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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
COMMISSION FILE NUMBERS 33-26322; 33-46827; 33-52254; 33-60290;
33-58303; 333-33863; 333-34192
MERRILL LYNCH LIFE INSURANCE COMPANY
(Exact name of Registrant as specified in its charter)
ARKANSAS 91-1325756
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7 ROSZEL ROAD
PRINCETON, NJ 08540-6205
(Address of Principal Executive Offices)
(609) 627-3950
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON 250,000
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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PART I Financial Information
Item 1. Financial Statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Dollars in thousands) (Unaudited)
================================================================================
September 30, December 31,
ASSETS 2002 2001
- ------
-------------------- --------------------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 2002 - $1,953,952 ; 2001 - $2,009,129) $ 1,973,887 $ 2,007,123
Equity securities, at estimated fair value
(cost: 2002 - $130,022 ; 2001 - $167,959) 123,497 163,701
Trading account securities, at estimated fair value 20,918 23,636
Real estate held-for-sale 19,447 19,447
Limited partnerships, at cost 12,150 11,270
Policy loans on insurance contracts 1,159,679 1,194,478
-------------------- --------------------
Total Investments 3,309,578 3,419,655
CASH AND CASH EQUIVALENTS 186,696 130,429
ACCRUED INVESTMENT INCOME 68,233 69,884
DEFERRED POLICY ACQUISITION COSTS 448,492 470,938
FEDERAL INCOME TAXES - CURRENT 51,786 -
REINSURANCE RECEIVABLES 5,989 9,428
RECEIVABLES FROM SECURITIES SOLD 6,636 2,317
OTHER ASSETS 34,956 41,912
SEPARATE ACCOUNTS ASSETS 8,811,080 11,305,453
-------------------- --------------------
TOTAL ASSETS $ 12,923,446 $ 15,450,016
==================== ====================
See accompanying notes to financial statements. (Continued)
1
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
(Continued) (Dollars in thousands, except common stock par value and shares)
(Unaudited)
================================================================================
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2002 2001
- ------------------------------------
--------------------- --------------------
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,150,452 $ 3,255,791
Claims and claims settlement expenses 96,663 95,020
--------------------- --------------------
Total policyholder liabilities and accruals 3,247,115 3,350,811
OTHER POLICYHOLDER FUNDS 7,136 14,239
LIABILITY FOR GUARANTY FUND ASSESSMENTS 7,237 8,449
FEDERAL INCOME TAXES - DEFERRED 75,023 13,931
FEDERAL INCOME TAXES - CURRENT - 5,522
PAYABLES FOR SECURITIES PURCHASED 30,828 29,795
AFFILIATED PAYABLES - NET 12,190 3,736
UNEARNED POLICY CHARGE REVENUE 118,845 113,676
OTHER LIABILITIES 7,326 7,594
SEPARATE ACCOUNTS LIABILITIES 8,803,733 11,298,821
--------------------- --------------------
Total Liabilities 12,309,433 14,846,574
--------------------- --------------------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares; issued and
outstanding: 250,000 shares) 2,500 2,500
Additional paid-in capital 347,324 347,324
Retained earnings 290,320 273,046
Accumulated other comprehensive loss (26,131) (19,428)
--------------------- --------------------
Total Stockholder's Equity 614,013 603,442
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,923,446 $ 15,450,016
===================== ====================
See accompanying notes to financial statements.
2
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in thousands) (Unaudited)
================================================================================
Three Months Ended
September 30,
----------------------------------------------
2002 2001
--------------------- ---------------------
REVENUES:
Policy charge revenue $ 56,070 $ 62,446
Net investment income 52,565 55,334
Net realized investment losses (11,464) (1,525)
--------------------- ---------------------
Total Revenues 97,171 116,255
--------------------- ---------------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 34,788 38,570
Market value adjustment expense 1,172 598
Policy benefits (net of reinsurance recoveries: 2002 - $1,977;
2001 - $2,960) 15,954 10,204
Reinsurance premium ceded 6,192 5,930
Amortization of deferred policy acquisition costs 13,039 15,623
Insurance expenses and taxes 12,014 20,119
--------------------- ---------------------
Total Benefits and Expenses 83,159 91,044
--------------------- ---------------------
Earnings Before Federal Income Tax Provision 14,012 25,211
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (53,686) (2,118)
Deferred 56,405 10,941
--------------------- ---------------------
Total Federal Income Tax Provision 2,719 8,823
--------------------- ---------------------
NET EARNINGS $ 11,293 $ 16,388
===================== =====================
See accompanying notes to financial statements.
3
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
(Dollars in thousands) (Unaudited)
================================================================================
Nine Months Ended
September 30,
----------------------------------------------
2002 2001
--------------------- ---------------------
REVENUES:
Policy charge revenue $ 177,540 $ 192,666
Net investment income 158,365 167,927
Net realized investment losses (17,595) (2,152)
--------------------- ---------------------
Total Revenues 318,310 358,441
--------------------- ---------------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 106,599 116,185
Market value adjustment expense 2,339 1,555
Policy benefits (net of reinsurance recoveries: 2002 - $10,741;
2001 - $11,298) 39,117 26,247
Reinsurance premium ceded 18,218 18,538
Amortization of deferred policy acquisition costs 45,170 48,608
Insurance expenses and taxes 36,117 51,082
--------------------- ---------------------
Total Benefits and Expenses 247,560 262,215
--------------------- ---------------------
Earnings Before Federal Income Tax Provision 70,750 96,226
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current (42,124) 18,361
Deferred 64,701 14,050
--------------------- ---------------------
Total Federal Income Tax Provision 22,577 32,411
--------------------- ---------------------
NET EARNINGS $ 48,173 $ 63,815
===================== =====================
See accompanying notes to financial statements.
4
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands) (Unaudited)
================================================================================
Three Months Ended
September 30,
---------------------------------------------
2002 2001
-------------------- --------------------
NET EARNINGS $ 11,293 $ 16,388
OTHER COMPREHENSIVE INCOME:
Net unrealized gains on available-for-sale securities:
Net unrealized holding gains arising during the period 12,994 38,702
Reclassification adjustment for losses included in net earnings 10,423 1,453
-------------------- --------------------
Net unrealized gains on investment securities 23,417 40,155
Adjustments for:
Policyholder liabilities (15,837) (20,513)
Deferred policy acquisition costs (4,260) (8,755)
Deferred federal income taxes (1,162) (3,810)
-------------------- --------------------
Total other comprehensive income, net of taxes 2,158 7,077
-------------------- --------------------
COMPREHENSIVE INCOME $ 13,451 $ 23,465
==================== ====================
See accompanying notes to financial statements.
5
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands) (Unaudited)
================================================================================
Nine Months Ended
September 30,
---------------------------------------------
2002 2001
-------------------- --------------------
NET EARNINGS $ 48,173 $ 63,815
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains on available-for-sale securities:
Net unrealized holding gains arising during the period 1,499 74,678
Reclassification adjustment for losses included in net earnings 16,346 1,957
-------------------- --------------------
Net unrealized gains on investment securities 17,845 76,635
Adjustments for:
Policyholder liabilities (26,097) (29,370)
Deferred policy acquisition costs (2,060) (21,265)
Deferred federal income taxes 3,609 (9,100)
-------------------- --------------------
Total other comprehensive income (loss), net of taxes (6,703) 16,900
-------------------- --------------------
COMPREHENSIVE INCOME $ 41,470 $ 80,715
==================== ====================
See accompanying notes to financial statements.
6
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands) (Unaudited)
================================================================================
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings loss equity
------------ ---------------- -------------- ----------------- -----------------
BALANCE, JANUARY 1, 2001 $ 2,500 $ 347,324 $ 194,808 $ (32,349) $ 512,283
Net earnings 78,238 78,238
Other comprehensive income, net of tax 12,921 12,921
------------ ---------------- -------------- ----------------- -----------------
BALANCE, DECEMBER 31, 2001 2,500 347,324 273,046 (19,428) 603,442
Cash dividend paid to parent (30,899) (30,899)
Net earnings 48,173 48,173
Other comprehensive loss, net of tax (6,703) (6,703)
------------ ---------------- -------------- ----------------- -----------------
BALANCE, SEPTEMBER 30, 2002 $ 2,500 $ 347,324 $ 290,320 $ (26,131) $ 614,013
============ ================ ============== ================= =================
See accompanying notes to financial statements.
7
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
================================================================================
Nine Months Ended
September 30,
-----------------------------------------
2002 2001
------------------ ------------------
Cash Flows From Operating Activities:
Net earnings $ 48,173 $ 63,815
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 45,170 48,608
Capitalization of policy acquisition costs (24,784) (46,078)
Amortization (accretion) of investments 1,222 (1,046)
Interest credited to policyholders' account balances 106,599 116,185
Provision for deferred Federal income tax 64,701 14,050
(Increase) decrease in operating assets:
Accrued investment income 1,651 (17)
Federal income taxes - current (51,786) -
Reinsurance receivables 3,439 (1,592)
Affiliated receivables - (1,270)
Other 6,956 593
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 1,643 15,365
Other policyholder funds (7,103) (3,367)
Liability for guaranty fund assessments (1,212) (244)
Affiliated payables 8,454 -
Federal income taxes - current (5,522) (4,251)
Unearned policy charge revenue 5,169 10,253
Other (268) (20,996)
Other operating activities:
Net realized investment losses 17,595 2,152
------------------ ------------------
Net cash and cash equivalents provided by operating activities 220,097 192,610
------------------ ------------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 298,974 162,219
Maturities of available-for-sale securities 255,794 283,982
Purchases of available-for-sale securities (480,668) (257,238)
Trading account securities (408) 384
Sales of limited partnerships - 819
Purchases of limited partnerships (880) (1,000)
Policy loans on insurance contracts 34,799 (5,547)
Recapture of investments in separate accounts 1,041 -
Investment in separate accounts (3,548) (1,001)
------------------ ------------------
Net cash and cash equivalents provided by investing activities $ 105,104 $ 182,618
------------------ ------------------
See accompanying notes to financial statements. (Continued)
8
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in thousands) (Unaudited)
================================================================================
Nine Months Ended
September 30,
-----------------------------------------
2002 2001
------------------ -------------------
Cash Flows From Financing Activities:
Proceeds from (payments for):
Dividend paid to parent $ (30,899) $ -
Policyholder deposits (excludes internal policy replacement deposits) 441,825 862,222
Policyholder withdrawals (including transfers to / from separate accounts) (679,860) (1,112,792)
------------------ -------------------
Net cash and cash equivalents used by financing activities (268,934) (250,570)
------------------ -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 56,267 124,208
CASH AND CASH EQUIVALENTS:
Beginning of year 130,429 92,730
------------------ -------------------
End of period $ 186,696 $ 216,938
================== ===================
Supplementary Disclosure of Cash Flow Information:
Cash paid for:
Federal income taxes $ 15,184 $ 22,612
Intercompany interest 47 653
See accompanying notes to financial statements.
9
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 1. BASIS OF PRESENTATION
Merrill Lynch Life Insurance Company (the "Company") is a wholly owned
subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). The Company is an
indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch &
Co."). The Company sells non-participating life insurance and annuity products,
including variable life insurance, variable annuities, modified guaranteed
annuities, and immediate annuities. The Company is domiciled in the State of
Arkansas.
The interim financial statements for the three and nine month periods are
unaudited. In the opinion of management, these unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the financial position and the results of operations
in accordance with accounting principles generally accepted in the United States
of America. These unaudited financial statements should be read in conjunction
with the audited financial statements included in the Company's Annual Report on
Form 10-K ("2001 10K") for the year ended December 31, 2001. The nature of the
Company's business is such that the results of any interim period are not
necessarily indicative of results for a full year. Certain reclassifications
have also been made to prior period financial statements, where appropriate, to
conform to the current period presentation.
NOTE 2. STOCKHOLDER'S EQUITY AND STATUTORY ACCOUNTING PRACTICES
During the first nine months of 2002, the Company paid an ordinary cash dividend
of $30,899 to MLIG. The Company paid no cash dividends in 2001.
The Company's statutory financial statements are presented on the basis of
accounting practices prescribed or permitted by the Insurance Department of the
State of Arkansas. The State of Arkansas has adopted the National Association of
Insurance Commissioners' statutory accounting practices as the basis of its
statutory accounting practices.
Statutory capital and surplus at September 30, 2002 and December 31, 2001 were
$258,678 and $311,490, respectively. For the nine month periods ended September
30, 2002 and 2001, statutory net losses were $15,725 and $14,182, respectively.
NOTE 3. INVESTMENTS
The Company's investments in fixed maturity and equity securities are classified
as either available-for-sale or trading and are recorded at estimated fair
value. Unrealized gains and losses on available-for-sale securities are included
in stockholder's equity as a component of accumulated other comprehensive loss,
net of tax. Unrealized gains and losses on trading account securities are
included in net realized investment gains (losses). If management determines
that a decline in the value of a security is other-than-temporary, the carrying
value is adjusted to estimated fair value and the decline in value is recorded
as a net realized investment loss.
The Company has recorded certain adjustments to deferred policy acquisition
costs and policyholders' account balances in connection with unrealized holding
gains or losses on investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized holdings gains or
losses had actually been realized, with corresponding credits or charges
reported in accumulated other comprehensive loss, net of taxes. The components
of net unrealized gains (losses) included in accumulated other comprehensive
loss were as follows:
10
September 30, December 31,
2002 2001
-------------------- -------------------
Assets:
Fixed maturity securities $ 19,935 $ (2,006)
Equity securities (6,525) (4,258)
Deferred policy acquisition costs 1,646 3,706
Separate Accounts assets (3,322) (1,493)
-------------------- -------------------
11,734 (4,051)
-------------------- -------------------
Liabilities:
Policyholders' account balances 51,935 25,838
Federal income taxes - deferred (14,070) (10,461)
-------------------- -------------------
37,865 15,377
-------------------- -------------------
Stockholder's equity:
Accumulated other comprehensive loss $ (26,131) $ (19,428)
==================== ===================
Net realized investment gains (losses), including other-than-temporary
writedowns in carrying value, for the three and nine months ended September 30
were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
2002 2001 2002 2001
----------------- ---------------- ---------------- -----------------
Available-for-sale securities $ (9,251) $ 982 $ (14,506) $ 1,243
Trading account securities:
Net realized investment losses (1,485) (907) (1,366) (1,478)
Net unrealized holding losses (728) (1,600) (1,760) (1,917)
Investment in Separate Accounts - - 37 -
----------------- ---------------- ---------------- -----------------
Total net realized investment losses $ (11,464) $ (1,525) $ (17,595) $ (2,152)
================= ================ ================ =================
NOTE 4. SEGMENT INFORMATION
In reporting to management, the Company's operating results are categorized into
two business segments: Life Insurance and Annuities. The Company's Life
Insurance segment consists of variable life insurance products and
interest-sensitive life insurance products. The Company's Annuity segment
consists of variable annuities and interest sensitive annuities. The accounting
policies of the business segments are the same as those for the Company's
financial statements included herein. All revenue and expense transactions are
recorded at the product level and accumulated at the business segment level for
review by management. The "Other" category, presented in the following segment
financial information, represents net revenues and net earnings on assets that
do not support life or annuity contract owner liabilities.
The following table summarizes each business segment's contribution to
consolidated net revenues and net earnings for the three and nine month periods
ended September 30:
11
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
2002 2001 2002 2001
------------------ ------------------ ------------------ ------------------
NET REVENUES (a):
Annuities $ 36,745 $ 45,730 $ 123,854 $ 138,219
Life Insurance 27,749 31,324 90,053 101,793
Other (2,111) 631 (2,196) 2,244
------------------ ------------------ ------------------ ------------------
Total Net Revenues $ 62,383 $ 77,685 $ 211,711 $ 242,256
================== ================== ================== ==================
NET EARNINGS:
Annuities $ 5,667 $ 9,931 $ 25,333 $ 39,312
Life Insurance 6,998 6,046 24,267 23,044
Other (1,372) 411 (1,427) 1,459
------------------ ------------------ ------------------ ------------------
Total Net Earnings $ 11,293 $ 16,388 $ 48,173 $ 63,815
================== ================== ================== ==================
(a) Net revenues include investment income net of interest credited to
policyholders' account balances.
NOTE 5. SUBSEQUENT EVENTS
Management finalized their periodic review of the amortization of deferred
policy acquisition costs and accretion of unearned policy charge revenue during
the fourth quarter of 2002. This resulted in a reduction in the carrying values
of the related asset and liability of $23 million and $4 million, respectively.
12
ITEM 2 MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
This Management's Narrative Analysis of the Results of Operations addresses
changes in revenues and expenses for the three and nine month periods ended
September 30, 2002 and 2001. This discussion should be read in conjunction with
the accompanying unaudited financial statements and notes thereto, in addition
to the 2001 Audited Financial Statements and Notes to Financial Statements and
the Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 2001 10K.
In addition to providing historical information, the Company may make or publish
forward-looking statements about management expectations, strategic objectives,
business prospects, anticipated financial performance, and other similar
matters. A variety of factors, many of which are beyond the Company's control,
affect the operations, performance, business strategy, financial condition, and
results of the Company and could cause actual results and experience to differ
materially from the expectations expressed in these statements. These factors
include, but are not limited to, the factors listed in the Economic Environment
section below, as well as actions and initiatives taken by both current and
potential competitors and the effect of current, pending, and future legislation
and regulation. THE COMPANY UNDERTAKES NO RESPONSIBILITY TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS.
BUSINESS OVERVIEW
The Company's gross earnings are principally derived from two sources:
- - the charges imposed on variable life insurance and variable annuity
contracts, and
- - the net earnings from investment of fixed rate life insurance and annuity
contract owner deposits less interest credited to contract owners, commonly
known as interest spread
The costs associated with acquiring contract owner deposits (deferred policy
acquisition costs) are amortized over the period in which the Company
anticipates holding those funds. Deferred policy acquisition costs are
principally commissions and a portion of certain other expenses relating to
policy acquisition, underwriting and issuance that are primarily related to and
vary with the production of new business. Insurance expenses and taxes reported
in the statements of earnings are net of amounts deferred. In addition, the
Company incurs expenses associated with the maintenance of inforce contracts.
ECONOMIC ENVIRONMENT
The Company's financial position and/or results of operations are primarily
impacted by the following economic factors: equity market performance,
fluctuations in medium term interest rates, and the corporate credit environment
via credit quality and fluctuations in credit spreads. The following discusses
the impact of each economic factor.
Equity Market Performance
Changes in the U.S. equity market directly affect the values of the underlying
U.S. equity-based mutual funds supporting separate accounts assets and, as such,
the values of variable contract owner account balances. Since asset-based fees
collected on in force variable contracts represents a significant source of
revenue, the Company's earnings will be impacted by fluctuations in investment
performance of separate accounts assets. Fluctuations in the U.S. equity market
also directly impacts the Company's exposure to guaranteed minimum death benefit
("GMDB") provisions. Negative investment performance generally results in
greater exposure to GMDB provisions, as there is an increase in the number of
variable contracts (and amount per contract) in which the GMDB exceeds the
variable account balance. Prolonged periods of negative investment performance
may result in greater GMDB claims. GMDB claims are recorded as a component of
policy benefits.
Additionally, the Company is impacted by the U.S. equity markets through its
trading account investments. The Company's trading account is invested in
convertible debt and convertible preferred stocks. The valuations of these types
of securities are impacted by changes in value of the underlying equity
security. The trading account is carried at market value with changes in market
value included in earnings as a component of net realized investment losses.
There are several standard indices published on a daily basis that measure
performance of selected components of the U.S. equity market. Examples include
the Dow Jones Industrial Average ("Dow"), NASDAQ Composite Index ("NASDAQ") and
the Standard & Poor's 500 Composite Stock Price Index ("S&P Index"). The
following table provides the decrease for each equity market index for the
current three and nine month periods ended September 30, 2002 and 2001,
respectively:
13
2002 2001
---------------------------------------- ---------------------------------------
Third Quarter Nine Months Third Quarter Nine Months
2002 2002 2001 2001
------------------- ---------------- ------------------ ----------------
Dow -17.9 % -24.2 % -15.8 % -18.0 %
NASDAQ -19.9 % -39.9 % -30.7 % -39.3 %
S&P Index -17.6 % -29.0 % -15.0 % -21.2 %
The investment performance in the underlying U.S. equity-based mutual funds
supporting the Company's variable products do not replicate the returns on any
specific U.S. equity market index. However, investment performance will
generally increase or decrease with corresponding increases or decreases in the
overall U.S. equity market.
Medium Term Interest Rates
Changes in interest rates affect the value of investments, primarily fixed
maturity securities and preferred equity securities, as well as interest
sensitive liabilities. Changes in interest rates have an inverse relationship to
the value of investments and interest sensitive liabilities.
The Company defines medium term interest rates as the average interest rate on
U.S. Treasury securities with terms of 1 to 10 years. During the current three
and nine month periods ended September 30, 2002, medium term interest rates
decreased approximately 82 basis points and 118 basis points, respectively, to
yield, on average, for the current nine month period 2.48%. During the three and
nine month periods ended September 30, 2001, medium term interest rates
decreased approximately 112 basis points and 170 basis points, respectively, to
yield, on average, for the nine month period 3.44%.
Corporate Credit
Changes in the corporate credit environment directly impact the value of the
Company's investments, primarily fixed maturity securities. The Company
primarily invests in investment-grade corporate debt to support its fixed rate
product liabilities. During 2002, corporate debt defaults increased
significantly as a result of continuing weakness in the economy, as well as
several large high-profile defaults. The Company holds corporate debt of certain
of these companies and has adjusted its carrying value in these investments to
reflect amounts anticipated to ultimately be recovered. The decrease in book
value is recorded as a component of net realized investment losses.
Credit spreads represent the credit risk premiums required by market
participants for a given credit quality, e.g. the additional yield that a debt
instrument issued by a AA-rated entity must produce over a risk-free alternative
(for example, U.S. Treasury instruments). The Company defines credit spreads
according to the Merrill Lynch U.S. Corporate Bond Index for BBB-A Rated bonds
with three to five year maturities. During the current three and nine month
periods ended September 30, 2002, credit spreads widened approximately 59 basis
points and 73 basis points, respectively, and ended the current nine month
period at 251 basis points. During the three and nine month periods ended
September 30, 2001, credit spreads widened approximately 35 basis points and
contracted approximately 1 basis point, respectively, and ended the nine month
period at 186 basis points. Widening credit spreads have a negative impact on
the value of investments.
14
NEW BUSINESS
Life insurance and annuity premiums decreased $205.3 million (or 64%) to $117.7
million and $490.6 million (or 51%) to $473.7 million during the current three
and nine month periods ended September 30, 2002, respectively, as compared to
the same periods in 2001. Life insurance and annuity premiums by type of product
were as follows:
($ In Millions) % Change
----------------------------------------- ---------------------------------------
Third Quarter Nine Months Third Quarter Nine Months
2002 2002 2002-2001 2002-2001
------------------ ------------------ ------------------ -----------------
Variable Annuities:
B-Share $ 41.9 $ 178.8 -70 % -55 %
C-Share 48.9 151.3 -68 -68
L-Share (a) 10.4 58.7 100 100
------------------ ------------------ ------------------ -----------------
101.2 388.8 -66 -55
------------------ ------------------ ------------------ -----------------
Variable Life Insurance 12.0 38.0 -32 -39
Modified Guaranteed Annuities 3.2 39.2 -62 71
Other 1.3 7.7 -54 -3
------------------ ------------------ ------------------ -----------------
Total Direct Premiums $ 117.7 $ 473.7 -64 % -51 %
================== ================== ================== =================
(a) The Company's L-Share variable annuity product was introduced in the
fourth quarter 2001.
During the current three and nine month periods, variable annuity premiums
decreased $192.9 million (or 66%) to $101.2 million and $482.1 million (or 55%)
to $388.8 million, respectively, as compared to the same periods in 2001.
Management attributes the decrease in variable annuity premiums to increasing
customer demand for annuity products that offer guarantee provisions, such as
fixed rate products, variable products with fixed account options, variable
products with guaranteed minimum income benefits, or variable products with
guaranteed minimum account values. With the exception of the Company's modified
guaranteed annuity product, which offers a fixed interest crediting rate, the
Company currently does not offer these types of guarantees in its products.
During the first nine months of 2002, sales of non-proprietary products with
these types of guarantee features have been strong within the Merrill Lynch &
Co. distribution system. The Company is currently developing a guaranteed
minimum income benefit provision for placement in certain of its existing
variable annuity products and anticipates offering these features during the
fourth quarter of 2002.
During the third quarter 2002, the Company introduced a new C-Share variable
annuity product. This product differs from the Company's existing C-Share
product by offering different investment advisors and a fee structure that
varies with asset size. Sales of the new variable annuity product were $25.0
million during the current three month period ended September 30, 2002.
Management believes that the increasing demand for annuity products with
guarantee provisions has been fueled by the increasing volatility and general
negative performance of the equity markets that has occurred over the past two
years. As such, future variable annuity sales could be negatively impacted if
this trend continues.
During the current three and nine month periods, variable life insurance
premiums decreased $5.7 million (or 32%) to $12.0 million and $24.6 million (or
39%) to $38.0 million, respectively, as compared to the same periods in 2001.
The decreases in variable life insurance premiums are primarily due to the
Company discontinuing the manufacturing and marketing of its estate planning
life insurance products during the third quarter 2001. The Company continues to
issue a single premium variable life insurance product that was introduced in
2001.
During the current three and nine month periods, modified guaranteed annuity
premiums decreased $5.2 million (or 62%) to $3.2 million and increased $16.3
million (or 71%) to $39.2 million, respectively, as compared to the same periods
in 2001. The increase during the first nine months of 2002 is primarily due to
increasing demand for products with guarantee features, as noted above.
15
FINANCIAL CONDITION
At September 30, 2002, the Company's assets were $12.9 billion, or $2.6 billion
lower than the $15.5 billion in assets at December 31, 2001 primarily due to a
decrease in separate accounts assets. Separate accounts assets decreased $2.5
billion (or 22%) to $8.8 billion primarily due to unfavorable investment
performance and an increase in net cash outflow. Changes in separate accounts
assets for the first three quarters of 2002 were as follows:
(In Millions) 1Q02 2Q02 3Q02 Total
---------------- --------------- --------------- -----------------
Investment performance - variable products $ 81.0 $ (874.8) $ (1,137.9) $ (1,931.7)
Net cash outflow - variable products (129.7) (210.7) (223.0) (563.4)
Net change in seed money (1.0) (0.8) 2.5 0.7
---------------- --------------- --------------- -----------------
$ (49.7) $ (1,086.3) $ (1,358.4) $ (2,494.4)
================ =============== =============== =================
The continuing decline in overall credit quality among corporate bonds has
placed added pressure on the Company's fixed income portfolio. As of September
30, 2002 and December 31, 2001, approximately $99.9 million (or 5%) and $83.4
million (or 4%), respectively, of the Company's fixed maturity securities were
considered non-investment grade. The Company defines non-investment grade as
unsecured debt obligations that do not have a rating equivalent to Standard and
Poor's BBB- or higher (or similar rating agency). Non-investment grade
securities are speculative and are subject to significantly greater risks
related to the creditworthiness of the issuers and the liquidity of the market
for such securities. Current non-investment grade holdings are the result of
ratings downgrades on the Company's portfolio as the Company does not purchase
non-investment grade securities. Also, as of September 30, 2002, approximately
$228.4 million (or 12%) of the Company's fixed maturity securities were rated
BBB-, which is the lowest investment grade rating given by Standard and Poor's,
compared to $262.7 million (or 13%) of the Company's fixed maturity securities
as of December 31, 2001. The Company closely monitors such investments.
The Company has exposure to selected emerging markets that include securities
issued by sovereigns or corporations of Asia (excluding Japan), Latin America,
and Mexico. At September 30, 2002, the Company held $54.1 million in emerging
market securities with an approximate unrealized loss of $11.8 million.
During the first nine months of 2002, the Company experienced contract owner
withdrawals that exceeded deposits by $656.9 million. The components of contract
owner transactions were as follows:
September 30,
(In Millions) 2002
-------------------
Premiums collected $ 473.7
Internal tax-free exchanges (31.9)
-------------------
Net contract owner deposits 441.8
Contract owner withdrawals 679.9
Net transfers to/from separate accounts 418.8
-------------------
Net contract owner withdrawals 1,098.7
-------------------
Net contract owner activity $ (656.9)
===================
LIQUIDITY
To fund all business activities, the Company maintains a high quality and liquid
investment portfolio. As of September 30, 2002, the Company's assets included
$2.1 billion of cash, short-term investments and investment grade publicly
traded available-for-sale securities that could be liquidated if funds were
required.
MANAGEMENT ESTIMATES
The Company amortizes deferred policy acquisition costs based on the expected
future gross profits for each group of contracts. In estimating future gross
profits, management makes assumptions regarding such factors as policy charge
revenue, investment performance, policy lapse rates, mortality, and expenses for
the expected life of each group of contracts. Actual gross profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these
16
estimates and evaluates the recoverability of deferred policy acquisition costs.
The impact of revisions to estimates on cumulative amortization is recorded as a
charge or credit to current operations.
RESULTS OF OPERATIONS
For the three month periods ended September 30, 2002 and 2001, the Company
reported net earnings of $11.3 million and $16.4 million, respectively. For the
nine month periods ended September 30, 2002 and 2001, the Company reported net
earnings of $48.2 million and $63.8 million, respectively.
Policy charge revenue decreased $6.4 million (or 10%) and $15.1 million (or 8%)
during the current three and nine month periods ended September 30, 2002,
respectively, as compared to the same periods in 2001. The decreases in policy
charge revenue are primarily attributable to the decrease in average variable
account balances. Average variable account balances decreased $1,856.0 million
(or 17%) and $1,308.4 million (or 11%) during the current three and nine month
periods as compared to the same periods in 2001. During the same periods, asset
based policy charges decreased $5.3 million (or 13%) and $11.4 million (or 9%).
Asset based policy charges were favorably impacted by increases in rates charged
to unaffiliated fund investment managers for administrative services. In
addition, non-asset based policy charge revenue decreased $1.1 million (or 5%)
and $3.7 million (or 5%) during the current three and nine month periods ended
September 30, 2002, respectively, as compared to the same periods in 2001. The
decreases in non-asset based policy charge revenue are primarily due to
decreases in cost of insurance charges and deferred policy load amortization.
Net earnings derived from interest spread increased $1.0 million (or 6%) during
the current three month period ended September 30, 2002, respectively, as
compared to the same period in 2001. The current three month period was
favorably impacted by a $0.5 million increase in real estate income. During the
current nine month period, interest spread was relatively flat as compared to
the same period in 2001.
Net realized investment losses increased $9.9 million and $15.4 million during
the current three and nine month periods ended September 30, 2002, respectively,
as compared to the same periods in 2001. The declining credit quality among
fixed income securities has resulted in increased credit related losses during
the current three and nine month periods. The following table provides the
changes in net realized investment gains (losses) by type for each respective
period:
Three Months Nine Months
Realized Gain (Loss) 2002 - 2001 2002 - 2001
------------------------------------------------------ ------------------ ------------------
($ in Millions)
Trading account gains 0.3 0.3 (1)
Interest related gains $ 0.1 $ 0.3
Credit related losses (10.3) (16.0) (2)
------------------ ------------------
$ (9.9) $ (15.4)
================== ==================
(1) The trading account is comprised of convertible debt and convertible
preferred equity securities. The valuations of these securities will
generally fluctuate in a direct relationship to changes in the
valuations of the underlying common equity.
(2) Credit related losses include book value writedowns and asset sales of
several large security holdings. Book value writedowns on investments in
fixed income securities were $11.9 million during the first nine months
of 2002.
The market value adjustment expense is attributable to the Company's modified
guaranteed annuity products. This contract provision results in a market value
adjustment to the cash surrender value of those contracts that are surrendered
before the expiration of their interest rate guarantee period. During the
current three and nine periods ended September 30, 2002, the market value
adjustment expense increased $0.6 million (or 96%) and $0.8 million (or 50%) as
compared to the same periods in 2001. The increases are primarily due to the
lower interest rate environment during 2002 as compared to 2001. The market
value adjustment expense has an inverse relationship to changes in interest
rates.
Policy benefits increased $5.8 million (or 56%) and $12.9 million (or 49%)
during the current three and nine month periods ended September 30, 2002,
respectively, as compared to the same periods in 2001. The increases in policy
benefits are primarily due to increased variable annuity death benefit expense
incurred under guaranteed minimum death benefit provisions.
17
Amortization of deferred policy acquisition costs decreased $2.6 million (or
17%) and $3.4 million (or 7%) during the current three and nine month periods
ended September 30, 2002, as compared to the same periods in 2001. The decreases
in amortization of deferred policy acquisition costs are primarily due to the
decrease in policy charge revenue during 2002.
Insurance expenses and taxes decreased $8.1 million (or 40%) and $15.0 million
(or 29%) during the current three and nine month periods ended September 30,
2002, as compared to the same periods in 2001. The following table provides the
changes in insurance expenses and taxes by type for each respective period:
Three Months Nine Months
Insurance expenses and taxes - net of capitalization 2002 - 2001 2002 - 2001
--------------------------------------------------------------- ------------------ ------------------
($ in Millions)
Asset-based commissions $ (0.8) $ (1.6) (1)
General insurance expenses (7.7) (11.0) (2)
Taxes, licenses, and fees 0.4 (2.4) (3)
------------------ ------------------
$ (8.1) $ (15.0)
================== ==================
(1) Reflects the decrease in average variable account balances during 2002.
(2) Cost savings primarily resulting from the Company's consolidation of its
life and annuity policy administration service centers. The
consolidation was completed during the third quarter 2001, with the
majority of the consolidation expenses reported in the third quarter
2001.
(3) Net refunds from guaranty fund associations received during the first
quarter 2002 were $1.1 million. Also, during the second quarter 2001,
the Company paid a $1.1 million IRS remediation settlement.
The Company's effective federal income tax rate was 19% and 32% during the
current three and nine month periods ended September 30, 2002 as compared to 35%
and 34%, respectively, during the equivalent periods in 2001. The changes in the
effective federal income tax rate during the respective periods are primarily
due to certain permanent adjustments recorded in the third quarter 2002. During
the current three and nine month periods ended September 30, 2002, the Company's
current and deferred tax components have been significantly impacted by
fluctuations in tax reserves for guaranteed minimum death benefits. The reserve
fluctuations have resulted in an increased current tax benefit and an increased
deferred tax expense during the current three and nine month periods as compared
to the same periods in 2001.
SEGMENT INFORMATION
The products that comprise the Life Insurance and Annuity segments generally
possess similar economic characteristics. As such, the financial condition and
results of operations of each business segment are generally consistent with the
Company's consolidated financial condition and results of operations presented
herein.
The decrease in "Other" net revenues and "Other" net earnings during the current
three and nine month periods ended September 30, 2002 is primarily due to an
increase in realized losses incurred during 2002.
18
ITEM 4. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of a date within 90 days of the filing
of this Form 10-Q, that its disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II Other Information
Item 1. Legal Proceedings.
Nothing to report.
Item 5. Other Information.
Nothing to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.1 Merrill Lynch Life Insurance Company Board of Directors
Resolution in Connection with the Merger between Merrill Lynch
Life Insurance Company and Tandem Insurance Group, Inc.
(Incorporated by reference to Exhibit 2.1, filed September 5,
1991, as part of Post-Effective Amendment No. 4 to the
Registrant's registration statement on Form S-1, File No.
33-26322.)
2.2 Plan and Agreement of Merger between Merrill Lynch Life
Insurance Company and Tandem Insurance Group, Inc. (Incorporated
by reference to Exhibit 2.1a, filed September 5, 1991, as part
of Post-Effective Amendment No. 4 to the Registrant's
registration statement on Form S-1, File No. 33-26322.)
3.1 Articles of Amendment, Restatement and Redomestication of the
Articles of Incorporation of Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 6(a) to
Post-Effective Amendment No. 10 to Merrill Lynch Life Variable
Annuity Separate Account A's registration statement on Form N-4,
File No. 33-43773, filed December 10, 1996.)
3.2 Amended and Restated By-Laws of Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 6(b) to
Post-Effective Amendment No. 10 to Merrill Lynch Life Variable
Annuity Separate Account A's registration statement on Form N-4,
File No. 33-43773, filed December 10, 1996.)
4.1 Group Modified Guaranteed Annuity Contract, ML-AY-361.
(Incorporated by reference to Exhibit 4.1, filed February 23,
1989, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No.
33-26322.)
4.2 Individual Certificate, ML-AY-362. (Incorporated by reference to
Exhibit 4.2, filed February 23, 1989, as part of Pre-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2a Individual Certificate, ML-AY-362 KS. (Incorporated by reference
to Exhibit 4.2a, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2b Individual Certificate, ML-AY-378. (Incorporated by reference to
Exhibit 4.2b, filed March 9, 1990, as part of Post-Effective
Amendment No. 1 to the Registrant's registration statement on
Form S-1, File No. 33-26322.)
4.2c Modified Guaranteed Annuity Contract. (Incorporated by reference
to Exhibit 4(a), filed August 18, 1997, as part of the
Registrant's registration statement on Form S-3, File No.
333-33863.)
4.3 Individual Tax-Sheltered Annuity Certificate, ML-AY-372. (Incorporated
by reference to Exhibit 4.3, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's registration statement
on Form S-1, File No. 33-26322.)
4.3a Individual Tax-Sheltered Annuity Certificate, ML-AY-372 KS.
(Incorporated by reference to Exhibit 4.3a, filed March 9, 1990, as part
of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.4 Qualified Retirement Plan Certificate, ML-AY-373. (Incorporated by
reference to Exhibit 4.4 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.4a Qualified Retirement Plan Certificate, ML-AY-373 KS. (Incorporated by
reference to Exhibit 4.4a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5 Individual Retirement Annuity Certificate, ML-AY-374. (Incorporated by
reference to Exhibit 4.5 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.5a Individual Retirement Annuity Certificate, ML-AY-374 KS. (Incorporated
by reference to Exhibit 4.5a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5b Individual Retirement Annuity Certificate, ML-AY-375 KS. (Incorporated
by reference to Exhibit 4.5b, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.5c Individual Retirement Annuity Certificate, ML-AY-379. (Incorporated by
reference to Exhibit 4.5c, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.6 Individual Retirement Account Certificate, ML-AY-375. (Incorporated by
reference to Exhibit 4.6, filed February 23, 1989, as part of
Pre-Effective Amendment No. 1 to the Registrant's registration statement
on Form S-1, File No. 33-26322.)
4.6a Individual Retirement Account Certificate, ML-AY-380. (Incorporated by
reference to Exhibit 4.6a, filed March 9, 1990, as part of
Post-Effective
Amendment No. 1 to the Registrant's registration statement on Form S-1,
File No. 33-26322.)
4.7 Section 457 Deferred Compensation Plan Certificate, ML-AY-376.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.7a Section 457 Deferred Compensation Plan Certificate, ML-AY-376 KS.
(Incorporated by reference to Exhibit 4.7a, filed March 9, 1990, as part
of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.8 Tax-Sheltered Annuity Endorsement, ML-AY-366. (Incorporated by reference
to Exhibit 4.8 to the Registrant's registration statement on Form S-1,
File No. 33- 26322, filed January 3, 1989.)
4.8a Tax-Sheltered Annuity Endorsement, ML-AY-366 190. (Incorporated by
reference to Exhibit 4.8a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.8b Tax-Sheltered Annuity Endorsement, ML-AY-366 1096. (Incorporated by
reference to Exhibit 4(h)(3), filed March 27, 1997, as part of
Post-Effective Amendment No. 2 to the Registrant's registration
statement on Form S-1, File No. 33-58303.)
4.9 Qualified Retirement Plan Endorsement, ML-AY-364. (Incorporated by
reference to Exhibit 4.9 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.10 Individual Retirement Annuity Endorsement, ML-AY-368. (Incorporated by
reference to Exhibit 4.10 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.10a Individual Retirement Annuity Endorsement, ML-AY-368 190. (Incorporated
by reference to Exhibit 4.10a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.10b Individual Retirement Annuity Endorsement, ML009. (Incorporated by
reference to Exhibit 4(j)(3) to Post-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No. 33-60290,
filed March 31, 1994.)
4.10c Individual Retirement Annuity Endorsement. (Incorporated by reference to
Exhibit 4(b) to Pre-Effective Amendment No. 1 to the Registrant's
registration statement on Form S-3, File No. 333-33863, filed October
31, 1997.)
4.11 Individual Retirement Account Endorsement, ML-AY-365. (Incorporated by
reference to Exhibit 4.11 to the Registrant's registration statement on
Form S-1, File No. 33-26322, filed January 3, 1989.)
4.11a Individual Retirement Account Endorsement, ML- AY-365 190. (Incorporated
by reference to Exhibit 4.11a, filed March 9, 1990, as part of
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.12 Section 457 Deferred Compensation Plan Endorsement, ML-AY-367.
(Incorporated by reference to Exhibit 4.12 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.12a Section 457 Deferred Compensation Plan Endorsement, ML-AY-367 190.
(Incorporated by reference to Exhibit 4.12a, filed March 9, 1990, as
part of Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
4.13 Qualified Plan Endorsement, ML-AY-369. (Incorporated by reference to
Exhibit 4.13 to the Registrant's registration statement on Form S-1,
File No. 33-26322, filed January 3, 1989.)
4.13a Qualified Plan Endorsement, ML-AY-448. (Incorporated by reference to
Exhibit 4.13a, filed March 9, 1990, as part of Post-Effective Amendment
No. 1 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
4.13b Qualified Plan Endorsement. (Incorporated by reference to Exhibit 4(c),
filed October 31, 1997, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-3, File No. 333-33863.)
4.14 Application for Group Modified Guaranteed Annuity Contract.
(Incorporated by reference to Exhibit 4.14 to the Registrant's
registration statement on Form S-1, File No. 33-26322, filed January 3,
1989.)
4.15 Annuity Application for Individual Certificate Under Modified Guaranteed
Annuity Contract. (Incorporated by reference to Exhibit 4.15 to the
Registrant's registration statement on Form S-1, File No. 33-26322,
filed January 3, 1989.)
4.15a Application for Modified Guaranteed Annuity Contract. (Incorporated by
reference to Exhibit 4(d), filed August 18, 1997, as part of the
Registrant's registration statement on Form S-3, File No. 333-33863.)
4.16 Form of Company Name Change Endorsement. (Incorporated by reference to
Exhibit 4.16, filed September 5, 1991, as part of Post-Effective
Amendment No. 4 to the Registrant's registration statement on Form S-1,
File No. 33-26322.)
4.17 Group Modified Guaranteed Annuity Contract, ML-AY-361/94. (Incorporated
by reference to Exhibit 4(a)(2), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.18 Individual Certificate, ML-AY-362/94. (Incorporated by reference to
Exhibit 4(b)(4), filed December 7, 1994, as part of Post-Effective
Amendment No. 3 to the Registrant's registration statement on Form S-1,
File No. 33-60290.)
4.19 Individual Tax-Sheltered Annuity Certificate, ML-AY-372/94.
(Incorporated by reference to Exhibit 4(c)(3), filed December 7, 1994,
as part of Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60290.)
4.20 Qualified Retirement Plan Certificate, ML-AY-373/94. (Incorporated by
reference to Exhibit 4(d)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.21 Individual Retirement Annuity Certificate, ML-AY-374/94. (Incorporated
by reference to Exhibit 4(e)(5), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.22 Individual Retirement Account Certificate, ML-AY-375/94. (Incorporated
by reference to Exhibit 4(f)(3), filed December 7, 1994, as part of
Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-60290.)
4.23 Section 457 Deferred Compensation Plan Certificate, ML-AY-376/94.
(Incorporated by reference to Exhibit 4(g)(3), filed December 7, 1994,
as part of Post-Effective Amendment No. 3 to the Registrant's
registration statement on Form S-1, File No. 33-60290.)
4.24 Qualified Plan Endorsement, ML-AY-448/94. (Incorporated by reference to
Exhibit 4(m)(3), filed December 7, 1994, as part of Post-Effective
Amendment No. 3 to the Registrant's registration statement on Form S-1,
File No. 33-60290.)
10.1 Management Services Agreement between Family Life Insurance Company and
Merrill Lynch Life Insurance Company. (Incorporated by reference to
Exhibit 10.1 to the Registrant's registration statement on Form S-1,
File No. 33-26322, filed January 3, 1989.)
10.2 General Agency Agreement between Merrill Lynch Life Insurance Company
and Merrill Lynch Life Agency, Inc. (Incorporated by reference to
Exhibit 10.2, filed
February 23, 1989, as part of Pre-Effective Amendment No. 1 to the
Registrant's registration statement on Form S-1, File No. 33-26322.)
10.3 Service Agreement among Merrill Lynch Insurance Group, Inc., Family Life
Insurance Company and Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 10.3, filed March 13, 1991, as
part of Post-Effective Amendment No. 2 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
10.3a Amendment to Service Agreement among Merrill Lynch Insurance Group,
Inc., Family Life Insurance Company and Merrill Lynch Life Insurance
Company. (Incorporated by reference to Exhibit 10(c)(2) to
Post-Effective Amendment No. 1 to the Registrant's registration
statement on Form S-1, File No. 33-60290, filed March 31, 1994.)
10.4 Indemnity Reinsurance Agreement between Merrill Lynch Life Insurance
Company and Family Life Insurance Company. (Incorporated by reference to
Exhibit 10.4, filed March 13, 1991, as part of Post-Effective Amendment
No. 2 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
10.5 Assumption Reinsurance Agreement between Merrill Lynch Life Insurance
Company, Tandem Insurance Group, Inc. and Royal Tandem Life Insurance
Company and Family Life Insurance Company. (Incorporated by reference to
Exhibit 10.6, filed April 24, 1991, as part of Post-Effective Amendment
No. 3 to the Registrant's registration statement on Form S-1, File No.
33-26322.)
10.6 Amended General Agency Agreement between Merrill Lynch Life Insurance
Company and Merrill Lynch Life Agency, Inc. (Incorporated by reference
to Exhibit 10(g) to the Registrant's registration statement on Form S-1,
File No. 33-46827, filed March 30, 1992.)
10.7 Indemnity Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Life Agency, Inc. (Incorporated by reference to Exhibit
10(h) to the Registrant's registration statement on Form S-1, File No.
33-46827, filed March 30, 1992.)
10.8 Management Agreement between Merrill Lynch Life Insurance Company and
Merrill Lynch Asset Management, Inc. (Incorporated by reference to
Exhibit 10(i) to the Registrant's registration statement on Form S-1,
File No. 33-46827, filed March 30, 1992.)
10.9 Amendment No. 1 to Indemnity Reinsurance Agreement between Family Life
Insurance Company and Merrill Lynch Life Insurance Company.
(Incorporated by reference to Exhibit 10.5, filed April 24, 1991, as
part of Post-Effective Amendment No. 3 to the Registrant's registration
statement on Form S-1, File No. 33-26322.)
99.1 Certification by the Chief Executive Officer of the Registrant
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by the Chief Financial Officer of the Registrant
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERRILL LYNCH LIFE INSURANCE COMPANY
/s/ MATTHEW J. RIDER
-----------------------------------------
Matthew J. Rider
Senior Vice President, Treasurer and
Chief Financial Officer
Date: November 12, 2002
Certification of Chief Executive Officer
I, Nikos Kardassis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Merrill Lynch Life
Insurance Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Nikos Kardassis
-------------------------------------
Nikos Kardassis
President and Chief Executive Officer
Dated: November 12, 2002
Certification of Chief Financial Officer
I, Matthew Rider, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Merrill Lynch Life
Insurance Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Matthew Rider
-----------------------------
Matthew Rider
Senior Vice President and
Chief Financial Officer
Dated: November 12, 2002
EXHIBIT INDEX
99.1 Certification by the Chief Executive Officer of the Registrant pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification by the Chief Financial Officer of the Registrant pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.