UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2004 Commission File No. 0-25280
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AXA EQUITABLE LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
New York 13-5570651
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
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(Address of principal executive offices) (Zip Code)
(212) 554-1234
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Registrant's telephone number, including area code
The Equitable Life Assurance Society of the United States
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(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.
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Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
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Yes No X
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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, 2,000,000 shares of the registrant's $1.25 par value
Common Stock was 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.
Page 1 of 33
AXA EQUITABLE LIFE INSURANCE COMPANY
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
o Consolidated Balance Sheets, September 30, 2004 and December 31, 2003................ 3
o Consolidated Statements of Earnings, Three Months and Nine Months Ended
September 30, 2004 and 2003........................................................ 4
o Consolidated Statements of Shareholder's Equity, Nine Months Ended
September 30, 2004 and 2003........................................................ 5
o Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 2004 and 2003........................................................ 6
o Notes to Consolidated Financial Statements........................................... 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations ("Management Narrative")......................................... 24
Item 3: Quantitative and Qualitative Disclosures About Market Risk*............................ 31
Item 4: Controls and Procedures................................................................ 31
PART II OTHER INFORMATION
Item 1: Legal Proceedings...................................................................... 32
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds............................ 32
Item 3: Defaults Upon Senior Securities........................................................ 32
Item 4: Submission of Matters to a Vote of Security Holders.................................... 32
Item 5: Other Information...................................................................... 32
Item 6: Exhibits .............................................................................. 32
SIGNATURES............................................................................................. 33
*Omitted pursuant to General Instruction H to Form 10-Q.
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PART I FINANCIAL INFORMATION
ITEM 1: UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, December 31,
2004 2003
----------------- -----------------
(IN MILLIONS)
ASSETS
Investments:
Fixed maturities available for sale, at estimated fair value.............. $ 30,325.9 $ 29,095.5
Mortgage loans on real estate............................................. 3,100.5 3,503.1
Equity real estate, held for the production of income..................... 632.7 656.5
Policy loans.............................................................. 3,869.2 3,894.3
Other equity investments.................................................. 963.3 789.1
Other invested assets..................................................... 1,183.6 1,101.6
----------------- -----------------
Total investments..................................................... 40,075.2 39,040.1
Cash and cash equivalents................................................... 1,708.9 722.7
Cash and securities segregated, at estimated fair value..................... 1,181.4 1,285.8
Broker-dealer related receivables........................................... 2,295.4 2,284.7
Deferred policy acquisition costs........................................... 6,686.8 6,290.4
Goodwill and other intangible assets, net................................... 3,699.7 3,513.4
Amounts due from reinsurers................................................. 2,520.4 2,460.4
Loans to affiliates, at estimated fair value................................ 400.0 400.0
Other assets................................................................ 3,690.9 3,829.7
Separate Accounts' assets................................................... 55,555.9 54,438.1
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TOTAL ASSETS................................................................ $ 117,814.6 $ 114,265.3
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LIABILITIES
Policyholders' account balances............................................. $ 26,603.3 $ 25,307.7
Future policy benefits and other policyholders liabilities.................. 14,131.8 13,934.7
Broker-dealer related payables.............................................. 1,234.0 1,261.8
Customers related payables.................................................. 1,992.7 1,897.5
Amounts due to reinsurers................................................... 1,003.4 936.5
Short-term and long-term debt............................................... 1,254.9 1,253.2
Federal income taxes payable................................................ 2,571.1 2,362.8
Other liabilities........................................................... 1,812.2 2,006.9
Separate Accounts' liabilities.............................................. 55,555.9 54,300.6
Minority interest in equity of consolidated subsidiaries.................... 2,017.6 1,744.9
Minority interest subject to redemption rights.............................. 391.7 488.1
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Total liabilities..................................................... 108,568.6 105,494.7
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Commitments and contingencies (Note 12)
SHAREHOLDER'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.............................................. 4,866.6 4,848.2
Retained earnings........................................................... 3,494.4 3,027.1
Accumulated other comprehensive income...................................... 882.5 892.8
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Total shareholder's equity............................................ 9,246.0 8,770.6
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................................. $ 117,814.6 $ 114,265.3
================= =================
See Notes to Consolidated Financial Statements.
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AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
2004 2003 2004 2003
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(IN MILLIONS)
REVENUES
Universal life and investment-type
product policy fee income........................ $ 414.2 $ 347.8 $ 1,161.3 $ 997.8
Premiums........................................... 209.6 203.5 662.0 661.5
Net investment income.............................. 641.4 597.6 1,922.1 1,773.3
Investment (losses) gains, net..................... (5.4) 3.4 48.2 (92.8)
Commissions, fees and other income................. 833.7 705.5 2,443.8 2,019.5
---------------- --------------- --------------- ---------------
Total revenues............................... 2,093.5 1,857.8 6,237.4 5,359.3
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BENEFITS AND OTHER DEDUCTIONS
Policyholders' benefits............................ 488.3 391.9 1,391.9 1,271.1
Interest credited to policyholders' account
balances......................................... 270.7 245.0 782.6 723.0
Compensation and benefits.......................... 407.1 319.4 1,145.8 967.0
Commissions........................................ 242.9 270.6 739.8 756.5
Distribution plan payments......................... 90.4 94.7 280.3 275.7
Amortization of deferred sales commissions......... 43.3 52.5 138.5 157.8
Interest expense................................... 17.7 21.7 60.6 62.9
Amortization of deferred policy acquisition costs.. 123.1 106.7 303.4 282.3
Capitalization of deferred policy acquisition
costs............................................ (243.9) (272.8) (727.0) (754.9)
Rent expense....................................... 47.7 44.2 137.3 126.6
Amortization of other intangible assets, net....... 5.8 5.5 17.2 16.5
Other operating costs and expenses................. 259.3 367.8 708.2 761.2
---------------- --------------- ---------------- ---------------
Total benefits and other deductions.......... 1,752.4 1,647.2 4,978.6 4,645.7
---------------- --------------- ---------------- ---------------
Earnings from continuing operations before
income taxes and minority interest............... 341.1 210.6 1,258.8 713.6
Income taxes....................................... (54.8) (64.3) (298.2) (177.1)
Minority interest in net income of
consolidated subsidiaries........................ (81.7) (11.5) (259.3) (156.3)
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Earnings from continuing operations................ 204.6 134.8 701.3 380.2
Earnings from other discontinued operations, net
of income taxes................................. 4.7 .7 8.0 .8
Gain on real estate to be disposed of,
net of income taxes............................ 10.9 - 10.9 -
Cumulative effect of accounting changes, net of
income taxes.................................... - - (2.9) -
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Net Earnings....................................... $ 220.2 $ 135.5 $ 717.3 $ 381.0
================ =============== ================ ===============
See Notes to Consolidated Financial Statements.
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AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
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(IN MILLIONS)
SHAREHOLDER'S EQUITY
Common stock, at par value, beginning of year and end of period............. $ 2.5 $ 2.5
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Capital in excess of par value, beginning of year as previously reported.... 4,848.2 4,753.8
Prior period adjustment related to deferred Federal income taxes........... - 59.0
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Capital in excess of par value, beginning of year as restated............... 4,848.2 4,812.8
Increase in additional paid in capital in excess of par value............... 18.4 25.1
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Capital in excess of par value, end of period............................... 4,866.6 4,837.9
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Retained earnings, beginning of year as previously reported................. 3,027.1 2,740.6
Prior period adjustment related to deferred Federal income taxes............ - 162.1
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Retained earnings, beginning of year as restated............................ 3,027.1 2,902.7
Net earnings................................................................ 717.3 381.0
Shareholder dividends paid.................................................. (250.0) (150.0)
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Retained earnings, end of period............................................ 3,494.4 3,133.7
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Accumulated other comprehensive income, beginning of year................... 892.8 681.1
Other comprehensive (loss) income........................................... (10.3) 331.7
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Accumulated other comprehensive income, end of period....................... 882.5 1,012.8
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TOTAL SHAREHOLDER'S EQUITY, END OF PERIOD................................... $ 9,246.0 $ 8,986.9
================= =================
See Notes to Consolidated Financial Statements.
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AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
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(IN MILLIONS)
Net earnings................................................................ $ 717.3 $ 381.0
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Interest credited to policyholders' account balances.................... 782.6 723.0
Universal life and investment-type product policy fee income............ (1,161.3) (997.8)
Net change in broker-dealer and customer related receivables/payables... (217.8) 238.4
Investment (gains) losses, net.......................................... (48.2) 92.8
Change in segregated cash and securities, net........................... 104.4 (194.2)
Change in deferred policy acquisition costs............................. (423.7) (472.6)
Change in future policy benefits........................................ 135.3 (84.5)
Change in property and equipment........................................ (34.9) (40.5)
Change in income tax payable............................................ 199.3 74.3
Minority interest in net income of consolidated subsidiaries............ 259.3 156.3
Change in fair value of guaranteed minimum
income benefit reinsurance contracts.................................. (55.0) 58.0
Amortization of deferred sales commissions.............................. 138.5 157.8
Amortization of other intangible assets, net............................ 17.2 16.5
Change in accounts payable and accrued expenses......................... (36.6) 91.1
Other, net.............................................................. 123.0 323.1
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Net cash provided by operating activities................................... 499.4 522.7
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Cash flows from investing activities:
Maturities and repayments................................................. 2,590.2 3,335.4
Sales.................................................................... 2,768.5 3,689.3
Purchases................................................................. (5,492.6) (8,805.2)
Change in short-term investments.......................................... 194.8 354.4
Purchase of minority interest in consolidated subsidiary.................. (308.7) -
Other, net................................................................ 161.5 48.8
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Net cash used by investing activities....................................... (86.3) (1,377.3)
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Cash flows from financing activities:
Policyholders' account balances:
Deposits................................................................ 2,935.6 4,615.1
Withdrawals and transfers to Separate Accounts.......................... (2,019.9) (2,240.2)
Net change in short-term financings....................................... 18.5 183.6
Shareholder dividends paid................................................ (250.0) (150.0)
Other, net................................................................ 111.1 (199.9)
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Net cash provided by financing activities................................... 573.1 2,208.6
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Change in cash and cash equivalents......................................... 986.2 1,354.0
Cash and cash equivalents, beginning of year................................ 722.7 269.6
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Cash and Cash Equivalents, End of Period.................................... $ 1,708.9 $ 1,623.6
================= =================
Supplemental cash flow information
Interest Paid............................................................. $ 64.6 $ 59.9
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Income Taxes Paid......................................................... $ 254.7 $ 92.5
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See Notes to Consolidated Financial Statements.
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AXA EQUITABLE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
On September 7, 2004, The Equitable Life Assurance Society of the United
States changed its name to AXA Equitable Life Insurance Company
("Equitable Life" and, together with its consolidated subsidiaries, the
"Company").
On July 8, 2004, the Holding Company completed its acquisition of The MONY
Group Inc. ("MONY"). The acquisition provides the Holding Company and its
subsidiaries, including the Company, with additional scale in
distribution, client base and assets under management.
The preparation of the accompanying unaudited consolidated financial
statements in conformity with U.S. 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 consolidated financial statements reflect all
adjustments necessary in the opinion of management to present fairly the
consolidated financial position of the Company and its consolidated
results of operations and cash flows for the periods presented. All
significant intercompany transactions and balances except those with other
discontinued operations (see Note 7) have been eliminated in
consolidation. These statements should be read in conjunction with the
consolidated financial statements of the Company for the year ended
December 31, 2003. The results of operations for the nine months ended
September 30, 2004 are not necessarily indicative of the results to be
expected for the 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 "first
nine months of 2004" and "first nine months of 2003" refer to the nine
months ended September 30, 2004 and 2003, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform these periods to the current presentation.
2) PRIOR PERIOD ADJUSTMENT
A review by the Company of Federal income tax assets and liabilities
during second quarter 2003 identified an overstatement of the deferred
Federal income tax liability related to the years ended December 31, 2000
and earlier. As a result, the Federal income tax liability as of December
31, 2001 and 2002 and September 30, 2003 was reduced by $221.1 million and
the consolidated shareholder's equity as of such dates was increased by
$221.1 million, with no impact on the consolidated statements of earnings
for the years ended December 31, 2000, 2001, and 2002, the nine months
ended September 30, 2003 or any prior period after the adoption on January
1, 1992 of SFAS No. 109, "Accounting for Income Taxes". This adjustment
has been reported in the accompanying financial statements as an increase
in consolidated shareholder's equity as of January 1, 2002.
3) PURCHASE OF MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
In March 2004, a wholly owned subsidiary of the Company, designated by the
Holding Company, acquired 8.16 million Alliance Units at the aggregated
market price of $308.7 million from SCB Inc. and SCB Partners, Inc. under
a preexisting agreement. As a result of the transaction, the Company
recorded goodwill of $162.1 million and other intangible assets of $20.0
million. Other intangible assets are amortized on a straight-line basis
over their estimated useful lives of twenty years. Upon completion of this
transaction, the Company's economic interest in Alliance increased to
approximately 45.6% and, when combined with the Holding Company's
interest, their total economic interest in Alliance increased to
approximately 58.4%.
-7-
4) ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS
At March 31, 2004, the Company completed its transition to the
consolidation and disclosure requirements of FIN No. 46(R), "Consolidation
of Variable Interest Entities, Revised".
At September 30, 2004, the Equitable Life Insurance Group's General
Account held $82.6 million of investment assets issued by VIEs and
determined to be significant variable interests under FIN No. 46(R). As
reported in the consolidated balance sheet, these investments included
$40.7 million of fixed maturities (collateralized debt and loan
obligations) and $41.9 million of other equity investments (principally
investment limited partnership interests) and are subject to ongoing
review for impairment in value. These VIEs do not require consolidation
because management has determined that the Equitable Life Insurance Group
is not the primary beneficiary. These variable interests and approximately
$14.7 million of funding commitments to the investment limited
partnerships at September 30, 2004 represent the Equitable Life Insurance
Group's maximum exposure to loss from its direct involvement with the
VIEs. The Equitable Life Insurance Group has no further economic interest
in these VIEs in the form of related guarantees, commitments, derivatives,
credit enhancements or similar instruments and obligations.
Management of Alliance has reviewed its investment management agreements
and its investments in and other financial arrangements with certain
entities that hold client assets under management to determine the
entities that Alliance is required to consolidate under FIN No. 46(R).
These included the Offshore Funds, hedge funds, structured products, group
trusts and joint ventures.
As a result of its review, Alliance consolidated an investment in a joint
venture and two of the joint venture's mezzanine funds as of March 31,
2004. The joint venture and mezzanine funds have client assets under
management totaling approximately $165 million at September 30, 2004.
Alliance's maximum exposure to loss is limited to its investments in and
prospective investment management fees earned from these entities.
Consolidation of these entities resulted in increases in the Company's
assets, principally investments, and in its liabilities, principally
minority interest in consolidated entities, each of approximately $125.6
million, at September 30, 2004.
Alliance has significant variable interests in certain other VIEs with
approximately $.8 billion in client assets under management. However,
these VIEs do not require consolidation because management has determined
that Alliance is not the primary beneficiary. Alliance's maximum exposure
to loss in these entities is limited to its nominal investments in and
prospective investment management fees earned from these entities.
Alliance derives no direct benefit from client assets under management of
these entities other than investment management fees and cannot utilize
those assets in its operations.
Effective January 1, 2004, the Company 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 the Company's accounting policies relating to (a) general
account interests in separate accounts, (b) assets and liabilities
associated with market value adjusted fixed rate investment options
available in certain variable annuity contracts issued by Equitable Life,
(c) liabilities related to group pension participating contracts, and (d)
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 required changes in several of the Company's
accounting policies relating to separate account assets and liabilities.
The Company now reports the General Account's interests in separate
accounts as trading account securities within Other equity investments in
the consolidated balance sheet; prior to the adoption of SOP 03-1, such
interests were included in Separate Accounts' assets. Also, the assets and
liabilities of two Separate Accounts are now presented and accounted for
as General Account assets and liabilities, effective January 1, 2004.
Investment assets in these Separate Accounts principally consist of fixed
maturities that are classified as available for sale in the accompanying
2004 consolidated financial statements. These two Separate Accounts hold
assets and liabilities associated with market value adjusted fixed rate
investment options available in certain variable annuity contracts. In
addition, liabilities associated with the market value adjustment feature
are now reported at the accrued account balance. Prior to the adoption of
SOP 03-1, such liabilities had been reported at market adjusted value.
Prior to the adoption of SOP 03-1, the liabilities for group pension
participating contracts were adjusted only for changes in the fair value
of certain related investment assets that were reported at fair value in
the balance
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sheet (including fixed maturities and equity securities classified as
available for sale, but not equity real estate or mortgage loans) with
changes in the liabilities recorded directly in Accumulated other
comprehensive income to offset the unrealized gains and losses on the
related assets. SOP 03-1 also required an adjustment to the liabilities
for group pension participating contracts to reflect the fair value of all
the assets on which those contracts' returns are based, regardless of
whether those assets are reported at fair value in the balance sheet.
Changes in the liability related to fluctuations in asset fair values are
now reported as Interest credited to policyholders' account balances in
the consolidated statements of earnings.
In addition, 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
the Company'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 a decrease in
the first nine months of 2004 net earnings of $2.9 million and an increase
in other comprehensive income of $12.4 million related to the cumulative
effect of the required changes in accounting. The determination of
liabilities associated with group pension participating contracts and
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.
5) INVESTMENTS
Investment valuation allowances for mortgage loans and equity real estate
and changes thereto follow:
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2004 2003
--------------- ---------------
(IN MILLIONS)
Balances, beginning of year............................................... $ 20.5 $ 55.0
Additions charged to income............................................... 3.9 10.0
Deductions for writedowns and asset dispositions.......................... (11.4) (10.2)
Deduction for transfer of held for sale real estate
to held for production of income real estate........................... - (31.5)
--------------- ---------------
Balances, End of Period................................................... $ 13.0 $ 23.5
=============== ===============
Balances, end of period comprise:
Mortgage loans on real estate........................................... $ 13.0 $ 21.1
Equity real estate...................................................... - 2.4
--------------- ---------------
Total..................................................................... $ 13.0 $ 23.5
=============== ===============
For the third quarter and first nine months of 2004 and of 2003,
investment income is shown net of investment expenses of $44.5 million,
$44.6 million, $131.3 million and $153.1 million, respectively.
As of September 30, 2004 and December 31, 2003, respectively, fixed
maturities classified as available for sale had amortized costs of
$28,323.0 million and $27,151.6 million. Also at September 30, 2004 and
December 31, 2003, respectively, Other equity investments included the
General Account's investments in Separate Accounts and other trading
securities having carrying values of $102.8 million and $1.0 million and
costs of $100.4 million and $1.9 million and other equity securities with
carrying values of $1.9 million and $12.6 million and costs of $1.2
million and $11.6 million.
In the third quarter and first nine months of 2004 and of 2003,
respectively, net unrealized and realized holding (losses) gains on
trading account equity securities of $(1.7) million, $0 million, $2.5
million and $2.3 million were included in net investment income in the
consolidated statements of earnings.
For the first nine months of 2004 and of 2003, proceeds received on sales
of fixed maturities classified as available for sale amounted to $2,701.2
million and $3,655.7 million, respectively. Gross gains of $42.7 million
and $82.7 million and gross losses of $9.3 million and $33.0 million were
realized on these sales for
-9-
the first nine months of 2004 and 2003, respectively. Unrealized net
investment gains (losses) related to fixed maturities classified as
available for sale increased by $59.0 million during the first nine months
of 2004, resulting in a balance of $2,002.9 million at September 30, 2004.
Impaired mortgage loans along with the related investment valuation
allowances for losses follow:
SEPTEMBER 30, December 31,
2004 2003
-------------- --------------
(IN MILLIONS)
Impaired mortgage loans with investment valuation allowances.......... $ 155.5 $ 149.4
Impaired mortgage loans without investment valuation allowances....... 17.6 29.1
--------------- --------------
Recorded investment in impaired mortgage loans........................ 173.1 178.5
Investment valuation allowances....................................... (17.6) (18.8)
--------------- --------------
Net Impaired Mortgage Loans........................................... $ 155.5 $ 159.7
=============== ==============
During the first nine months of 2004 and 2003, respectively, the Company's
average recorded investment in impaired mortgage loans was $160.0 million
and $169.3 million. Interest income recognized on these impaired mortgage
loans totaled $8.4 million and $8.8 million for the first nine months of
2004 and 2003, respectively.
Mortgage loans on real estate are placed on nonaccrual status once
management believes the collection of accrued interest is doubtful. Once
mortgage loans on real estate are classified as nonaccrual loans, interest
income is recognized under the cash basis of accounting and the resumption
of the interest accrual would commence only after all past due interest
has been collected or the mortgage loan on real estate has been
restructured to where the collection of interest is considered likely. At
September 30, 2004 and December 31, 2003, respectively, the carrying value
of mortgage loans on real estate that had been classified as nonaccrual
loans was $84.7 million and $143.2 million.
6) CLOSED BLOCK
The excess of Closed Block liabilities over Closed Block assets (adjusted
to exclude the impact of related amounts in accumulated other
comprehensive income) represents the expected maximum future post-tax
earnings from the Closed Block that would be recognized in income from
continuing operations over the period the policies and contracts in the
Closed Block remain in force. As of January 1, 2001, the Company has
developed an actuarial calculation of the expected timing of the Closed
Block earnings.
If the actual cumulative earnings from the Closed Block are greater than
the expected cumulative earnings, only the expected earnings will be
recognized in net income. Actual cumulative earnings in excess of expected
cumulative earnings at any point in time are recorded as a policyholder
dividend obligation because they will ultimately be paid to Closed Block
policyholders as an additional policyholder dividend unless offset by
future performance that is less favorable than originally expected. If a
policyholder dividend obligation has been previously established and the
actual Closed Block earnings in a subsequent period are less than the
expected earnings for that period, the policyholder dividend obligation
would be reduced (but not below zero). If, over the period the policies
and contracts in the Closed Block remain in force, the actual cumulative
earnings of the Closed Block are less than the expected cumulative
earnings, only actual earnings would be recognized in income from
continuing operations. If the Closed Block has insufficient funds to make
guaranteed policy benefit payments, such payments will be made from assets
outside the Closed Block.
Many expenses related to Closed Block operations, including amortization
of DAC, are charged to operations outside of the Closed Block;
accordingly, net revenues of the Closed Block do not represent the actual
profitability of the Closed Block operations. Operating costs and expenses
outside of the Closed Block are, therefore, disproportionate to the
business outside of the Closed Block.
-10-
Summarized financial information for the Closed Block is as follows:
SEPTEMBER 30, December 31,
2004 2003
----------------- -----------------
(IN MILLIONS)
CLOSED BLOCK LIABILITIES:
Future policy benefits, policyholders' account balances and other.... $ 8,921.2 $ 8,972.1
Policyholder dividend obligation..................................... 292.4 242.1
Other liabilities.................................................... 174.5 129.5
----------------- -----------------
Total Closed Block liabilities....................................... 9,388.1 9,343.7
----------------- -----------------
ASSETS DESIGNATED TO THE CLOSED BLOCK:
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $5,375.5 and $5,061.0).......................... 5,740.8 5,428.5
Mortgage loans on real estate........................................ 1,178.3 1,297.6
Policy loans......................................................... 1,343.6 1,384.5
Cash and other invested assets....................................... 64.0 143.3
Other assets......................................................... 219.8 199.2
----------------- -----------------
Total assets designated to the Closed Block.......................... 8,546.5 8,453.1
----------------- -----------------
Excess of Closed Block liabilities over assets designated to
the Closed Block.................................................. 841.6 890.6
Amounts included in accumulated other comprehensive income:
Net unrealized investment gains, net of deferred income tax
expense of $25.5 and $43.9 and policyholder dividend obligation
of $292.4 and $242.1............................................ 47.4 81.6
----------------- -----------------
Maximum Future Earnings To Be Recognized From Closed Block
Assets and Liabilities............................................ $ 889.0 $ 972.2
================= =================
Closed Block revenues and expenses were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- ---------------- --------------- ---------------
(IN MILLIONS)
REVENUES:
Premiums and other income............... $ 108.3 $ 118.1 $ 350.6 $ 378.0
Investment income (net of investment
expenses of $.1, $.3, $.4
and $2.0)............................ 134.4 138.1 412.2 416.6
Investment (losses) gains, net.......... (1.5) (10.6) 15.0 (40.7)
--------------- ---------------- --------------- ---------------
Total revenues.......................... 241.2 245.6 777.8 753.9
--------------- ---------------- --------------- ---------------
BENEFITS AND
OTHER DEDUCTIONS:
Policyholders' benefits and dividends... 205.2 215.0 636.3 674.6
Other operating costs and expenses...... 3.9 4.5 12.4 12.9
--------------- ---------------- --------------- ---------------
Total benefits and other deductions..... 209.1 219.5 648.7 687.5
--------------- ---------------- --------------- ---------------
Net revenues before
income tax expense................... 32.1 26.1 129.1 66.4
Income tax expense...................... (11.4) (9.4) (45.9) (24.2)
--------------- ---------------- --------------- ---------------
Net Revenues............................ $ 20.7 $ 16.7 $ 83.2 $ 42.2
=============== ================ =============== ===============
-11-
Reconciliation of the policyholder dividend obligation is as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2004 2003
---------------- ----------------
(IN MILLIONS)
Balances, beginning of year............................................. $ 242.1 $ 213.3
Unrealized investment gains............................................. 50.3 87.3
---------------- ----------------
Balances, End of Period................................................. $ 292.4 $ 300.6
================ ================
7) OTHER DISCONTINUED OPERATIONS
Summarized financial information for Other Discontinued Operations
follows:
SEPTEMBER 30, December 31,
2004 2003
----------------- -----------------
(IN MILLIONS)
BALANCE SHEETS
Fixed maturities, available for sale, at estimated fair value
(amortized cost of $634.4 and $644.7).............................. $ 694.8 $ 716.4
Equity real estate................................................... 187.9 198.2
Mortgage loans on real estate........................................ 34.6 63.9
Other equity investments............................................. 5.9 7.5
Other invested assets................................................ .3 .2
----------------- -----------------
Total investments.................................................. 923.5 986.2
Cash and cash equivalents............................................ 99.7 63.0
Other assets......................................................... 77.9 110.9
----------------- -----------------
Total Assets......................................................... $ 1,101.1 $ 1,160.1
================= =================
Policyholders liabilities............................................ $ 853.5 $ 880.3
Allowance for future losses.......................................... 137.4 173.4
Other liabilities.................................................... 110.2 106.4
----------------- -----------------
Total Liabilities.................................................... $ 1,101.1 $ 1,160.1
================= =================
-12-
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
(IN MILLIONS)
STATEMENTS OF EARNINGS
Investment income (net of investment
expenses of $4.4, $4.4, $13.0
and $15.8)............................. $ 16.6 $ 18.1 $ 51.1 $ 54.2
Investment gains, net.................... .7 1.7 4.0 1.9
--------------- --------------- --------------- ---------------
Total revenues........................... 17.3 19.8 55.1 56.1
Benefits and other deductions............ 29.1 23.3 79.4 69.7
Losses charged to allowance for future
losses................................. (11.8) (3.5) (24.3) (13.6)
--------------- --------------- --------------- ---------------
Pre-tax results from operations.......... - - - -
Pre-tax earnings from releasing the
allowance for future losses............ 7.1 1.0 12.1 1.2
Income tax expense....................... (2.4) (.3) (4.1) (.4)
--------------- --------------- --------------- ---------------
Income from Other Discontinued
Operations............................. $ 4.7 $ .7 $ 8.0 $ .8
=============== =============== =============== ===============
The Company's quarterly process for evaluating the allowance for future
losses applies the current period's results of Other Discontinued
Operations against the allowance, re-estimates future losses and adjusts
the allowance, if appropriate. These updated assumptions and estimates
resulted in a release of the allowance in each of the periods presented
above.
Management believes the allowance for future losses at September 30, 2004
is adequate to provide for all future losses; however, the determination
of the allowance involves numerous estimates and subjective judgments
regarding the expected performance of Discontinued Operations Investment
Assets. There can be no assurance the losses provided for will not differ
from the losses ultimately realized. To the extent actual results or
future projections of Other Discontinued Operations differ from
management's current estimates and assumptions underlying the allowance
for future losses, the difference would be reflected in the consolidated
statements of earnings in Other Discontinued Operations. In particular, to
the extent income, sales proceeds and holding periods for equity real
estate differ from management's previous assumptions, periodic adjustments
to the loss allowance are likely to result.
Valuation allowances of $1.3 million and $2.5 million on mortgage loans on
real estate were held at September 30, 2004 and December 31, 2003,
respectively.
8) GMDB, GMIB, AND NO LAPSE GUARANTEE FEATURES
Variable Annuity Contracts - GMDB and GMIB
Equitable Life issues certain variable annuity contracts with GMDB and
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);
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; or
d) Combo: the benefit is the greater of the ratchet benefit or the
roll-up benefit.
-13-
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....................... $ 69.3 $ 85.6 $ 154.9
Paid guarantee benefits.......................... (37.4) - (37.4)
Other changes in reserve......................... 33.2 29.1 62.3
---------------- ----------------- -----------------
Balance at September 30, 2004...................... $ 65.1 $ 114.7 $ 179.8
================ ================= =================
Related GMDB reinsurance ceded amounts were:
GMDB
--------------------
(IN MILLIONS)
Balance at December 31, 2003....................... $ 17.2
Paid guarantee benefits ceded.................... (10.1)
Other changes in reserve......................... 4.4
--------------------
Balance at September 30, 2004...................... $ 11.5
====================
The GMIB reinsurance contracts are considered derivatives and are reported
at fair value.
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)................. $ 28,116 $ 5,672 $ 7,781 $ 9,150 $ 50,719
Net amount at risk, gross......... $ 1,808 $ 888 $ 2,255 $ 121 $ 5,072
Net amount at risk, net of
amounts reinsured............... $ 1,804 $ 602 $ 1,376 $ 121 $ 3,903
Average attained age of
contractholders................. 49.6 60.0 62.3 60.2 52.1
Percentage of contractholders
over age 70..................... 7.3% 21.5% 27.6% 20.4% 10.8%
Range of guaranteed minimum
return rates................... N/A N/A 3%-6% 3%-6% N/A
GMIB:
Account value (2)................. N/A N/A $ 5,483 $ 12,462 $ 17,945
Net amount at risk, gross......... N/A N/A $ 533 $ - $ 533
Net amount at risk, net of
amounts reinsured............... N/A N/A $ 134 $ - $ 134
Weighted average years remaining
until earliest annuitization... N/A N/A 3.9 9.4 7.3
Range of guaranteed minimum
return rates................... N/A N/A 3%-6% 3%-6% 3%-6%
(1) Included General Account balances of $11,581 million, $215 million,
$144 million and $442 million, respectively, for a total of $12,382
million.
-14-
(2) Included General Account balances of $2 million and $648 million,
respectively, for a total of $650 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
exceed 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.
In 2003, Equitable Life initiated a program to hedge certain risks
associated with the GMDB feature of the Accumulator(R) series of annuity
products sold beginning April 2002. In 2004, the program was expanded to
include hedging for certain risks associated with the GMIB feature of the
Accumulator(R) series of annuity products sold beginning 2004. This
program currently utilizes exchange-traded futures contracts that are
dynamically managed in an effort to reduce the economic impact of
unfavorable changes in GMDB and GMIB exposures attributable to movements
in the equity and fixed income markets. At September 30, 2004, the total
account value and net amount at risk of contracts were $17,833 million and
$156 million, respectively, for the GMDB hedge program and $1,714 million
and zero, respectively, for the GMIB hedge program.
In third quarter 2004, Equitable Life began to sell variable annuity
contracts with guaranteed minimum withdrawal benefits ("GMWB"). At
September 30, 2004, the reserve for such benefits was zero.
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
guarantees may also offer GMIB guarantees in each contract, the GMDB and
GMIB amounts listed are not mutually exclusive:
INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
SEPTEMBER 30, December 31,
2004 2003
---------------- ------------------
(IN MILLIONS)
GMDB:
Equity............................................................... $ 28,749 $ 26,159
Fixed income......................................................... 3,592 3,815
Balanced............................................................. 4,389 2,761
Other................................................................ 1,607 1,497
---------------- ------------------
Total................................................................ $ 38,337 $ 34,232
================ ==================
GMIB:
Equity............................................................... $ 12,581 $ 10,025
Fixed income......................................................... 2,044 2,319
Balanced............................................................. 2,064 725
Other................................................................ 605 711
---------------- ------------------
Total................................................................ $ 17,294 $ 13,780
================ ==================
Variable and Interest-Sensitive Life Insurance Policies - No Lapse
Guarantee
The no lapse guarantee feature contained in variable and
interest-sensitive life insurance policies keeps them in force in
situations where the policy value is not sufficient to cover monthly
charges then due. The no lapse guarantee remains in effect so long as the
policy meets a contractually specified premium funding test and certain
other requirements.
The following table summarizes the no lapse guarantee liabilities
reflected in the General Account in future policy benefits and other
policyholders liabilities, and related reinsurance ceded:
-15-
DIRECT REINSURANCE
LIABILITY CEDED NET
---------------- ----------------- -----------------
(IN MILLIONS)
Balance at December 31, 2003....................... $ 37.4 $ - $ 37.4
Impact of adoption of SOP 03-1................... (23.4) (1.7) (25.1)
Other changes in reserve......................... 2.0 (3.8) (1.8)
---------------- ----------------- -----------------
Balance at September 30, 2004...................... $ 16.0 (5.5) 10.5
================ ================= =================
9) EMPLOYEE BENEFIT PLANS
The Company sponsors qualified and non-qualified defined benefit plans
covering substantially all employees (including certain qualified
part-time employees), managers and certain agents.
Components of net periodic pension expense (credit) for the qualified
plans follow:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2004 2003 2004 2003
-------------- -------------- -------------- --------------
(IN MILLIONS)
Service cost................................. $ 8.4 $ 7.1 $ 26.2 $ 24.4
Interest cost on projected benefit
obligation................................. 30.4 31.4 91.5 94.2
Expected return on assets.................... (42.7) (46.4) (128.2) (133.8)
Net amortization and deferrals............... 16.0 20.2 48.6 41.2
-------------- -------------- -------------- --------------
Net Periodic Pension Expense................. $ 12.1 $ 12.3 $ 38.1 $ 26.0
============== ============== ============== ==============
10) STOCK APPRECIATION RIGHTS
Following completion of the merger of AXA Merger Corp. with and into the
Holding Company, certain employees exchanged AXA ADR options for tandem
Stock Appreciation Rights and at-the-money AXA ADR options of equivalent
intrinsic value. The maximum obligation for the Stock Appreciation Rights
is $73.3 million, based upon the underlying price of AXA ADRs at January
2, 2001, the closing date of the aforementioned merger. The Company
recorded a (decrease) increase in the Stock Appreciation Rights liability
of $(7.7) million and $.5 million for the third quarter of 2004 and 2003,
and of $(4.9) million and $.7 million for the first nine months of 2004
and 2003, respectively, reflecting the variable accounting for Stock
Appreciation Rights, based on the changes in the market value of AXA ADRs
for the periods then ended. At September 30, 2004, the Stock Appreciation
Rights liability was $7.1 million.
11) INCOME TAXES
Income taxes for interim periods have been computed using an estimated
annual effective tax rate. This rate is revised, if necessary, at the end
of each successive interim period to reflect the current estimate of the
annual effective tax rate.
12) LITIGATION
There have been no new material legal proceedings and no material
developments in specific litigations previously reported in Note 16 of the
Company's Notes to Consolidated Financial Statements for the year ended
December 31, 2003 (the "Litigation Note"), except as described below:
-16-
In AMERICAN NATIONAL BANK, in April 2004, Emerald filed a motion for
summary judgment on liability. Also in April 2004, Emerald filed a motion
to amend its complaint to attempt to cure a defect in diversity
jurisdiction. In April 2004, Equitable Life filed its opposition to this
motion and Emerald filed its reply. In July 2004, the court denied
Emerald's motion and dismissed Emerald's complaint for lack of subject
matter (diversity) jurisdiction. In June 2004, Emerald Investments L.P.
filed a substantially similar complaint as the dismissed action against
Equitable Life, AXA Client Solutions, LLC, and AXA Financial in the United
States District Court for the Northern District of Illinois. In July 2004,
Emerald filed an amended complaint, to which Equitable Life filed an
answer asserting several affirmative defenses; Equitable Life also filed a
partial motion to dismiss the amended complaint. In August 2004, Emerald
filed a motion to dismiss several affirmative defenses, which motion was
granted in September 2004.
In the action Equitable Life commenced against Emerald in December 2001,
the court granted Emerald's motion for summary judgment in March 2004. In
July 2004, Equitable Life filed a motion to dismiss this action on the
ground that there is no subject matter (diversity) jurisdiction. In
September 2004, the court dismissed Equitable Life's action and retained
jurisdiction over Emerald's counterclaims in that action.
In DH2, the complaint was served on Equitable Life and EQ Advisors Trust
in May 2004. In July 2004, DH2 filed an amended complaint adding the
individual trustees as defendants. In October 2004, all defendants filed a
motion to dismiss the amended complaint.
In FISCHEL, in April 2004, the District Court denied Equitable Life's
motion for reconsideration. In May 2004, the Ninth Circuit entered an
order directing the District Court to award plaintiffs' counsel certain of
their attorneys' fees in connection with the previous settlement of a
second count of the complaint which is unrelated to the health benefits
claims that remain before the court. Equitable Life will pay those
attorneys' fees out of a settlement fund already set aside as part of that
previous settlement. Following its decision to deny the motion for
reconsideration, the District Court scheduled a hearing for September 2004
to address the relief that plaintiffs are entitled to on the health
benefits claims. Notice of a pending settlement was sent October 15, 2004.
The fairness hearing has been set for November 2004.
In HIRT, in July 2004, the parties filed cross motions for summary
judgment asking the court to find in their respective favors on
plaintiffs' claim that (1) the cash balance formula of the retirement plan
violates ERISA's age discrimination provisions and (2) the notice of plan
amendment distributed by Equitable Life violated ERISA's notice rules.
Following a hearing on the motions, the court ordered a limited amount of
additional discovery to be conducted followed by a subsequent hearing.
In BERGER, in March 2004, the District Court entered an order certifying a
class consisting of "[a]ll present, former and retired Equitable agents
who (a) lost eligibility for benefits under any Equitable ERISA plan
during any period on or after January 1, 1999 because of the application
of the policy adopted by Equitable of using compliance with specified
sales goals as the test of who was a "full time life insurance salesman"
and thereby eligible for benefits under any such plan, or (b) remain
subject to losing such benefits in the future because of the potential
application to them of that policy." Discovery has concluded. It is
expected that the parties will file cross motions for summary judgment.
The case has been removed from the trial calendar pending a decision on
these motions.
In ECKERT, in June 2004, plaintiff, in connection with a settlement of a
proceeding entitled ECKERT V. AXA ADVISORS, LLC, ET AL. filed with the
National Association of Securities Dealers, Inc., released his putative
class action claim against the Company. In June 2004, plaintiff's counsel
filed a motion for withdrawal of plaintiff from the putative class action
lawsuit and intervention by another member of the putative class as
plaintiff.
In the MONY STOCKHOLDER LITIGATION, on April 6, 2004, the Delaware Court
of Chancery heard plaintiffs' second preliminary injunction motion,
brought on the basis of the new allegations in their second amended
complaint. In their motion, plaintiffs sought an order (i) enjoining AXA
Financial and MONY's directors and officers from voting their shares at
the May 18, 2004 MONY shareholder meeting, (ii) compelling additional
disclosure by MONY, and (iii) enjoining MONY from counting the votes cast
by shareholders on proxy cards submitted in connection with the original
February 24, 2004 shareholder meeting date (the "original proxies"). On
April 9, 2004, Vice Chancellor Lamb denied plaintiffs' motion and granted
summary judgment to defendants on the issue regarding the legal validity
of the original proxies. On April 14, 2004, plaintiffs filed a motion to
expedite the proceedings and to schedule a hearing on a third motion for a
preliminary injunction regarding the use by MONY of the original proxies.
Prior to the scheduling of a hearing on the plaintiffs' third motion for a
preliminary injunction, the parties engaged in arms-length negotiations
concerning a possible
-17-
settlement of the litigation. Those negotiations resulted in the execution
of a Memorandum of Understanding dated May 17, 2004, which set forth the
terms of an agreement in principle to settle the litigation, subject to,
among other things, certification of a class for settlement purposes,
release of claims against all defendants and plaintiffs' participation in
the preparation of, and monitoring compliance with, agreed procedures for
the tabulation of proxies cast by retail shareholders at the May 18, 2004
MONY shareholder meeting. On or about July 13, 2004, counsel for the
parties executed a Stipulation of Settlement setting forth the terms of a
definitive settlement, subject to, among other things, approval by the
Delaware Chancery Court. On July 13, 2004, the parties filed the
Stipulation of Settlement with the Delaware Chancery Court and requested
that the Court schedule a hearing to approve the settlement and authorize
notice of the terms of the Stipulation of Settlement, the date of the
hearing, and the procedures for class members to object to the settlement.
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.
As scheduled, on September 28, 2004, the Delaware Court of Chancery held a
hearing on the fairness of a proposed settlement of the litigation agreed
to by the parties. 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 interests of the class members, dismissed all claims against
all defendants with prejudice, and awarded attorneys' 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 Court of Chancery and that
following a final judgment approving the settlement by the Delaware Court
of Chancery, 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 shares held by former MONY 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.
In April 2004, a purported nationwide class action lawsuit was filed in
the Circuit Court for Madison County, Illinois entitled MATTHEW WIGGENHORN
V. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES. The lawsuit
alleges that Equitable Life uses stale prices of the foreign securities
within the investment divisions of its variable insurance products. The
complaint further alleges that Equitable Life's use of stale pricing
diluted the returns of the purported class. The complaint also alleges
that Equitable Life breached its fiduciary duty to the class by allowing
market timing in general within Equitable Life's variable insurance
products, thereby diluting the returns of the class. The lawsuit asserts
causes of action for negligence, gross negligence, breach of contract, and
breach of fiduciary duty and seeks unspecified compensatory and punitive
damages, plus prejudgment interest, attorneys' fees and costs. In June
2004, Equitable Life removed the case to Federal court and in July 2004
filed a motion to dismiss. In July 2004, plaintiff filed a motion to
remand the action to state court. In August 2004, the court stayed the
action pending a decision by the U.S. Court of Appeals for the Seventh
Circuit in a case filed against Putnam Funds et. al. (to which AXA
Financial is not a party) regarding removal pursuant to the Securities
Litigation Uniform Standards Act under similar circumstances.
Although the outcome of litigation cannot be predicted with certainty, the
Company's management believes that the ultimate resolution of the matters
described above should not have a material adverse effect on the
consolidated financial position of the Company. The Company's management
cannot make an estimate of loss, if any, or predict whether or not such
litigations will have a material adverse effect on the Company's
consolidated results of operations in any particular period.
ALLIANCE LITIGATIONS
In BENAK, plaintiffs have not filed a notice of appeal.
In the SEBI matter with Mr. Arora, in March 2004, SEBI issued a final
order against Mr. Arora barring him from dealing directly or indirectly in
the Indian securities markets for a period of five years commencing August
9, 2003. In October 2004, SAT allowed Mr. Arora's appeal and set aside
SEBI's impugned order. SEBI has appealed the SAT's decision to the Supreme
Court of India. In October 2004, ACAML agreed to transfer the management
rights with respect to its local Indian mutual funds to Birla Sun Life, an
Indian asset management company.
-18-
In the SEBI matter with Alliance, in May 2004, SEBI issued an Order of
Adjudicating Officer in respect of Alliance, ACAML and its local Indian
mutual fund whereby it levied a fine, jointly and severally, against
Alliance and ACAML in an amount of approximately $630,000 for not filing
the required notices in a timely manner. In June 2004, Alliance and ACAML
filed an appeal with respect to such order with SAT, which is still
pending.
In August 2004, SEBI entered an order of adjudication against ACAML, its
local mutual fund and Alliance for violations of Section 15G and 15HA of
the SEBI Act. The order states that a portfolio manager of ACAML relied
upon unpublished price sensitive information in making certain investment
decisions on behalf of certain clients of ACAML and Alliance and that
during various time periods he engaged in manipulative trading activity
with respect to certain other securities. Alliance and ACAML intend to
file an appeal with respect to the order with SAT. SEBI imposed a penalty
of R.S. 150,000,000 (approximately $3,200,000) jointly and severally on
ACAML and Alliance. Alliance and ACAML filed an appeal with respect to the
order with SAT in October 2004, and a hearing before SAT has been
scheduled for November 2004.
The allegations against Alliance and ACAML contained in these orders of
adjudication were largely based on the alleged actions of Mr. Arora, for
which Alliance and ACAML were allegedly responsible. These alleged actions
were the subject of SEBI's order against Mr. Arora, which has now been set
aside. Alliance believes that if the setting aside of SEBI's order against
Mr. Arora is not overturned on appeal, it should substantially strengthen
Alliance's legal position in its appeal of the SEBI orders against
Alliance and ACAML.
In ERB, in June 2004, plaintiff filed an amended complaint ("Amended Erb
Complaint") in the Circuit Court of St. Clair County, Illinois. The
Amended Erb Complaint allegations are substantially similar to those
contained in the previous complaint; however, the Amended Erb Complaint
adds a new plaintiff and seeks to allege claims on behalf of a purported
class of persons or entities holding an interest in any portfolio managed
by Alliance's Large Cap Growth Team. The Amended Erb Complaint alleges
that Alliance breached its contracts with these persons or entities by
impermissibly purchasing shares of stocks that were not 1-rated.
Plaintiffs seek rescission of all purchases of any non-1-rated stocks
Alliance made for Premier Growth Fund and other Large Cap Growth Team
clients' portfolios over the past eight years, as well as an unspecified
amount of damages. In July 2004, Alliance removed the ERB action to the
United States District Court for the Southern District of Illinois on the
basis that plaintiffs' claims are preempted under the Securities
Litigation Uniform Standards Act. In August 2004, the District Court
remanded the action to the Circuit Court. In September 2004, Alliance
filed a notice of appeal with respect to the District Court's order. That
motion is pending.
In the SBA Complaint matter, in November 2003, the SBA filed an amended
complaint ("Amended SBA Complaint"). The Amended SBA Complaint contains
Enron-related claims similar to the previous complaint and also alleges
that Alliance breached its contract with the SBA by investing in or
continuing to hold stocks for the SBA's investment portfolio that were not
"1-rated," the highest rating that Alliance's research analysts could
assign. The Amended SBA Complaint also added claims for negligent
supervision and common law fraud. The Amended SBA Complaint seeks
rescissionary damages for all purchases of stocks that were not 1-rated,
as well as damages for those that were not sold on a downgrade. The SBA
has asserted in discovery that its damages (including statutory interest)
are approximately $2.9 billion. In December 2003, Alliance moved to
dismiss the fraud and breach of fiduciary duty claims in the Amended SBA
Complaint. In January 2004, the court denied that motion. The case is
currently in discovery. The trial is scheduled to commence on March 7,
2005.
Market Timing-Related Matters
Regulatory
On September 1, 2004, Alliance and the Attorney General of the State of
New York ("NYAG") entered into an Assurance of Discontinuance relating to
Alliance's settlement of investigations into trading practices in certain
Alliance-sponsored mutual funds ("NYAG Agreement"). Alliance reached terms
with the SEC and the NYAG regarding these practices on December 18, 2003.
The agreement with the SEC was reflected in an Order of the Commission,
while the agreement with the NYAG was subject to completion of final,
definitive documentation. Alliance's settlement terms with both the SEC
and the NYAG were described in a News Release dated December 18, 2003,
which Alliance furnished under a Current Report on Form 8-K. The NYAG
Agreement, the material terms of which document and confirm the terms
previously described, is the final, definitive documentation referenced in
such Release.
Civil Litigation
In the MUTUAL FUND TRADING LITIGATIONS (i.e., the HINDO Complaint and
similar lawsuits), three lawsuits making factual allegations generally
similar to those in the Hindo Complaint have been filed against Alliance
and certain other defendants in addition to the forty such lawsuits
already reported in the Litigation Note. As a result, since October 3,
2003, forty-three lawsuits, in addition to the HINDO Complaint, have been
filed in various Federal and state courts. AXA Financial is named as a
defendant, primarily as a control person of Alliance, in thirty-
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five of these lawsuits (including the HINDO Complaint). All of these
lawsuits seek an unspecified amount of damages.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation ("MDL
Panel") transferred all Federal actions to the United States District
Court for the District of Maryland ("Mutual Fund MDL"). On March 3, 2004
and April 6, 2004, the MDL Panel issued orders conditionally transferring
the state court cases against Alliance and numerous others to the Mutual
Fund MDL. Transfer of all of these actions subsequently became final.
Plaintiffs in three of these four actions moved to remand the actions back
to state court. On June 18, 2004, the Court issued an interim opinion
deferring decision on plaintiffs' motions to remand until a later stage in
the proceedings. Subsequently, the plaintiff in the state court individual
action moved the Court for reconsideration of that interim opinion and for
immediate remand of her case to state court, and that motion is pending.
Defendants are not yet required to respond to the complaints filed in the
state court derivative actions.
On September 29, 2004, plaintiffs filed consolidated amended complaints
with respect to four claim types: mutual fund shareholder claims; mutual
fund shareholder derivative claims; Alliance Holding unitholder derivative
claims; and claims brought under ERISA by participants in the Profit
Sharing Plan for Employees of Alliance. All four complaints include
substantially identical factual allegations, which appear to be based in
large part on the SEC Order. The claims in the mutual fund derivative
consolidated amended complaint are generally based on the theory that all
fund advisory agreements, distribution agreements and 12b-1 plans between
Alliance and the AllianceBernstein Funds should be invalidated, regardless
of whether market timing occurred in each individual fund, because each
was approved by fund trustees on the basis of materially misleading
information with respect to the level of market timing permitted in funds
managed by Alliance. The claims asserted in the other three consolidated
amended complaints are similar to those that the respective plaintiffs
asserted in their previous Federal lawsuits. AXA Financial, AXA S.A. and
Equitable Life are named as defendants in the mutual fund shareholder
complaint and the Alliance Holding unitholder derivative complaint. Claims
have been asserted against all these companies that include both control
person and direct liability. AXA Financial is named as a defendant in the
mutual fund complaint and the ERISA complaint.
Alliance recorded charges to income totaling $330 million during the
second half of 2003 in connection with establishing a $250 million
restitution fund, as described in the Litigation Note. During the first
nine months of 2004, Alliance paid $293 million related to these matters
(including $250 million to a restitution fund) and has cumulatively paid
$299 million. Alliance's management, however, cannot determine at this
time the eventual outcome, timing or impact of these matters. Accordingly,
it is possible that additional charges in the future may be required.
Revenue Sharing-Related Matters
Regulatory
Alliance and approximately twelve other investment management firms were
publicly mentioned in connection with the settlement by the SEC of charges
that Morgan Stanley violated Federal securities laws relating to its
receipt of compensation for selling specific mutual funds and the
disclosure of such compensation. The SEC has indicated publicly that,
among other things, it is considering enforcement action in connection
with mutual funds' disclosure of such arrangements and in connection with
the practice of considering mutual fund sales in the direction of
brokerage commissions from fund portfolio transactions. The SEC and the
NASD have issued subpoenas to Alliance in connection with this matter and
Alliance has provided documents and other information to the SEC and the
NASD, and is cooperating fully with their investigations.
Civil Litigation
On June 22, 2004, a purported class action complaint entitled AUCOIN, ET
AL. V. ALLIANCE CAPITAL MANAGEMENT L.P., ET AL. ("AUCOIN Complaint") was
filed against Alliance, Alliance Holding, ACMC, AXA Financial, ABIRM,
certain current and former directors of the AllianceBernstein Funds, and
unnamed Doe defendants. The AUCOIN Complaint names the AllianceBernstein
Funds as nominal defendants. The AUCOIN Complaint also names AXA Financial
as a defendant as a control person of Alliance under the Federal
securities laws. The AUCOIN Complaint was filed in the United States
District Court for the Southern District of New York by an alleged
shareholder of the AllianceBernstein Growth & Income Fund. The AUCOIN
Complaint alleges, among other things, (i) that certain of the defendants
improperly authorized the payment of excessive commissions and other fees
from AllianceBernstein Fund assets to broker-dealers in exchange for
preferential marketing services, (ii) that certain of the defendants
misrepresented and omitted from registration statements and other reports
material facts concerning such payments, and (iii) that certain defendants
caused such conduct as control persons of other defendants. The AUCOIN
Complaint asserts claims for violation of Sections 34(b), 36(b) and 48(a)
of the ICA, Sections 206 and 215 of the Advisers Act, breach of common law
fiduciary duties, and aiding and abetting breaches of common law fiduciary
duties. Plaintiffs seek an unspecified amount of compensatory damages and
punitive damages, rescission of their contracts with Alliance, including
recovery of all fees paid to Alliance pursuant to such contracts, an
accounting of all AllianceBernstein Fund-related fees, commissions and
soft dollar payments, and restitution of all unlawfully or
discriminatorily obtained fees and expenses.
Since June 22, 2004, nine additional lawsuits making factual allegations
substantially similar to those in the AUCOIN Complaint were filed against
Alliance and certain other defendants (including
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AXA Financial), and others may be filed. All nine of the lawsuits (i) were
brought as class actions filed in the United States District Court for the
Southern District of New York, (ii) assert claims substantially identical
to the AUCOIN Complaint and (iii) are brought on behalf of shareholders of
AllianceBernstein Funds.
With respect to certain matters discussed under "Alliance Litigations"
either herein or in the Litigation Note (other than the MUTUAL FUND
TRADING LITIGATIONS and the SEBI matters), management of Alliance is
unable to estimate the impact, if any, that the outcome of these matters
may have on Alliance's results of operations or financial condition and
the Company's management is unable to estimate the impact, if any, that
the outcome of these matters may have on the Company's results of
operations or financial position.
In addition to the matters previously reported and those described above,
the Holding Company and its subsidiaries are involved in various legal
actions and proceedings in connection with their businesses. Some of the
actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot be
predicted with certainty, in the opinion of management no such matter is
likely to have a material adverse effect on the Company's consolidated
financial position or results of operations. However, it should be noted
that 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.
13) BUSINESS SEGMENT INFORMATION
The following tables reconcile segment revenues and earnings from
continuing operations before income taxes and minority interest to total
revenues and earnings as reported on the consolidated statements of
earnings and segment assets to total assets on the consolidated balance
sheets, respectively.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ----------------
(IN MILLIONS)
SEGMENT REVENUES:
Insurance............................... $ 1,396.0 $ 1,176.4 $ 4,096.0 $ 3,442.5
Investment Services..................... 719.3 700.0 2,204.3 1,968.5
Consolidation/elimination............... (21.8) (18.6) (62.9) (51.7)
--------------- --------------- --------------- ----------------
Total Revenues.......................... $ 2,093.5 $ 1,857.8 $ 6,237.4 $ 5,359.3
=============== =============== =============== ================
SEGMENT EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST:
Insurance............................... $ 187.4 $ 192.6 $ 769.3 $ 444.4
Investment Services..................... 155.2 18.0 491.5 269.2
Consolidation/elimination............... (1.5) - (2.0) -
--------------- --------------- --------------- ----------------
Total Earnings from Continuing
Operations before Income
Taxes and Minority Interest.......... $ 341.1 $ 210.6 $ 1,258.8 $ 713.6
=============== =============== =============== ================
SEPTEMBER 30, December 31,
2004 2003
--------------- -----------------
(IN MILLIONS)
ASSETS:
Insurance......................................................... $ 103,924.1 $ 98,822.1
Investment Services............................................... 13,891.7 15,410.1
Consolidation/elimination......................................... (1.2) 33.1
----------------- ------------------
Total Assets...................................................... $ 117,814.6 $ 114,265.3
================= ==================
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14) RELATED PARTY TRANSACTIONS
Beginning January 1, 2000, the Company reimburses the Holding Company for
expenses relating to the Excess Retirement Plan, Supplemental Executive
Retirement Plan and certain other employee benefit plans that provide
participants with medical, life insurance, and deferred compensation
benefits. Such reimbursement was based on the cost to the Holding Company
of the benefits provided which totaled $16.9 million and $17.6 million for
the third quarter of 2004 and 2003, respectively, and $45.9 million and
$48.1 million for the first nine months of 2004 and 2003, respectively.
The Company paid $154.7 million and $157.2 million for the third quarter
of 2004 and 2003, respectively, and $483.0 million and $475.0 million for
the first nine months of 2004 and 2003, respectively, of commissions and
fees to AXA Distribution and its subsidiaries for sales of insurance
products. The Company charged AXA Distribution's subsidiaries $74.4
million and $72.5 million for the third quarter of 2004 and 2003,
respectively, and $218.2 million and $219.3 million for the first nine
months of 2004 and 2003, respectively, for their applicable share of
operating expenses pursuant to the Agreements for Services.
15) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in APB No. 25. Compensation expense is not
reflected in the statement of earnings for options granted under the
Holding Company's Stock Incentive Plans as all such options had an
exercise price equal to the market value of the underlying common stock on
the date of the grant and vest solely with the passage of time. The
following table illustrates the effect on net income if compensation
expense as related to options awarded under those plans had been
determined based on SFAS No. 123's fair value based method:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
(IN MILLIONS)
Net earnings as reported..................... $ 220.2 $ 135.5 $ 717.3 $ 381.0
Less: Total stock-based
employee compensation expense
determined under fair value method
for all awards, net of income tax benefit.. (6.7) (9.3) (21.4) (26.5)
----------- ----------- ----------- -----------
Pro Forma Net Earnings....................... $ 213.5 $ 126.2 $ 695.9 $ 354.5
=========== =========== =========== ===========
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16) COMPREHENSIVE INCOME
The components of comprehensive income for third quarter 2004 and 2003 and
the first nine months of 2004 and of 2003 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
(IN MILLIONS)
Net earnings............................. $ 220.2 $ 135.5 $ 717.3 $ 381.0
--------------- --------------- --------------- ---------------
Change in unrealized gains (losses),
net of reclassification adjustment.... 337.8 (195.1) (22.7) 331.7
Cumulative effect
of accounting changes................. - - 12.4 -
--------------- --------------- --------------- ---------------
Other comprehensive income (loss)........ 337.8 (195.1) (10.3) 331.7
--------------- --------------- --------------- ---------------
Comprehensive Income (Loss).............. $ 558.0 $ (59.6) $ 707.0 $ 712.7
=============== =============== =============== ===============
17) SUBSEQUENT EVENT
On October 28, 2004, Alliance announced that Alliance and Federated
Investors, Inc. ("Federated") had reached a definitive agreement for
Federated to acquire Alliance's cash management business. Under the
agreement, Federated will acquire the assets under management of 22
third-party-distributed money market funds of AllianceBernstein Cash
Management Services, which totaled approximately $29 billion at September
30, 2004. The transaction will not include the assets of AllianceBernstein
Exchange Reserves, Inc., which will continue to be available to investors
in other AllianceBernstein mutual funds. In addition, Alliance will
continue to meet the liquidity needs of investors in its private client,
managed account and institutional investment management businesses. The
capital gain, net of income taxes and minority interest, that would be
recognized upon the closing of the transaction in 2005 is not expected to
be material to the Company. Estimated contingent payments received from
Federated in the five years following the closing are expected to be
similar in amount to the business's anticipated profit contribution over
that period. The overall effect on earnings is, therefore, expected to be
immaterial.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On September 7, 2004, The Equitable Life Assurance Society of the United States
changed its name to AXA Equitable Life Insurance Company ("Equitable Life" and,
together with its consolidated subsidiaries, the "Company").
Management's discussion and analysis is omitted pursuant to General Instruction
H of Form 10-Q. The management narrative for the Company that follows should be
read in conjunction with the Consolidated Financial Statements, the related
Notes to Consolidated 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 the Company's Annual Report on Form 10-K for the year ended December
31, 2003 ("2003 Form 10-K").
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
Earnings from continuing operations before income taxes and minority interest
were $1.26 billion for the first nine months of 2004, an increase of $545.2
million from the 2003 period, with $324.9 million and $222.3 million higher
earnings reported by the Insurance and Investment Services segments,
respectively. Net earnings for the Company totaled $717.3 million for the first
nine months of 2004, up $336.3 million from the 2003 period. In third quarter
2004, a post-tax gain of $10.9 million was recognized on the sale of real estate
held-for-sale, reported as discontinued operations. In first quarter 2004, the
Company recorded a $2.9 million charge (net of related income taxes of $1.6
million) for the cumulative effect of the January 1, 2004 adoption of SOP 03-1.
Revenues. Total revenues for the first nine months of 2004 increased $878.1
million as revenues for both the Insurance and Investment Services segments
increased $653.5 billion and $235.8 million, respectively, as compared to the
first nine months of 2003.
Policy fee income was $1.16 billion, $163.5 million higher than in the 2003
period, largely due to higher average Separate Account balances resulting from
market appreciation and positive net cash flows.
Net investment income increased $148.8 million to $1.92 billion, principally due
to a higher level of assets in the General Account, $84.6 million higher
earnings from other equity investments due to market improvement, prepayment
gains of $25.6 million and lower overall losses of $5.9 million on derivative
instruments partially offset by lower yields due to lower reinvestment rates.
Investment gains, net totaled $48.2 million in the 2004 period compared to net
losses of $92.8 million in the first nine months of 2003 principally due to
lower writedowns on fixed maturities partially offset by lower gains on sales of
fixed maturities. Net gains on sales of General Account fixed maturities were
$53.5 million for the first nine months of 2004 as compared to $58.4 million in
the 2003 period while writedowns on the fixed maturity portfolio of the General
Account totaled $33.9 million for the 2004 period compared to $182.0 million for
the prior year period.
There was a $424.3 million increase in commissions, fees and other income to
$2.44 billion in the first nine months of 2004 from $2.02 billion in the 2003
period. The $223.2 million higher fees in the Investment Services segment were
primarily due to the $185.3 million increase in Alliance's investment advisory
and services fees to $1.52 billion due to an approximately 17.3% increase in
average AUM, an increase in brokerage transaction charges due to higher
transaction volume and a $7.1 million performance based institutional investment
management fee, partially offset by approximately $53 million in revenue
reductions. These reductions resulted from reductions in advisory fees
implemented for certain Alliance-sponsored retail mutual funds in connection
with the settlement of market timing-related matters. Distribution revenues at
Alliance were $336.9 million in the first nine months of 2004, $15.6 million
higher than in the comparable 2003 period primarily due to higher average mutual
fund AUM. When compared to the first nine months of 2003, there was a $25.7
million increase in revenues from institutional research services due to higher
market share and higher revenues from growth in European operations partially
offset by a decrease in NYSE trading volume and pricing. The increase of $210.6
million in the Insurance segment in the first nine months of 2004 was primarily
due to the $55.0 million increase in the fair value of the GMIB reinsurance
contracts in the 2004 period as compared to the $58.0 million decrease in fair
value in the 2003 period and higher gross investment management fees received
from EQAT and VIP Trust due to a higher asset base.
-24-
Benefits and Other Deductions. Total benefits and other deductions increased
$332.9 million to $4.98 billion for the first nine months of 2004 as the
Insurance and the Investment Services segments posted increases of $328.6
million and $13.5 million, respectively.
The policyholders' benefits increase of $120.8 million to $1.39 billion in the
first nine months of 2004 principally resulted from higher GMDB/GMIB benefits
and reserves due to growth in the business, higher individual life death claims
and higher benefits and reserves in the reinsurance assumed product line due to
an increase in reserves under one life reinsurance agreement in third quarter
2004 of $40.5 million partially offset by lower policyholder dividends due to
reductions in the dividend scale in the Insurance Group.
The $59.6 million increase in interest credited to policyholders' account
balances to $782.6 million in the first nine months of 2004 was principally due
to higher account balances and the changes in the fair value of the investment
asset portfolio supporting group pension annuity participating contracts that
resulted from the implementation of SOP 03-1, partially offset by the impact of
lower crediting rates in the Insurance Group.
When compared to the first nine months of 2003, there was a $178.8 million
increase in compensation and benefits in the first nine months of 2004 to $1.15
billion, with $152.1 million higher expenses in the Investment Services segment
and a $26.9 million net increase in the Insurance segment. The increase in
compensation and benefits in the Investment Services segment was due to higher
Alliance incentive compensation reflecting the impact the charge for legal
proceedings and mutual fund matters had in third quarter 2003 and higher
commissions, primarily in the private client channel. The net increase in
compensation and benefit costs in the Insurance segment was principally due to
$45.6 million in severance benefits associated with staff reductions resulting
from the MONY integration by the Holding Company in the third quarter 2004.
Additionally, compensation and benefits for the Insurance segment included a
$4.9 million credit resulting from changes in the Stock Appreciation Rights'
liability in the 2004 period as compared to $0.9 million of expenses in the
comparable 2003 period.
Commissions decreased $16.7 million during the first nine months of 2004 to
$739.8 million due primarily to lower sales through the wholesale channel in the
2004 period.
The Investment Services segment's distribution plan payments totaled $280.3
million for the first nine months of 2004, up $4.6 million from the 2003
period's payments, while amortization of deferred sales commissions was $138.5
million, $19.3 million lower than in the first nine months of 2003 primarily due
to declines in net amortizable assets due to lower U.S. sales.
DAC amortization increased $21.1 million to $303.4 million for the first nine
months of 2004 due to increases in current margins, partially offset by the
unlocking impact from recognition of higher expected future margins driven by
higher fees related to variable insurance and annuity contracts.
DAC capitalization decreased $27.9 million during the first nine months of 2004
to $727.0 million primarily due to lower variable annuity sales partially offset
by higher life sales.
Rent expense showed a $10.7 million increase during the first nine months of
2004, with modest increases of $4.9 million and $5.8 million in the Insurance
and Investment Services segments, respectively.
Interest expense and amortization of intangible assets remained level from the
first nine months of 2003 to the comparable 2004 period.
Other operating costs and expenses decreased $53.0 million to $708.2 million for
the nine months ended September 30, 2004, with increases of $86.4 million in the
Insurance segment more than offset by a $130.4 million decrease in the
Investment Services segment. The Insurance segment increase was primarily due to
the $33.0 million write-off of capitalized software related to the MONY
integration and higher EQAT and VIP Trust subadvisory fees due to higher asset
values. The decrease in other operating expenses for the Investment Services
segment were principally due to the $190.0 million charge for legal proceedings
and mutual fund matters recorded in third quarter 2003. Alliance's third quarter
2004 expenses included a $3.5 million impairment loss on its exchange
memberships.
Premiums and Deposits. Total premiums and deposits for insurance and annuity
products for the first nine months of 2004 decreased from prior year levels by
$1.36 billion to $10.06 billion. Sales of annuities in the first nine months of
2004 decreased 14.2% from the strong 2003 period, which had increased by 62.2%
over the comparable 2002 period's sales. The decline in the 2004 period was
primarily due to $1.31 billion lower premiums and deposits in the wholesale
channel resulting primarily from lower sales of variable annuities, partially
offset by $107.1 million
-25-
higher retail channel premiums and deposits. First year life premiums and
deposits increased $40.0 million to $209.2 million for the first nine months of
2004.
Surrenders and Withdrawals. When totals for the first nine months of 2004 are
compared to the comparable 2003 period, surrenders and withdrawals for the
Insurance Group increased from $3.58 billion to $4.48 billion, with respective
increases of $622.6 million and $267.0 million reported for individual annuities
and variable and interest-sensitive life product lines. The Insurance Group's
annualized annuities surrender rate decreased to 8.0% in the 2004 period from
8.5% in the comparable period in 2003, while the Insurance Group's individual
life surrender rates showed an increase to 5.4% from 4.3%. The dollar increase
in annuity surrenders resulted from higher account balances driven by market
appreciation and positive net cash flows. The Insurance Group's 2004 individual
life surrender rate included the impact of the surrender of a single large COLI
contract in the first quarter of 2004 and a large partial withdrawal from a COLI
contract in third quarter 2004. The trends in surrender and withdrawal rates
described above continue to fall within the range of expected experience.
Assets Under Management. An analysis of assets under management follows:
ASSETS UNDER MANAGEMENT
(IN MILLIONS)
SEPTEMBER 30,
-----------------------------------
2004 (1) 2003
--------------- ---------------
Third party..................................................................... $ 435,750 $ 383,367
General Account Holding Company Group and other................................. 54,395 40,245
Separate Accounts............................................................... 61,135 48,584
--------------- ---------------
Total Assets Under Management................................................... $ 551,280 $ 472,196
=============== ===============
(1) Includes the assets of and those managed by the MONY companies beginning
third quarter 2004.
Third party assets under management at September 30, 2004 increased $52.38
billion primarily due to increases at Alliance, with the MONY companies
contributing $6.67 billion in third quarter 2004. General Account and other
assets under management increased $14.15 billion from the amounts reported at
September 30, 2003 primarily due to the MONY companies' $13.11 billion impact in
third quarter 2004. The $12.55 billion increase in Separate Account assets under
management resulted from market appreciation and net new deposits and to the
third quarter 2004 addition totaling $4.80 billion for the MONY companies,
partially offset by the conversion of an institutional real estate Separate
Account into a private REIT in second quarter 2004.
Alliance assets under management at September 30, 2004 totaled $487.0 billion as
compared to $437.76 billion at September 30, 2003. This increase during the 12
month period ended September 30, 2004 resulted from market appreciation of $13.1
billion, $30.7 billion and $4.9 billion, respectively, in retail, institutional
and private client AUM and net asset inflows of $3.0 billion and $5.0 billion,
respectively, in the institutional investment management and private client
distribution channels partially offset by $4.7 million and $2.8 million of net
long-term outflows and net cash management redemptions, respectively, in the
retail channel. Non-US clients accounted for 22.9% of Alliance's September 30,
2004 assets under management total.
On October 28, 2004, Alliance announced that Alliance and Federated Investors,
Inc. ("Federated") had reached a definitive agreement for Federated to acquire
Alliance's cash management business. Under the agreement, Federated will acquire
the assets under management of twenty two third-party-distributed money market
funds of AllianceBernstein Cash Management Services, which totaled approximately
$29 billion at September 30, 2004. The transaction will not include the assets
of AllianceBernstein Exchange Reserves, Inc., which will continue to be
available to investors in other AllianceBernstein mutual funds. In addition,
Alliance will continue to meet the liquidity needs of investors in its private
client, managed account and institutional investment management businesses. The
capital gain, net of income taxes and minority interest, that would be
recognized upon the closing of the transaction in 2005 is not expected to be
material to the Company. Estimated contingent payments received from Federated
in the five years following the closing are expected to be similar in amount to
the business's anticipated profit contribution over that period. The overall
effect on earnings is, therefore, expected to be immaterial.
-26-
LIQUIDITY AND CAPITAL RESOURCES
Equitable Life. In the first nine months of 2004, Equitable Life paid cash
dividends of $250.0 million, as compared to $150.0 million in the prior year's
comparable period.
In first quarter 2004, Equitable Life amended the terms of its $350.0 million
credit facility to extend its March 31, 2004 maturity date to October 15, 2004.
No other terms of this facility were affected. The credit facility expired on
October 15 and was not renewed. At September 30, 2004, no amounts were
outstanding under Equitable Life's commercial paper program or its revolving
credit facility.
Alliance. Alliance has cumulatively paid $300 million related to market
timing-related matters and legal proceedings, including the $293 million paid
during the first nine months of 2004. As a result of charges for such matters
recorded in the second half of 2003, there were no cash distributions paid in
first quarter 2004; cash distributions for the second and third quarters totaled
$382.8 million.
In the nine months of 2004, subsidiaries of Alliance paid approximately $37.9
million to purchase 974,458 Alliance Holding Units to fund deferred
compensation plans.
FORWARD-LOOKING STATEMENTS AND RISK CONSIDERATIONS
The Company'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 the Company's operations,
economic performance and financial position. Forward-looking statements include,
among other things, discussions concerning the Company'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. The Company claims the protection afforded by the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, 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 the Company'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 the Company's consolidated financial position and/or
results of operations.
Market Risk. The Company's businesses are subject to market risks arising from
its insurance asset/liability management, investment management and trading
activities. 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 14 of Notes to
Consolidated Financial Statements, both contained in the 2003 Form 10-K.
Increased volatility of equity markets can impact profitability of the Insurance
and Investment Services segments. For the Insurance Group, in addition to
impacts on equity securities held in the 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 the Insurance Group'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. Increased volatility of equity markets also
will result in increased volatility of the fair value of the GMIB reinsurance
contracts.
Equity market volatility also may impact DAC 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 amortization rates, DAC amortization could be accelerated. Volatile
equity markets can also impact the level of contractholder surrender activity,
which, in turn, can impact future profitability.
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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.
The effects of significant equity market fluctuations on the Insurance Group's
operating results can be complex and subject to a variety of estimates and
assumptions, such as assumed rates of long-term equity market performance,
making it difficult to reliably predict effects on operating earnings over a
broad range of equity market performance alternatives. Further, these effects
may not always be proportional for market increases and market decreases.
Margins on interest-sensitive annuities and universal life insurance can be
affected by interest rate fluctuations. In a declining interest rate
environment, credited rates can generally be adjusted more quickly than the
related invested asset portfolio is affected by declining reinvestment rates,
tending to result in higher net interest margins on interest-sensitive products
in the short term. However, under scenarios in which interest rates fall and
remain at significantly lower levels, minimum guarantees on interest-sensitive
annuities and universal life insurance (generally 1.5% 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.
For the Investment Services segment, significant changes in equity markets can
impact revenues and the recoverability of deferred costs. See "Other Risks of
the Investment Services Segment" below.
Other Risks of the Insurance Segment. The Insurance Group's future sales of life
insurance and annuity products and financial planning services are dependent on
numerous factors including: successful implementation of the Company's 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 Equitable
Life; 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 provide effective financial planning
services that meet its customers' expectations; 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 the Insurance Group 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 the Insurance Group 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; 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 product, Accumulator(R) `04; the Company's mortality,
morbidity, persistency and claims experience; margins between investment results
from 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 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.
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Recoverability of 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 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.
Other Risks of the Investment Services Segment. Alliance's revenues are largely
dependent on the total value and composition of assets under its management and
are, therefore, affected by the performance of financial markets, the investment
performance of sponsored investment products and separately managed accounts,
additions and withdrawals of assets, purchases and redemptions of mutual funds
and shifts of assets between accounts or products with different fee structures,
as well as general economic conditions, future acquisitions, competitive
conditions and government regulations, including tax rates. See "Results of
Continuing Operations by Segment - Investment Services" contained in the 2003
Form 10-K. Recently, a number of regulators have been focusing attention on
various practices in or affecting the investment management and/or mutual fund
industries, including, among others, late trading, market timing, and revenue
sharing. In December 2003, Alliance resolved regulatory claims with the SEC and
NYAG related to market timing in certain of its mutual funds. Alliance's
involvement in the market timing investigations and ongoing litigation relating
thereto, as well as other litigation, may have an adverse effect on the
Company's and Alliance's assets under management, including an increase in
mutual fund redemptions, and may cause or prolong general reputational damage,
both of which could adversely affect the Company's and Alliance's results of
operations.
Payments by Alliance made to financial intermediaries in connection with the
sale of back-end load shares under Alliance's mutual fund distribution system
are capitalized as deferred sales commissions and amortized over periods not
exceeding five and one-half years, the periods of time during which the deferred
sales commission asset is expected to be recovered from distribution services
fees received from those funds and from contingent deferred sales charges
("CDSC") received from shareholders of those funds upon redemption of their
shares. CDSC cash recoveries are recorded as reductions of unamortized deferred
sales commissions when received. The recorded amount of the net deferred sales
commission asset was $280.7 million at September 30, 2004. Payments of sales
commissions made to financial intermediaries in connection with the sale of
back-end load shares under Alliance's mutual fund distribution system during the
first nine months of 2004 and 2003, net of CDSC received of $26.1 million and
$26.6 million, respectively, totaled approximately $31.9 million and $80.1
million, respectively.
Alliance's management tests the deferred sales commission asset for
recoverability quarterly, or monthly when events or changes in circumstances
occur that could significantly increase the risk of impairment of the asset. As
of September 30, 2004, Alliance's management determined that the deferred sales
commission asset was not impaired. If Alliance's management determines in the
future that the deferred sales commission asset is not recoverable, an
impairment condition would exist and a loss would be measured as the amount by
which the recorded amount of the asset exceeds its estimated fair value.
Estimated fair value is determined using Alliance management's best estimate of
future cash flows discounted to a present value amount.
During the three month period ended September 30, 2004, equity markets decreased
by approximately 2% and increased by 2% for the nine months ended September 30,
2004, as measured by the change in the Standard & Poor's 500 Stock Index. Fixed
income markets increased by approximately 3% in third quarter 2004 and during
the first nine months of 2004 as measured by the change in the Lehman Brothers'
Aggregate Bond Index. The redemption rate for domestic back-end load shares was
23.8% and 25.1%, respectively, for the third quarter and first nine months of
2004. Declines in financial markets or higher redemption levels, or both, as
compared to the assumptions used to estimate undiscounted future cash flows,
could result in the impairment of the deferred sales commission asset. Due to
the volatility of the capital markets and changes in redemption rates,
Alliance's management is unable to predict whether or when a future impairment
of the deferred sales commission asset might occur. Should an impairment occur,
any loss would reduce materially the recorded amount of the asset with a
corresponding charge to expense.
Other Discontinued Operations. The determination of the allowance for future
losses for the discontinued Wind-Up Annuities continues to involve numerous
estimates and subjective judgments including those regarding expected
performance of investment assets, asset reinvestment rates, ultimate mortality
experience and other factors that affect investment and benefit projections.
There can be no assurance that the losses provided for will not differ from the
losses ultimately realized. To the extent actual results or future projections
of Other Discontinued Operations differ from management's current best estimates
underlying the allowance, the difference would be reflected as earnings or loss
from discontinued operations within the consolidated statements of earnings. In
particular, to the
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extent income, sales proceeds and holding periods for equity real estate differ
from management's previous assumptions, periodic adjustments to the allowance
are likely to result.
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. The Company's information systems are
central to, among other things, designing and pricing products, marketing and
selling products and services, processing policyholder and investor
transactions, client recordkeeping, communicating with retail sales associates,
employees and clients, and recording information for accounting and management
purposes in a secure and timely manner. These systems are maintained to provide
customer privacy and are tested to ensure the viability of business resumption
plans. Any significant difficulty associated with the operation of such systems,
or any material delay or inability to develop needed system capabilities, could
have a material adverse effect on the Company'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. The Holding Company's insurance
subsidiaries, including Equitable Life, and related companies, like other life
and health insurers, are involved in such litigation and results of operations
and financial position of Holding Company and such subsidiaries and related
companies could be affected by defense and settlement costs and any unexpected
material adverse outcomes in such litigations as well as in other material
litigations pending against them. 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 and securities
regulators, could result in adverse publicity, sanctions and fines. In the last
year, Equitable Life, EQAT, Premier Trust, VIP Trust, AXA Advisors, AXA
Distributors and other AXA Financial subsidiaries have received various requests
for information and documents from the SEC, the NASD and state insurance and
securities regulators. The requests have sought information relating to, among
other things, supervisory issues, market timing, late trading, valuation,
suitability, replacements and exchanges of variable life insurance and
annuities, collusive bidding practices, investment company "revenue sharing"
arrangements, advisory operations, directed brokerage arrangements, fund
portfolio brokerage commissions, mutual fund sales and marketing, "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, the 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 and herein.
Future Accounting Pronouncements. In the future, new accounting pronouncements,
as well as new interpretations of accounting pronouncements, may have material
effects on the Company's consolidated statements of earnings and shareholder's
equity. See Note 2 of Notes to Consolidated Financial Statements in the 2003
Form 10-K for pronouncements issued but not effective at December 31, 2003 as
well as Note 4 of Notes to Consolidated Financial Statements contained herein.
Regulation. The businesses conducted by the Holding Company's subsidiaries,
including Equitable Life, 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 the Insurance Group are subject to the
supervision of the insurance regulators of each of the 50 states, the District
of Columbia and Puerto Rico. See "Business - Regulation" contained in the 2003
Form 10-K.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H to 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 the 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 the period covered by this report that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Management has reported to the Audit Committee that, based on a review of
certain of Equitable Life's life reinsurance assumed agreements, the reserves
for an experience refund provision under one life reinsurance assumed agreement
have been increased in third quarter of 2004 by approximately $40.5 million.
Management has reviewed Equitable Life's material existing life reinsurance
assumed agreements to confirm that all experience refund provisions have been
identified and is reviewing all of its life reinsurance assumed agreements to
confirm all other material terms and obligations. In addition, management is
enhancing existing analytical procedures relating to performance trends with
respect to Equitable Life's life reinsurance assumed agreements.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 12 of Notes to Consolidated Financial Statements contained herein.
Except as disclosed in Note 12 of Notes to Consolidated Financial Statements,
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 and Method of Filing
- ------ ------------------------------------------------------------------------
3.1 Restated Charter of Registrant, as amended September 7, 2004
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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, AXA
Equitable Life Insurance Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 12, 2004 AXA EQUITABLE LIFE INSURANCE COMPANY
By: /s/ Stanley B. Tulin
---------------------------------------
Name: Stanley B. Tulin
Title: Vice Chairman of the Board and
Chief Financial Officer
Date: November 12, 2004 /s/ Alvin H. Fenichel
---------------------------------------
Name: Alvin H. Fenichel
Title: Senior Vice President and
Controller
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