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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
COMMISSION FILE NUMBER: 333-65423
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MONY LIFE INSURANCE COMPANY OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
- ---------------------------------------------------------------------------
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
No voting or non-voting common equity of the registrant is held by
non-affiliates of the registrant as of November 12, 2004.
As of November 12, 2004, 2,500,000 shares of the registrant's Common Stock
were outstanding.
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.
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MONY LIFE INSURANCE COMPANY OF AMERICA
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
ITEM 1: Unaudited Financial Statements 3
o Balance Sheets, September 30, 2004 and December 31, 2003 3
o Statements of Earnings, Three Months Ended
September 30, 2004 and 2003 4
o Statements of Earnings, Six Months Ended June 30,
2004 (Predecessor), Three Months Ended September 30,
2004 (Successor) and Nine Months Ended September 30, 2003 5
o Statements of Shareholder's Equity, Nine Months
ended September 30, 2004 and 2003 6
o Statements of Cash Flows, Six Months Ended June 30, 2004
(Predecessor), Three Months Ended September 30, 2004
(Successor) and Nine Months Ended September 30, 2003 7
o Notes to financial statements 8
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ("Management Narrative") 13
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk* 17
ITEM 4: Controls and Procedures 17
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings 18
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds 18
ITEM 3: Defaults Upon Senior Securities 18
ITEM 4: Submission of Matters to a Vote of Security Holders 18
ITEM 5: Other Information 18
ITEM 6: Exhibits 18
SIGNATURES 19
- --------------
* Omitted pursuant to General Instruction H to Form 10-Q.
2
PART I FINANCIAL INFORMATION
ITEM 1: UNAUDITED FINANCIAL STATEMENTS
MONY LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS
SEPTEMBER 30,
2004 DECEMBER 31,
(UNAUDITED) 2003
(SUCCESSOR) (PREDECESSOR)
----------- -------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturity securities available-for-sale,
at estimated fair value................................ $ 1,780.0 $ 1,734.0
Mortgage loans on real estate............................ 393.9 419.6
Policy loans............................................. 91.8 86.1
Real estate held for investment.......................... 1.5 2.2
Other invested assets.................................... 12.5 16.7
-------------- --------------
Total investments................................. 2,279.7 2,258.6
-------------- --------------
Cash and cash equivalents................................... 174.1 180.4
Accrued investment income................................... 32.6 29.5
Amounts due from reinsurers................................. 64.5 59.6
Deferred policy acquisition costs........................... 40.7 758.1
Value of business acquired (Note 5)......................... 414.6 --
Other assets................................................ 81.6 39.9
Separate account assets..................................... 3,501.0 3,504.0
-------------- --------------
TOTAL ASSETS ............................................. $ 6,588.8 $ 6,830.1
============== ==============
LIABILITIES
Policyholders' account balances............................. $ 2,101.7 $ 1,962.4
Future policy benefits...................................... 231.6 186.6
Other policyholders' liabilities............................ 31.6 86.3
Other liabilities........................................... 171.0 285.6
Note payable to affiliate (Note 7).......................... 37.5 39.6
Separate account liabilities................................ 3,501.0 3,504.0
-------------- --------------
Total liabilities.................................... 6,074.4 6,064.5
-------------- --------------
Commitments and contingencies (Note 6)......................
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.................................... 480.2 599.7
Retained earnings........................................... 14.0 139.2
Accumulated other comprehensive income...................... 17.7 24.2
-------------- --------------
Total shareholder's equity........................... 514.4 765.6
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. $ 6,588.8 $ 6,830.1
============== ==============
See Notes to Financial Statements.
3
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
2004 2003
---- ----
(SUCCESSOR) (PREDECESSOR)
(IN MILLIONS)
REVENUES:
Universal life and investment-type product
policy fees ............................................. $ 43.7 $ 42.3
Premiums .................................................. 42.4 34.6
Net investment income ..................................... 29.9 32.4
Investment (losses) gains, net ............................ (5.2) 2.0
Other income .............................................. 12.1 3.3
-------- --------
122.9 114.6
-------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders ................................. 39.5 39.8
Interest credited to policyholders' account balances ...... 25.8 23.8
Commissions ............................................... 14.4 14.5
Amortization of deferred policy acquisition costs ......... 1.8 18.3
Capitalization of deferred policy acquisition costs ....... (42.7) (45.0)
Amortization of value of business acquired ................ 7.1 --
Other operating costs and expenses ........................ 56.3 60.7
-------- --------
102.2 112.1
-------- --------
Earnings before income taxes .............................. 20.7 2.5
Income tax expense ........................................ (6.7) (0.3)
-------- --------
Net Earnings .............................................. $ 14.0 $ 2.2
======== ========
See Notes to Financial Statements.
4
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF EARNINGS
(UNAUDITED)
SIX MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2004
---- ---- ----
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
(IN MILLIONS)
REVENUES:
Universal life and investment-type product policy fees.......................... $ 82.7 $ 43.7 $ 126.0
Premiums........................................................................ 77.4 42.4 101.1
Net investment income........................................................... 64.3 29.9 92.6
Investment (losses) gains, net.................................................. (0.7) (5.2) 5.2
Other income.................................................................... 7.4 12.1 7.8
-------- -------- --------
231.1 122.9 332.7
-------- -------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders....................................................... 80.8 39.5 119.6
Interest credited to policyholders' account balances............................ 54.1 25.8 67.9
Commissions..................................................................... 37.5 14.4 46.3
Amortization of deferred policy acquisition costs............................... 34.7 1.8 44.7
Capitalization of deferred policy acquisition costs ............................ (93.8) (42.7) (135.7)
Amortization of value of business acquired...................................... -- 7.1 --
Other operating costs and expenses.............................................. 143.1 56.3 178.3
-------- -------- --------
256.4 102.2 321.1
-------- -------- --------
(Loss)/earnings before income taxes and cumulative effect of a change in
accounting principle.......................................................... (25.3) 20.7 11.6
Income tax benefit/(expense).................................................... 10.5 (6.7) (2.9)
-------- -------- --------
Net (loss)/earnings before cumulative effect of a change in accounting
principle..................................................................... (14.8) 14.0 8.7
Cumulative effect on prior periods of the adoption of SOP 03-1, net of income
tax expense of $2.1 million (Note 3).......................................... 3.8 -- --
-------- -------- --------
Net (Loss)/Earnings............................................................. $ (11.0) $ 14.0 $ 8.7
======== ======== ========
See Notes to Financial Statements.
5
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF SHAREHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK OF PAR EARNINGS INCOME EQUITY
------ ------ -------- ------ ------
(IN MILLIONS)
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...................... -- (119.5) (128.2) (12.8) (260.5)
------ -------- --------- -------- --------
SUCCESSOR BALANCE, JULY 1, 2004............................ 2.5 480.2 -- -- 482.7
Comprehensive income:
Net earnings......................................... 14.0 14.0
Other comprehensive income........................... 17.7 17.7
------ -------- --------- -------- --------
Comprehensive income........................... 31.7
------ -------- --------- -------- --------
SUCCESSOR BALANCE, SEPTEMBER 30, 2004...................... $ 2.5 $ 480.2 $ 14.0 $ 17.7 $ 514.4
====== ======== ========= ======== ========
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK OF PAR EARNINGS INCOME EQUITY
------ -------- --------- -------- --------
(IN MILLIONS)
PREDECESSOR BALANCE, DECEMBER 31, 2002..................... $ 2.5 $ 499.7 $ 113.0 $ 24.7 $ 639.9
Comprehensive income:
Net earnings......................................... 8.7 8.7
Other comprehensive loss............................. (1.0) (1.0)
------ -------- --------- -------- --------
Comprehensive income........................... 7.7
------ -------- --------- -------- --------
PREDECESSOR BALANCE, SEPTEMBER 30, 2003.................... $ 2.5 $ 499.7 $ 121.7 $ 23.7 $ 647.6
====== ======== ========= ======== ========
See Notes to Financial Statements.
6
MONY LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2003
---- ---- ----
(PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
(IN MILLIONS)
Net (loss)/earnings................................................................. $ (11.0) $ 14.0 $ 8.7
Adjustments to reconcile net (loss)/earnings to net cash used in
operating activities:
Interest credited to policyholders' account balances........................... 50.5 24.1 62.6
Universal life and investment-type product policy fee income................... (37.6) (18.1) (49.4)
Change in accrued investment income............................................ 4.7 (7.8) (7.0)
Investment losses/(gains)...................................................... 0.7 5.2 (5.2)
Change in deferred policy acquisition costs and VOBA........................... (60.8) (33.8) (91.1)
Change in future policy benefits............................................... (2.7) (4.1) 7.8
Change in other policyholders liabilities...................................... (1.5) 3.1 (2.5)
Provision for depreciation and amortization.................................... 1.5 4.1 0.1
Cumulative effect of the adoption of SOP 03-1.................................. (5.9) - -
Loss on discontinued real estate operations.................................... - - 0.1
Other, net..................................................................... 49.4 (70.5) 7.8
--------- ---------- ---------
Net cash used in operating activities............................................... (12.7) (83.8) (68.1)
---------- ---------- ----------
Cash flows from investing activities:
Sales, maturities or repayments of:
Fixed maturity securities..................................................... 431.5 100.5 226.5
Mortgage loans on real estate................................................. 43.0 69.7 28.0
Other invested assets......................................................... 0.1 4.3 0.2
Acquisitions of investments:
Fixed maturity securities..................................................... (272.4) (317.0) (245.0)
Mortgage loans on real estate................................................. (66.1) (15.3) (97.5)
Other invested assets......................................................... (0.2) (0.4) (0.6)
Policy loans, net............................................................. (3.0) (2.7) (3.5)
---------- ---------- ----------
Net cash provided by/(used in) investing activities................................. 132.9 (160.9) (91.9)
--------- ---------- ----------
Cash flows from financing activities:
Repayment of note to affiliate................................................... (1.4) (0.7) (1.9)
Policyholders' account balances:
Deposits...................................................................... 433.7 110.6 578.3
Withdrawals and transfers to Separate Accounts................................ (333.5) (90.2) (377.4)
---------- ---------- ----------
Net cash provided by financing activities........................................... 98.8 19.7 199.0
--------- --------- ---------
Net increase/(decrease) in cash and cash equivalents................................ 219.0 (225.0) 39.0
Cash and cash equivalents, beginning of period...................................... 180.4 399.1 33.2
--------- --------- ---------
Cash and Cash Equivalents, End of Period............................................ $ 399.4 $ 174.1 $ 72.2
========= ========= =========
Supplemental cash flow information
Interest Paid..................................................................... $ 1.3 $ 0.7 $ 2.1
========= ========= =========
Income Taxes Paid................................................................. $ - $ - $ -
========= ========= =========
See Notes to Financial Statements.
7
MONY LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER OF MONY WITH AXA FINANCIAL
MLOA is a wholly owned subsidiary of MONY Life, a wholly owned subsidiary
of MONY Holdings, which is a downstream subsidiary holding company of AXA
Financial.
On July 8, 2004, the acquisition of the MONY Group by AXA Financial was
completed and, under the terms of the related merger agreement, AXA
Financial paid or made provisions to pay MONY Group shareholders
approximately $1.5 billion in cash, representing $31.00 for each share of
the MONY Group's common stock. MONY Group shareholders also received a
dividend from the MONY Group 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.
References in these financial statements to "Predecessor" refer to MLOA
prior to July 1, 2004. References to "Successor" refer to MLOA on and
after July 1, 2004, after giving effect to the implementation of the
Purchase Adjustments. For accounting purposes (due to convenience and
immateriality of the results of MLOA from July 1 through July 8), AXA
Financial has consolidated MONY Group and its subsidiaries 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's
statement of earnings and excluded from the Predecessor's statement of
earnings. The Predecessor's statement of earnings is presented using
MLOA's historical basis of accounting.
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 Value of
Business Acquired ("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. MLOA does not anticipate any
material impact on its liquidity, or its ability to pay policyholders
claims, arising out of the purchase accounting process related to the
merger.
2. BASIS OF PRESENTATION
The preparation of the accompanying unaudited financial statements in
conformity with accounting principles generally accepted in the United
States of America ("GAAP") 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.
Actual results could differ from those estimates. The accompanying
unaudited interim financial statements reflect all adjustments necessary
in the opinion of management to present fairly the financial position of
MLOA and its results of operations and cash flows for the periods
presented. These unaudited interim financial statements should be read in
conjunction with the audited financial statements of MLOA for the year
ended December 31, 2003. MLOA's results of operations for the combined
nine months ended September 30, 2004 are not necessarily indicative of the
results to be expected for the combined full year.
The terms "third quarter 2004" and "third quarter 2003" refer to the three
months ended September 30, 2004 and 2003, respectively. The terms
"combined first nine months of 2004" and "first nine months of 2003" refer
to the nine months ended September 30, 2004 and 2003, respectively.
In second quarter 2004, MLOA recorded adjustments related to prior
quarters' calculations of reinsurance reserve credits and interest
credited on certain life insurance and annuity products. The effect of
these adjustments was to increase MLOA's net loss for the three months and
six months ended June 30, 2004 by $6.2 million and $6.0 million,
respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform those periods to the current presentation.
8
3. ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2004, MLOA adopted SOP 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts". SOP 03-1 required a
change in MLOA's accounting policies relating to (a) assets and
liabilities associated with market value adjusted fixed rate investment
options available in certain variable annuity contracts issued by MLOA,
and (b) liabilities related to certain mortality and annuitization
benefits, such as the no lapse guarantee feature contained in variable and
interest-sensitive life policies.
The adoption of SOP 03-1 resulted in a change in the method of determining
liabilities associated with the no lapse guarantee feature contained in
variable and interest-sensitive life contracts. While both MLOA's previous
method of establishing the no lapse guarantee reserve and the SOP 03-1
method are based on accumulation of a portion of the charges for the no
lapse guarantee feature, SOP 03-1 specifies a different approach for
identifying the portion of the fee to be accrued and establishing the
related reserve.
The adoption of SOP 03-1 as of January 1, 2004 resulted in an increase in
the combined first nine months of 2004 net earnings of $3.8 million
related to the cumulative effect of the required changes in accounting.
The determination of liabilities associated with mortality and
annuitization benefits, as well as related impacts on deferred acquisition
costs, is based on models that involve numerous estimates and subjective
judgments. There can be no assurance that the ultimate actual experience
will not differ from management's estimates.
4. GMDB, GMIB AND NO LAPSE GUARANTEE FEATURES
Variable Annuity Contracts - GMDB and GMIB
MLOA issues certain variable annuity contracts with guaranteed minimum
death benefit ("GMDB") and guaranteed minimum income benefit ("GMIB")
features that guarantee either:
a) Return of Premium: the benefit is the greater of current account
value or premiums paid (adjusted for withdrawals);
b) Ratchet: the benefit is the greatest of current account value,
premiums paid (adjusted for withdrawals), or the highest account
value on any anniversary up to contractually specified ages
(adjusted for withdrawals); or
c) Roll-Up: the benefit is the greater of current account value or
premiums paid (adjusted for withdrawals) accumulated at
contractually specified interest rates up to specified ages.
The following table summarizes the GMDB and GMIB liabilities, before
reinsurance ceded, reflected in the General Account in future policy
benefits and other policyholders' liabilities in 2004:
GMDB GMIB TOTAL
-------- -------- --------
(IN MILLIONS)
Balance at December 31, 2003....................... $ 3.5 $ - $ 3.5
Impact of adoption of SOP 03-1................... (2.8) 0.1 (2.7)
Paid guarantee benefits.......................... (2.5) - (2.5)
Other changes in reserve......................... 2.7 - 2.7
-------- -------- --------
Balance at September 30, 2004...................... $ 0.9 $ 0.1 $ 1.0
======== ======== =========
9
Related GMDB reinsurance ceded amounts were:
GMDB
---------
(IN MILLIONS)
Balance at December 31, 2003....................... $ -
Impact of adoption of SOP 03-1................... 0.3
Paid guarantee benefits ceded.................... (3.1)
Other changes in reserve......................... 3.3
---------
Balance at September 30, 2004...................... $ 0.5
=========
The September 30, 2004 values for those variable contracts with GMDB and
GMIB features are presented in the following table. Since variable
contracts with GMDB guarantees may also offer GMIB guarantees in each
contract, the GMDB and GMIB amounts listed are not mutually exclusive:
RETURN
OF
PREMIUM RATCHET ROLL-UP COMBO TOTAL
------------ ----------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
GMDB:
Account value (1).............. $ 1,122 $ 1,942 N.A. $ 188 $ 3,252
Net amount at risk, gross...... $ 20 $ 326 N.A. $ 10 $ 356
Net amount at risk, net of
amounts reinsured............ $ 20 $ 315 N.A. $ 1 $ 336
Average attained age of
contractholders.............. 60.7 60.3 N.A. 59.5 60.4
Percentage of contractholders
over age 70.................. 17.1% 13.9% N.A. 11.5% 15.2%
Range of guaranteed minimum
return rates................ N.A. N.A. N.A. 5.0% 5.0%
GMIB:
Account value (2).............. N.A. N.A. $ 188 N.A. $ 188
Net amount at risk, gross...... N.A. N.A. N.A. N.A. N.A.
Net amount at risk, net of
amounts reinsured............ N.A. N.A. N.A. N.A. N.A.
Weighted average years
remaining until earliest
annuitization............... N.A. N.A. 7.8 N.A. 7.8
Guaranteed minimum return rates N.A. N.A. 5.0% N.A. 5.0%
- ------------
(1) Included General Account balances of $215 million, $323 million and $34
million, respectively, for a total of $572 million.
(2) Included General Account balances of $34 million.
For contracts with the GMDB feature, the net amount at risk in the event
of death as of September 30, 2004 is the amount by which the GMDB benefits
exceeds related account values.
For contracts with the GMIB feature, the net amount at risk in the event
of annuitization as of September 30, 2004 is defined as the amount by
which the present value of the GMIB benefits exceeds related account
values, taking into account the relationship between current annuity
purchase rates and the GMIB guaranteed annuity purchase rates.
The following table presents the aggregate fair value of assets, by major
investment fund option, held by Separate Accounts that are subject to GMDB
and GMIB benefits and guarantees. Since variable contracts with GMDB
benefits and guarantees may also offer GMIB benefits and guarantees in
each contract, the GMDB and GMIB amounts listed are not mutually
exclusive:
10
INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
SEPTEMBER 30, DECEMBER 31,
2004 2003
(SUCCESSOR) (PREDECESSOR)
-------------- -----------------
(IN MILLIONS)
GMDB:
Equity.......................... $ 1,934 $ 2,003
Fixed income.................... 415 413
Balanced........................ 62 67
Other........................... 116 155
--------------- ----------------
Total........................... $ 2,527 $ 2,638
=============== ================
GMIB:
Equity.......................... $ 110 $ 72
Fixed income.................... 36 26
Balanced........................ 3 2
Other........................... 6 5
--------------- ----------------
Total........................... $ 155 $ 105
=============== ================
5. VALUE OF BUSINESS ACQUIRED
The following presents MLOA's VOBA asset as of September 30, 2004, related
to AXA Financial's acquisition of MONY Group and its subsidiaries:
GROSS
CARRYING ACCUMULATED
AMOUNT AMORTIZATION(1) NET
-------- --------------- ----------
(In Millions)
VOBA.......... $ 435.1 $ (20.5) $ 414.6
======== =============== ==========
------------
(1) Includes reactivity to unrealized investment gains and losses.
In third quarter 2004, total amortization expense related to VOBA was $7.1
million. VOBA amortization expense is estimated to be $2.9 million for the
remainder of 2004, and ranging between $36.0 million and $45.0 million
annually over the next five years.
6. LITIGATION
There have been no new material legal proceedings and no material
developments in specific litigations previously reported in Note 14 of
MLOA's Notes to Financial Statements for the year ended December 31, 2003
(the "Litigation Note"), except as described below:
In the IN RE THE MONY GROUP INC., SHAREHOLDERS LITIGATION, the defendants,
after filing the second amended complaint, moved for a second preliminary
injunction seeking, among other things, to prohibit MONY Group from voting
proxies previously submitted by MONY Group stockholders in connection with
the February 24, 2004 shareholders meeting that were not subsequently
revoked and to require all stockholders of record as of April 8, 2004 to
submit new proxies. A hearing on the Delaware plaintiffs' second motion
for a preliminary injunction motion was held on April 6, 2004. By opinion
released on April 9, 2004, Vice Chancellor Lamb (i) denied the Delaware
plaintiffs' motion for a preliminary injunction in its entirety, (ii) held
that the MONY Group board's determination to change the shareholder
meeting record date from January 2, 2004 to April 8, 2004 was a valid
exercise of the board's judgment and (iii) entered summary judgment in
favor of MONY Group with respect to the legal validity of voting at the
May 18, 2004 shareholder meeting unrevoked proxies previously submitted by
MONY Group stockholders in connection with the February 24, 2004
shareholder meeting date. Vice Chancellor Lamb noted that there was no
factual record to evaluate the Delaware plaintiffs' equitable claims
against the validity of voting at the May 18, 2004 meeting of the
unrevoked proxies previously submitted by MONY Group stockholders in
connection with the February 24, 2004 meeting date and that he therefore
was not ruling on those claims.
A stipulation of settlement contemplating the dismissal of the action with
prejudice as to all defendants was executed and filed with the Delaware
Chancery Court on July 13, 2004. The terms of the proposed settlement
consist entirely of non-monetary consideration and an agreement by the
defendants not to oppose plaintiffs' application for attorneys' fees up to
a specified amount, which amount would not have a material impact on the
financial condition of the Company. On July 19, 2004, the Delaware
Chancery Court entered an order, among other things, certifying a class
for settlement purposes only and scheduling a hearing on the fairness of
the proposed settlement for September 28, 2004. The hearing took place as
scheduled on September 28, 2004. In an order dated October 2, 2004, the
court approved the settlement, and for purposes of the settlement
certified a class of MONY stockholders, determined that the settlement was
fair, reasonable and in the best interest of the class members, dismissed
all claims against all defendants with prejudice, and awarded attorney's
fees to counsel for the Delaware plaintiffs in an amount defendants
previously had agreed not to oppose. In the NORTH BORDER case in New York
State Supreme Court, on or about September 24, 2004, the plaintiff agreed
that it would not object to the proposed settlement before the Delaware
Chancery Court and that following a final judgment approving the
settlement by the Delaware Chancery Court, the plaintiff would dismiss its
action against all defendants with prejudice.
On or about September 30, 2004, a petition for appraisal entitled CEDE &
CO. V. AXA FINANCIAL, INC. was filed in the Delaware Court of Chancery
by an alleged former MONY stockholder. The petition seeks a judicial
appraisal of the value of the MONY Group shares held by former MONY Group
stockholders who demanded appraisal pursuant to Section 262 of the General
Corporation Law of the State of Delaware and have not withdrawn their
demands. The parties are engaged in discovery. On or about November 4,
2004, a petition for appraisal entitled HIGHFIELDS CAPITAL LTD. V. AXA
FINANCIAL, INC. was filed in the Delaware Court of Chancery by another
alleged former MONY Group stockholder. The relief sought by the Highfields
Capital petition is substantially identical to that sought pursuant to the
Cede & Co. petition.
11
Although the outcome of litigation cannot be predicted with certainty,
MLOA's management believes that the ultimate resolution of the matters
described above should not have a material adverse effect on the financial
position of MLOA. MLOA's management cannot make an estimate of loss, if
any, or predict whether or not such litigations will have a material
adverse effect on MLOA's results of operations in any particular period.
7. RELATED PARTY TRANSACTIONS
MLOA has a service agreement with MONY Life whereby MONY Life provides
personnel services, employee benefits, facilities, supplies and equipment
to MLOA to conduct its business. The associated costs related to the
service agreement are allocated to MLOA based on methods that management
believes are reasonable, including a review of the nature of such costs
and time studies analyzing the amount of employee compensation costs
incurred by MLOA. As a result of such allocations, MLOA incurred expenses
of $27.5 million and $36.4 million for third quarter 2004 and 2003,
respectively, and $111.3 million and $107.5 million for the combined first
nine months of 2004 and the first nine months of 2003, respectively. At
September 30, 2004 and December 31, 2003 MLOA had a payable to MONY Life
in connection with this service agreement of $33.0 million and $17.2
million, respectively.
In addition to the agreement discussed above, MLOA has various other
service and investment advisory agreements with MONY Life and affiliates
of MLOA. The amount of expenses incurred by MLOA related to these
agreements was $1.2 million for both third quarter 2004 and 2003, and $4.1
million for both the combined first nine months of 2004 and the first nine
months of 2003. In addition, MLOA had an intercompany payable of $1.1
million and $1.9 million at September 30, 2004 and December 31, 2003,
respectively, related to these agreements.
At September 30, 2004 and December 31, 2003, MLOA had a payable of $22.7
million and $17.2 million, respectively, to USFL in connection with the
modified coinsurance agreement between MLOA and USFL. In addition, MLOA
had a prepaid reinsurance allowance of $1.8 million at September 30, 2004
relating to expense allowances paid to USFL in connection with the MODCO
agreement.
MLOA recognized income of $7.0 million and $2.4 million for third quarter
2004 and the combined first nine months of 2004, respectively, on the
embedded derivative within the MODCO agreement with USFL as prescribed by
the accounting provisions of DIG B36, effective for the first fiscal
quarter beginning after September 15, 2003. In addition, MLOA had a swap
asset of $7.9 million and $5.5 million at September 30, 2004 and December
31, 2003, respectively, related to this embedded derivative. MLOA accounts
for the embedded derivative as a total return swap.
On March 5, 1999, MLOA borrowed $50.5 million from MBMC, an affiliate, in
exchange for a note payable in the same amount. The note bears interest at
6.8% per annum and matures on March 5, 2014. Principal and interest are
payable quarterly to MBMC. The carrying value of the note as of September
30, 2004 is $37.5 million.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is omitted pursuant to General Instruction
H of Form 10-Q. The management narrative for MLOA that follows should be read in
conjunction with the Financial Statements, the related Notes to Financial
Statements and the information discussed under Forward-Looking Statements
included in this Form 10-Q, and with the management narrative found in the
Management's Discussion and Analysis ("MD&A") section included in MLOA's Annual
Report on Form 10-K for the year ended December 31, 2003 ("2003 Form 10-K").
RESULTS OF OPERATIONS
On July 8, 2004, the acquisition of MONY Group by AXA Financial was completed,
resulting 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 MLOA
from July 1 through July 8), AXA Financial has consolidated MONY Group and its
subsidiaries 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 nine months ended September 30, 2004 include results for six months of
the Predecessor and three months of the Successor and are designated as
"combined", as follows:
SIX MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2004 2003
---- ---- ---- ----
(PREDECESSOR) (SUCCESSOR) (COMBINED) (PREDECESSOR)
(IN MILLIONS)
REVENUES:
Universal life and investment-type product policy fees................... $ 82.7 $ 43.7 $ 126.4 $ 126.0
Premiums................................................................. 77.4 42.4 119.8 101.1
Net investment income.................................................... 64.3 29.9 94.2 92.6
Investment (losses) gains, net........................................... (0.7) (5.2) (5.9) 5.2
Other income............................................................. 7.4 12.1 19.5 7.8
------------ ------------ ------------- ------------
231.1 122.9 354.0 332.7
------------ ------------ ------------- ------------
BENEFITS AND EXPENSES:
Benefits to policyholders................................................ 80.8 39.5 120.3 119.6
Interest credited to policyholders' account balances..................... 54.1 25.8 79.9 67.9
Commissions.............................................................. 37.5 14.4 51.9 46.3
Amortization of deferred policy acquisition costs........................ 34.7 1.8 36.5 44.7
Capitalization of deferred policy acquisition costs ..................... (93.8) (42.7) (136.5) (135.7)
Amortization of value of business acquired............................... -- 7.1 7.1 --
Other operating costs and expenses....................................... 143.1 56.3 199.4 178.3
------------ ------------ ------------- ------------
256.4 102.2 358.6 321.1
------------ ------------ ------------- ------------
(Loss)/earnings before income taxes and cumulative effect of a change in
accounting principle.................................................. (25.3) 20.7 (4.6) 11.6
Income tax benefit/(expense)............................................. 10.5 (6.7) 3.8 (2.9)
------------ ------------ ------------- ------------
Net (loss)/earnings before cumulative effect of a change in accounting
principle............................................................. (14.8) 14.0 (0.8) 8.7
Cumulative effect on prior periods of the adoption of SOP 03-1, net of
income tax expense of $2.1 million ................................... 3.8 -- 3.8 --
------------ ------------ ------------- ------------
Net (Loss)/Earnings...................................................... $ (11.0) $ 14.0 $ 3.0 $ 8.7
============ ============ ============= ============
COMBINED NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2003
The loss before income taxes and cumulative effect of a change in accounting
principle was $4.6 million for the combined first nine months of 2004, a
decrease of $16.2 million from earnings before income taxes of $11.6 million for
the 2003 period. Net earnings for MLOA totaled $3.0 million for the combined
first nine months of 2004, down from $8.7 million for the 2003 period. 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.
13
Revenues. Total revenues for the combined first nine months of 2004 increased
$21.3 million as compared to the first nine months of 2003.
Universal life and investment type policy fee income was $126.4 million, $0.4
million higher than in the 2003 period, principally due to increased FPVA fees
offset by adjustments in the predecessor period related to prior quarters'
calculations of reinsurance reserve credits. Premiums totaled $119.8 million for
the combined first nine months of 2004, an $18.7 million increase from the 2003
period, 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 $94.2 million, $1.6 million higher than the 2003
period. The increase was principally due to an increase in the average balance
of General Account invested assets partially offset by lower yields due to a
decline in interest rates.
Investment losses, net totaled $5.9 million in the combined 2004 period compared
to gains of $5.2 million in the first nine months of 2003 principally due to
lower net gains on fixed maturity securities and real estate mortgage loans
during the predecessor period.
There was an $11.7 million increase in other income to $19.5 million in the
combined first nine months of 2004 from $7.8 million in the 2003 period. The
increase was principally attributable to the impact of the gain on the embedded
derivative related to a reinsurance agreement, higher reinsurance expense
allowances recognized under a new reinsurance treaty entered into on January 1,
2004, increased advisory fee income and an insurance recovery recorded in first
quarter 2004.
Benefits and Other Deductions. Total benefits and other deductions for the
combined first nine months of 2004 increased $37.5 million to $358.6 million
from $321.1 million for the first nine months of 2003.
Benefits to policyholders increased $0.7 million to $120.3 million in the
combined first nine months of 2004, resulting principally from an increase in
assumed benefits under the MODCO treaty with USFL offset by a reduction in death
claims.
The $12.0 million increase in interest credited to policyholders' account
balances to $79.9 million for the combined first nine months of 2004 was
principally due to growth in the VUL, CSVUL and FPDA product lines, and
adjustments in the predecessor period related to prior quarters' calculations of
interest credited on certain life insurance and annuity products.
Commissions increased $5.6 million during the combined first nine months of 2004
to $51.9 million due to higher sales of life insurance products partially offset
by a decrease in annuity sales.
DAC capitalization of $136.5 million for the combined first nine months of 2004
remained relatively flat compared to the 2003 period.
DAC amortization decreased $8.2 million to $36.5 million for the combined first
nine 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. VOBA amortization resulting from the new purchase accounting basis in
the successor period was $7.1 million.
Other operating costs and expenses totaled $199.4 million for the combined nine
months ended September 30, 2004, an increase of $21.1 million from the 2003
period. 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 MONY Group and its subsidiaries.
Premiums and Deposits. Total premiums and deposits for insurance and annuity
products, excluding reinsurance assumed under the MODCO treaty with USFL, for
the combined first nine months of 2004 increased from prior year levels by $24.6
million to $615.5 million. Sales of annuities in the combined first nine months
of 2004 totaled $240.0 million, a 23.9% decrease from the 2003 period, primarily
due to lower fixed annuity sales reflecting the lower interest rate environment
and higher rates provided by competitors and a decrease in variable annuity
sales. The decrease in sales of annuity products was partially offset by a $33.4
million increase in first year premiums and deposits on life products,
principally CSVUL.
Surrenders and Withdrawals. When totals for the combined first nine months of
2004 are compared to the comparable 2003 period, surrenders and withdrawals
increased from $298.7 million to $363.6 million with respective increases of
$48.4 million and $16.9 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 11.0% in the 2004 combined period from
14
10.4% in the comparable period in 2003, while the individual life surrender
rates showed an increase to 2.96% from 2.56%. 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
In third quarter 2004, MLOA experienced a decline in statutory capital caused by
normal first year business strain and strain associated with reinsurance assumed
from USFL. AXA Financial is currently monitoring the statutory capital
situation.
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 may decline over time.
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.
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 each of these risks is discussed under the caption
"Quantitative and Qualitative Disclosures About Market Risk" and in Note 3 of
Notes to Financial Statements, both contained in the 2003 Form 10-K.
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 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, variable annuities and participating
traditional life contracts. 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 agreement
with MONY Life pursuant to which MONY Life provides personnel services, employee
benefits, facilities, supplies and equipment 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
15
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 4.5%) 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; 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 in the 2003 Form 10-K.
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 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 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 VOBA and DAC 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
16
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 received various requests for information and documents
from the SEC and NASD. The requests have sought information relating to, among
other things, supervisory issues, valuation, suitablility, replacements and
exchanges of variable life insurance and annuities, "networking arrangements"
and related matters. Each of the requests has been or is being responded to,
including through the provision of requested documents. 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. For further information, see
"Business - Regulation" and "Legal Proceedings" contained in the 2003 Form 10-K.
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 earnings and shareholder's equity. See Note 3 of
Notes to Financial Statements in the 2003 Form 10-K for pronouncements issued
but not effective at December 31, 2003 as well as Note 3 of Notes to Financial
Statements contained herein.
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 in the 2003 Form 10-K.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H of Form 10-Q.
ITEM 4: CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures as of September 30,
2004. Based on that evaluation, management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company's
disclosure controls and procedures are effective. Except for the
enhancements to internal controls described below, there has been no
change in the Company's internal control over financial reporting that
occurred during third quarter 2004 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting.
In connection with the continuing integration process associated with AXA
Financial's recent acquisition of the MONY Group, management has enhanced,
and continues to enhance, the overall internal control environment of MLOA
by implementing new procedures and controls, including increasing and
re-allocating staffing in the accounting department, instituting
additional account reconciliations and upgrading the investment accounting
computer systems.
17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 6 of Notes to Financial Statements contained herein. Except as
disclosed in Note 6 of Notes to Financial Statements contained herein,
there have been no new material legal proceedings and no new material
developments in legal proceedings previously reported in the 2003 Form
10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Number Description
------ ---------------------------------------------------
31.1 Section 302 Certification made by the Registrant's
Chief Executive Officer
31.2 Section 302 Certification made by the Registrant's
Chief Financial Officer
32.1 Section 906 Certification made by the Registrant's
Chief Executive Officer
32.2 Section 906 Certification made by the Registrant's
Chief Financial Officer
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, MONY
Life Insurance Company of America has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: November 12, 2004 MONY LIFE INSURANCE COMPANY OF AMERICA
By: /S/ STANLEY B. TULIN
--------------------------------------------
Name: Stanley B. Tulin
Title: Vice Chairman of the Board and
Chief Financial Officer
Date: November 12, 2004 By: /S/ ALVIN H. FENICHEL
--------------------------------------------
Name: Alvin H. Fenichel
Title: Senior Vice President and Controller
19