   
2010
   
2009
 
   
(In Millions)
 
             
Balances at January 1,
  $ (145.5 )   $ (229.7 )
Previously recognized impairments on securities that matured, paid, prepaid or sold
    3.1       3.4  
Previously recognized impairments on securities impaired to fair value this period (1)
    -       -  
Impairments recognized this period on securities not previously impaired
    (30.0 )     (12.6 )
Additional impairments this period on securities previously impaired
    -       (14.9 )
Increases due to passage of time on previously recorded credit losses
    -       -  
Accretion of previously recognized impairments due to increases in expected cash flows
    -       -  
Balances at March 31,
    (172.4 )     (253.8 )
Cumulative adjustment related to new accounting guidance on April 1, 2009
    -       107.9  
Previously recognized impairments on securities that matured, paid, prepaid or sold
    45.7       26.5  
Previously recognized impairments on securities impaired to fair value this period (1)
    -       -  
Impairments recognized this period on securities not previously impaired
    (32.2 )     (55.2 )
Additional impairments this period on securities previously impaired
    (8.8 )     (7.1 )
Increases due to passage of time on previously recorded credit losses
    -       -  
Accretion of previously recognized impairments due to increases in expected cash flows
    -       -  
Balances at June 30,
  $ (167.7 )   $ (181.7 )

(1)
Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.


 
15

 


Net unrealized investment gains (losses) on fixed maturities and equity securities classified as AFS are included in the consolidated balance sheets as a component of AOCI.  The table below presents these amounts as of the dates indicated:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(In Millions)
 
AFS Securities:
           
Fixed maturities:
           
With OTTI loss
  $ (7.2 )   $ (10.9 )
All other
    835.9       (15.7 )
Equity securities
    (3.0 )     9.7  
Net Unrealized Gains (Losses)
  $ 825.7     $ (16.9 )

Changes in net unrealized investment gains (losses) recognized in AOCI include reclassification adjustments to reflect amounts realized in Net earnings (loss) for the current period that had been part of OCI in earlier periods.  The tables that follow below present a rollforward of net unrealized investment gains (losses) recognized in AOCI, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other:

Net Unrealized Gains (Losses) on Fixed Maturities with OTTI Losses
 
                               
   
Net
               
Deferred
   
AOCI Loss
 
   
Unrealized
               
Income
   
Related to Net
 
   
(Losses)
               
Tax
   
Unrealized
 
   
Gains on
         
Policyholders
   
(Liability)
   
Investment
 
   
Investments
   
DAC
   
Liabilities
   
Asset
   
Gains (Losses)
 
   
(In Millions)
 
                               
Balance, March 31, 2010
  $ (13.1 )   $ 3.0     $ 2.4     $ 2.7     $ (5.0 )
Net investment gains
                                       
arising during the period
    17.2       -       -       -       17.2  
Reclassification adjustment for
                                       
OTTI losses:
                                       
Included in Net earnings
    (8.8 )     -       -       -       (8.8 )
Excluded from Net earnings (1)
    (2.5 )     -       -       -       (2.5 )
Impact of net unrealized investment
                                       
gains (losses) on:
                                       
DAC
    -       (2.3 )     -       -       (2.3 )
Deferred income taxes
    -       -       -       (.9 )     (.9 )
Policyholders liabilities
    -       -       (1.0 )     -       (1.0 )
Balance, June 30, 2010
  $ (7.2 )   $ .7     $ 1.4     $ 1.8     $ (3.3 )
                                         
                                         
Balance, January 1, 2010
  $ (10.9 )   $ 5.3     $ -     $ 1.9     $ (3.7 )
Net investment gains
                                       
arising during the period
    17.3       -       -       -       17.3  
Reclassification adjustment for
                                       
OTTI losses:
                                       
Included in Net earnings
    (8.8 )     -       -       -       (8.8 )
Excluded from Net earnings (1)
    (4.8 )     -       -       -       (4.8 )
Impact of net unrealized investment
                                       
gains (losses) on:
                                       
DAC
    -       (4.6 )     -       -       (4.6 )
Deferred income taxes
    -       -       -       (.1 )     (.1 )
Policyholders liabilities
    -       -       1.4       -       1.4  
Balance, June 30, 2010
  $ (7.2 )   $ .7     $ 1.4     $ 1.8     $ (3.3 )
 
 
 (1)   Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss
 

 
 
16

 

Net Unrealized Gains (Losses) on Fixed Maturities with OTTI Losses

                               
   
Net
                     
AOCI Loss
 
   
Unrealized
               
Deferred
   
Related to Net
 
   
(Losses)
               
Income
   
Unrealized
 
   
Gains on
         
Policyholders
   
Tax
   
Investment
 
   
Investments
   
DAC
   
Liabilities
   
Asset
   
Gains (Losses)
 
   
(In Millions)
 
                               
Balance, March 31, 2009
  $ -     $ -     $ -     $ -     $ -  
Cumulative impact of implementing
                                       
new guidance
    (5.4 )     .6       -       1.7       (3.1 )
Net investment losses
                                       
arising during the period
    (4.8 )     -       -       -       (4.8 )
Reclassification adjustment for
                                       
OTTI losses:
                                       
Included in Net loss
    1.2       -       -       -       1.2  
Excluded from Net loss (1)
    (3.1 )     -       -       -       (3.1 )
Impact of net unrealized investment
                                       
gains on:
                                       
DAC
    -       1.4       -       -       1.4  
Deferred income taxes
    -       -       -       1.9       1.9  
Policyholders liabilities
    -       -       -       -       -  
Balance, June 30, 2009
  $ (12.1 )   $ 2.0     $ -     $ 3.6     $ (6.5 )
 
 (1)   Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss
 
 
 
17

 


All Other Net Unrealized Investment Gains (Losses) in AOCI

                               
   
Net
               
Deferred
   
AOCI Gain
 
   
Unrealized
               
Income
   
Related to Net
 
   
Gains
               
Tax
   
Unrealized
 
   
(Losses) on
         
Policyholders
   
(Liability)
   
Investment
 
   
Investments
   
DAC
   
Liabilities
   
Asset
   
Gains (Losses)
 
   
(In Millions)
 
                               
Balance, March 31, 2010
  $ 313.2     $ (56.2 )   $ (57.4 )   $ (69.7 )   $ 129.9  
Net investment gains
                                       
arising during the period
    498.9       -       -       -       498.9  
Reclassification adjustment for
                                       
OTTI losses:
                                       
Included in Net earnings
    18.3       -       -       -       18.3  
Excluded from Net earnings (1)
    2.5       -       -       -       2.5  
Impact of net unrealized investment
                                       
gains (losses) on:
                                       
DAC
    -       (36.4 )     -       -       (36.4 )
Deferred income taxes
    -       -       -       (132.5 )     (132.5 )
Policyholders liabilities
    -       -       (108.6 )     -       (108.6 )
Balance, June 30, 2010
  $ 832.9     $ (92.6 )   $ (166.0 )   $ (202.2 )   $ 372.1  
                                         
Balance, January 1, 2010
  $ (6.1 )   $ (21.2 )   $ -     $ 32.3     $ 5.0  
Net investment gains (losses)
                                       
arising during the period
    811.7       -       -       -       811.7  
Reclassification adjustment for
                                       
OTTI losses:
                                       
Included in Net earnings
    22.5       -