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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 MARCH 31, 2003
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.)
1300 Merrill Lynch Drive, 2nd Floor
Pennington, NJ 08534
(Address of Principal Executive Offices)
(609) 274-6900
(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 __
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
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)
================================================================================
March 31, December 31,
ASSETS 2003 2002
- ------ ---------------- ----------------
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 2003 - $2,034,568; 2002 - $1,844,077) $ 2,057,179 $ 1,856,732
Equity securities, at estimated fair value
(cost: 2003 - $125,629; 2002 - $112,903) 123,420 105,430
Trading account securities, at estimated fair value 22,121 21,949
Limited partnerships, at cost 12,150 12,150
Policy loans on insurance contracts 1,125,323 1,143,663
---------------- ----------------
Total Investments 3,340,193 3,139,924
CASH AND CASH EQUIVALENTS 157,531 312,217
ACCRUED INVESTMENT INCOME 61,074 63,603
DEFERRED POLICY ACQUISITION COSTS 397,811 404,220
FEDERAL INCOME TAXES - CURRENT 31,767 39,905
REINSURANCE RECEIVABLES 8,233 8,197
AFFILIATED RECEIVABLES - NET 1,327 3,040
RECEIVABLES FROM SECURITIES SOLD 5,725 10,072
OTHER ASSETS 35,902 37,399
SEPARATE ACCOUNTS ASSETS 8,808,251 9,079,285
---------------- ----------------
TOTAL ASSETS $ 12,847,814 $ 13,097,862
================ ================
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)
================================================================================
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 2003 2002
- ------------------------------------ ----------------- -----------------
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,016,671 $ 3,084,042
Claims and claims settlement expenses 97,208 98,526
----------------- -----------------
Total policyholder liabilities and accruals 3,113,879 3,182,568
OTHER POLICYHOLDER FUNDS 13,413 11,815
LIABILITY FOR GUARANTY FUND ASSESSMENTS 7,221 7,221
FEDERAL INCOME TAXES - DEFERRED 72,014 67,304
PAYABLES FOR SECURITIES PURCHASED 22,647 19,635
UNEARNED POLICY CHARGE REVENUE 113,911 113,774
OTHER LIABILITIES 12,044 6,033
SEPARATE ACCOUNTS LIABILITIES 8,801,918 9,072,606
----------------- -----------------
Total Liabilities 12,157,047 12,480,956
----------------- -----------------
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 397,324 347,324
Retained earnings 299,786 290,092
Accumulated other comprehensive loss (8,843) (23,010)
----------------- -----------------
Total Stockholder's Equity 690,767 616,906
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 12,847,814 $ 13,097,862
================= =================
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
March 31,
-------------------------------------
2003 2002
----------------- ----------------
REVENUES:
Policy charge revenue $ 51,817 $ 60,708
Net investment income 44,455 53,375
Net realized investment gains 2,038 2,921
----------------- ----------------
Total Revenues 98,310 117,004
----------------- ----------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 33,197 35,944
Market value adjustment expense 1,497 656
Policy benefits (net of reinsurance recoveries: 2003 - $5,353;
2002 - $4,709) 19,605 10,623
Reinsurance premium ceded 5,635 5,946
Amortization of deferred policy acquisition costs 12,497 15,592
Insurance expenses and taxes 10,965 11,546
----------------- ----------------
Total Benefits and Expenses 83,396 80,307
----------------- ----------------
Earnings Before Federal Income Tax Provision 14,914 36,697
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 8,138 12,662
Deferred (2,918) 182
----------------- ----------------
Total Federal Income Tax Provision 5,220 12,844
----------------- ----------------
NET EARNINGS $ 9,694 $ 23,853
================= ================
See accompanying notes to financial statements.
3
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
March 31,
-------------------------------------
2003 2002
----------------- ----------------
NET EARNINGS $ 9,694 $ 23,853
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during the period 17,229 (23,926)
Reclassification adjustment for gains included in net earnings (2,152) (2,962)
----------------- ----------------
Net unrealized gains (losses) on investment securities 15,077 (26,888)
Adjustments for:
Policyholder liabilities 8,929 8,555
Deferred policy acquisition costs (2,211) 7,496
Deferred federal income taxes (7,628) 3,793
----------------- ----------------
Total other comprehensive income (loss), net of taxes 14,167 (7,044)
----------------- ----------------
COMPREHENSIVE INCOME $ 23,861 $ 16,809
================= ================
See accompanying notes to financial statements.
4
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, 2002 $ 2,500 $ 347,324 $ 273,046 $ (19,428) $ 603,442
Cash dividend paid to parent (30,899) (30,899)
Net earnings 47,945 47,945
Other comprehensive loss, net of tax (3,582) (3,582)
---------- ------------- ------------ -------------- -------------
BALANCE, DECEMBER 31, 2002 2,500 347,324 290,092 (23,010) 616,906
Capital contribution from parent 50,000 50,000
Net earnings 9,694 9,694
Other comprehensive income, net of tax 14,167 14,167
---------- ------------- ------------ -------------- -------------
BALANCE, MARCH 31, 2003 $ 2,500 $ 397,324 $ 299,786 $ (8,843) $ 690,767
========== ============= ============ ============== =============
See accompanying notes to financial statements.
5
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
================================================================================
Three Months Ended
March 31,
----------------------------------
2003 2002
--------------- ---------------
Cash Flows From Operating Activities:
Net earnings $ 9,694 $ 23,853
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 12,497 15,592
Capitalization of policy acquisition costs (8,299) (10,304)
Amortization of investments 1,892 294
Interest credited to policyholders' account balances 33,197 35,944
Provision (benefit) for deferred Federal income tax (2,918) 182
(Increase) decrease in operating assets:
Accrued investment income 2,529 2,111
Federal income taxes - current 8,138 -
Affiliated receivables 1,713 -
Reinsurance receivables (36) (2,339)
Other 1,497 7,143
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses (1,318) 4,060
Other policyholder funds 1,598 (2,046)
Liability for guaranty fund assessments - (1,027)
Federal income taxes - current - 10,140
Affiliated payables - (382)
Unearned policy charge revenue 137 1,913
Other 6,011 (1,153)
Other operating activities:
Net realized investment gains (2,038) (2,921)
--------------- ---------------
Net cash and cash equivalents provided by operating activities 64,294 81,060
--------------- ---------------
Cash Flows From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 68,047 53,955
Maturities of available-for-sale securities 214,081 85,448
Purchases of available-for-sale securities (477,725) (205,129)
Trading account securities (276) (274)
Purchases of limited partnerships - (200)
Policy loans on insurance contracts 18,340 12,545
Recapture of investments in separate accounts 192 1,041
Investment in separate accounts - 2
--------------- ---------------
Net cash and cash equivalents used by investing activities $ (177,341) $ (52,612)
--------------- ---------------
See accompanying notes to financial statements. (Continued)
6
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
(Continued) (Dollars in thousands) (Unaudited)
================================================================================
Three Months Ended
March 31,
---------------------------------
2003 2002
--------------- --------------
Cash Flows From Financing Activities:
Proceeds from (payments for):
Capital contribution from parent $ 50,000 $ -
Policyholder deposits (excludes internal policy replacement deposits) 187,939 184,787
Policyholder withdrawals (including transfers to / from separate accounts) (279,578) (267,127)
--------------- --------------
Net cash and cash equivalents used by financing activities (41,639) (82,340)
--------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (154,686) (53,892)
CASH AND CASH EQUIVALENTS:
Beginning of year 312,217 130,429
--------------- --------------
End of period $ 157,531 $ 76,537
=============== ==============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ - $ 2,522
Intercompany interest 97 22
See accompanying notes to financial statements.
7
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 annuity products, including variable
annuities, modified guaranteed annuities, and immediate annuities. The Company
is domiciled in the State of Arkansas.
The interim financial statements for the three 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 ("2002 10K") for the year ended December 31, 2002. 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.
NOTE 2. STOCKHOLDER'S EQUITY AND STATUTORY ACCOUNTING PRACTICES
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 March 31, 2003 and December 31, 2002 were
$200,657 and $136,823, respectively. For the three month periods ended March 31,
2003 and 2002, statutory net income was $14,419 and $30,740, respectively.
During 2002, the Company established $144,000 in statutory reserves to support
its cashflow testing analysis required by state insurance regulation. As a
result, statutory capital and surplus was significantly reduced from December
2001, but remained in excess of regulatory capital requirements. However, due to
the inherent volatility in statutory earnings, the Company received a $50,000
capital contribution from MLIG on March 3, 2003.
NOTE 3. INVESTMENTS
The Company's investments in fixed maturity and equity securities are classified
as either available-for-sale or trading and are carried 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:
8
March 31, December 31,
2003 2002
---------------- ----------------
Assets:
Fixed maturity securities $ 22,611 $ 12,655
Equity securities (2,209) (7,473)
Deferred policy acquisition costs 1,504 3,715
Separate Accounts assets (3,387) (3,244)
---------------- ----------------
18,519 5,653
---------------- ----------------
Liabilities:
Policyholders' account balances 32,123 41,052
Federal income taxes - deferred (4,761) (12,389)
---------------- ----------------
27,362 28,663
---------------- ----------------
Stockholder's equity:
Accumulated other comprehensive loss $ (8,843) $ (23,010)
================ ================
Net realized investment gains (losses), including other-than-temporary
writedowns in carrying value, for the three months ended March 31 were as
follows:
March 31, March 31,
2003 2002
---------------- ----------------
Available-for-sale securities $ 2,153 $ 3,003
Trading account securities:
Net realized investment gains (losses) (94) 130
Net unrealized holding losses (10) (249)
Investment in Separate Accounts (11) 37
---------------- ----------------
Total net realized investment gains $ 2,038 $ 2,921
================ ================
NOTE 4. ACCOUNTING PRONOUNCEMENTS
On July 31, 2002, the American Institute of Certified Public Accountants issued
Proposed Statement of Position ("SOP") "Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate
Accounts." The proposed SOP provides guidance on accounting and reporting by
insurance companies for certain nontraditional long-duration contracts and for
separate accounts. A final SOP would be effective for financial statements for
the Company beginning in 2004. The SOP would require the establishment of a
liability for contracts that contain death or other insurance benefits using a
specified reserve methodology that is different from the methodology the Company
currently employs. Depending on market conditions at the time of adoption the
impact of implementing this reserve methodology may have a material effect on
earnings in the year of adoption.
NOTE 5. SEGMENT INFORMATION
In reporting to management, the Company's operating results are categorized into
two business segments: Annuities and Life Insurance. The Company's Annuity
segment consists of variable annuities and interest sensitive annuities. The
Company's Life Insurance segment consists of variable life insurance products
and interest-sensitive life insurance products. 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 annuity or life insurance contract owner liabilities.
The following table summarizes each business segment's contribution to
consolidated net revenues and net earnings for the three month periods ended
March 31:
9
Three Months Ended
March 31,
-------------------------------
2003 2002
--------------- ---------------
NET REVENUES (a):
Annuities $ 37,152 $ 47,387
Life Insurance 28,579 31,851
Other (618) 1,822
--------------- ---------------
Total Net Revenues $ 65,113 $ 81,060
=============== ===============
NET EARNINGS:
Annuities $ 2,840 $ 13,015
Life Insurance 7,252 9,654
Other (398) 1,184
--------------- ---------------
Total Net Earnings $ 9,694 $ 23,853
=============== ===============
(a) Net revenues include investment income net of interest credited to
policyholders' account balances.
10
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 month periods ended March 31,
2003 and 2002. This discussion should be read in conjunction with the
accompanying unaudited financial statements and notes thereto, in addition to
the audited 2002 Financial Statements and Notes to Financial Statements and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 2002 10K.
Certain statements contained in this Report may be considered forward-looking,
including statements about management expectations, strategic objectives,
business prospects, anticipated financial performance, and other similar
matters. These forward-looking statements are not statements of historical fact
and represent only management's beliefs regarding future events, which are
inherently uncertain. There are a variety of factors, many of which are beyond
the Company's control, which affect its operations, performance, business
strategy, financial condition, and results and could cause its actual results
and experience to differ materially from the expectations and objectives
expressed in any forward-looking statements. These factors include, but are not
limited to, the factors listed in the Economic Environment section listed below,
as well as actions and initiatives taken by both current and potential
competitors, the effect of current, pending, and future legislation and
regulation, and the other risks and uncertainties detailed in the Company's
Financial Statements and Notes to Financial Statements. Accordingly, readers are
cautioned not to place undue reliance on forward-looking statements, which speak
only as of the dates on which they are made. The Company does not undertake to
update or revise forward-looking statements to reflect the impact of
circumstances or events that arise after the dates the forward-looking
statements are made. The reader should, however, consult any further disclosures
the Company may make in its Quarterly Reports on Form 10-Q.
DISCONTINUANCE OF VARIABLE LIFE INSURANCE
During the first quarter 2003, the Company discontinued manufacturing its single
premium variable life insurance product. As a result, the Company currently does
not manufacture, market, or sell life insurance products. However, the Company
remains committed to servicing all life insurance contracts inforce.
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 inforce variable contracts represent 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 impact the Company's exposure to guaranteed minimum death benefit
("GMDB") provisions contained in the variable annuities it manufactures.
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.
11
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 increase (decrease) in performance for each equity
market index for the three month periods ended March 31, 2003 and 2002,
respectively:
First Quarter First Quarter
2003 2002
--------------- ---------------
Dow -4.2 % 3.8 %
NASDAQ 0.4 % -5.4 %
S&P Index -3.6 % -0.1 %
The investment performance of the underlying U.S. equity-based mutual funds
supporting the Company's variable products do not replicate the returns of any
specific U.S. equity market index. However, investment performance of the
underlying U.S. equity-based mutual funds will generally increase or decrease
with corresponding increases or decreases of 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. Also, since the
Company has certain fixed products that contain guaranteed minimum crediting
rates, decreases in interest rates can decrease the amount of interest spread
earned by the Company.
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
month period ended March 31, 2003, medium term interest rates decreased
approximately 11 basis points, to yield, on average, 2.43%. During the three
month period ended March 31, 2002, medium term interest rates increased
approximately 44 basis points, to yield, on average, 4.09%.
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.
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 month period ended
March 31, 2003, credit spreads contracted approximately 48 basis points and
ended the period at 150 basis points. During the three month period ended March
31, 2002, credit spreads widened approximately 1 basis point and ended the
period at 179 basis points. Contracting credit spreads increase the value of
investments.
12
NEW BUSINESS
Annuity and life insurance premiums decreased $3.0 million (or 2%) to $194.4
million during the first three months of 2003 as compared to the same period in
2002. Annuity and life insurance premiums by type of product were as follows:
($ In Millions) Change
--------------------------------- -----------------------------
First Quarter First Quarter
2003 2002 $ %
-------------- --------------- ------------ -----------
Variable Annuities:
B-Share $ 140.7 $ 73.9 $ 66.8 90%
C-Share 33.7 61.4 -27.7 -45%
L-Share 3.8 31.8 -28.0 -88%
-------------- --------------- ------------ -----------
178.2 167.1 11.1 7%
-------------- --------------- ------------ -----------
Variable Life Insurance 10.5 14.6 -4.1 -28%
Modified Guaranteed Annuities 2.4 11.9 -9.5 -80%
Other 3.3 3.8 -0.5 -13%
-------------- --------------- ------------ -----------
Total Direct Premiums $ 194.4 $ 197.4 $ -3.0 -2%
============== =============== ============ ===========
During the first three months of 2003, variable annuity premiums increased $11.1
million (or 7%) as compared to the same period in 2002. Management attributes
the increase in variable annuity premiums to the introduction of a new B-Share
variable annuity product. The new B-share variable annuity product, which was
introduced during the fourth quarter 2002, is designed for the qualified market
and includes a guaranteed minimum income benefit provision. There is increasing
customer demand for annuity products that offer various types of 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. The Company previously did not
offer products that were competitive in the qualified market. Sales of the new
B-Share variable annuity product were $89.0 million during the first three
months of 2003.
Management believes that the increasing volatility and general negative
performance in the equity markets, occurring over the past three years, has lead
to increasing demand for annuity products with guarantee provisions. As such,
future variable annuity sales for products without these guarantees will
continue to be negatively impacted if this trend continues. Conversely,
management believes that a stabilizing equity market may shift future variable
annuity sales away from products with guarantees.
Modified guaranteed annuity premiums decreased $9.5 million (or 80%) primarily
due to the lower interest rate environment during the first three months of 2003
as compared to 2002.
FINANCIAL CONDITION
At March 31, 2003, the Company's assets were $12.8 billion, or $250.0 million
lower than the $13.1 billion at December 31, 2002 primarily due to a decrease in
separate accounts assets. Separate accounts assets decreased $271.0 million (or
3%) 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 months of 2003 were as follows:
First Quarter
2003
-------------
(In Millions)
Investment performance - variable products $ (171.0)
Net cash outflow - variable products (99.7)
Net decrease in seed money (0.3)
-------------
$ (271.0)
=============
Assets excluding separate accounts assets were favorably impacted by the $50.0
million capital contribution received from MLIG on March 3, 2003.
13
At March 31, 2003 and December 31, 2002, approximately $111.1 million (or 5%)
and $114.7 million (or 6%), respectively, of the Company's fixed maturity
securities were considered non-investment grade. The Company defines
non-investment grade securities 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, at March 31,
2003, approximately $210.9 million (or 10%) 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 $233.6 million (or 13%) of the Company's fixed
maturity securities at December 31, 2002. The Company closely monitors such
investments.
During the first three months of 2003, the Company experienced contract owner
withdrawals that exceeded deposits by $163.1 million. The components of contract
owner transactions were as follows:
March 31,
2003
-------------
(In Millions)
Premiums collected $ 194.4
Internal tax-free exchanges (6.5)
-------------
Net contract owner deposits 187.9
Contract owner withdrawals 279.6
Net transfers (to)/from separate accounts 71.4
-------------
Net contract owner withdrawals 351.0
-------------
Net contract owner activity $ (163.1)
=============
LIQUIDITY
To fund all business activities, the Company maintains a high quality and liquid
investment portfolio. As of March 31, 2003, the Company's assets included $2.2
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 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 March 31, 2003 and 2002, the Company reported
net earnings of $9.7 million and $23.9 million, respectively.
Policy charge revenue decreased $8.9 million (or 15%) during the first three
months of 2003 as compared to the same period in 2002. The decrease in policy
charge revenue is primarily attributable to the decrease in average variable
account balances. During the first three months of 2003, average variable
account balances decreased $2.2 billion (or 20%) as compared to the same period
in 2002. During the same comparative period, asset-based policy charge revenue
decreased $6.3 million (or 17%). In addition, non-asset based policy charge
revenue decreased $2.6 million (or 11%) during the first three months of 2003 as
compared to the same period in 2002. The decrease in non-asset based policy
charge revenue is primarily due to a decrease in cost of insurance charges.
Net earnings derived from interest spread decreased $6.2 million (or 35%) during
the first three months of 2003 as compared to the same period in 2002. The
decrease in interest spread is primarily due to the reduction in fixed rate
contracts inforce, as well as, reductions in invested asset yields resulting
from the lower interest rate environment during the first three months of 2003
as
14
compared to the same period in 2002. In addition, interest spread was negatively
impacted by a $1.3 million decrease in real estate income. The Company sold its
remaining real estate holding during the fourth quarter 2002.
Net realized investment gains decreased $0.9 million during the first three
months of 2003 as compared to the same period in 2002. The following table
provides the changes in net realized investment gains (losses) by type for each
respective period:
Realized Gain (Loss) 1Q 2003 1Q 2002 Change
---------------------------- ----------- ------------- ------------
(In Millions)
Interest related gains $ 2.1 $ 0.6 $ 1.5 (1)
Credit related gains - 2.4 -2.4 (2)
Trading account losses (0.1) (0.1) - (3)
----------- ------------- ------------
$ 2.0 $ 2.9 $ -0.9
=========== ============= ============
(1) The increase in interest related gains is primarily attributable to
increases in invested asset market valuations resulting from the
lower interest rate environment during the first three months of
2003 as compared to the same period in 2002.
(2) Credit related gains included asset sales of several large security
holdings.
(3) 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.
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 first
three months of 2003, the market value adjustment expense increased $0.8 million
(or 128%) as compared to the same period in 2002. The increase is primarily due
to the lower interest rate environment during the first three months of 2003 as
compared to the same period in 2002. The market value adjustment expense has an
inverse relationship to changes in interest rates.
Policy benefits increased $9.0 million (or 85%) during the first three months of
2003 as compared to the same period in 2002. The increase in policy benefits is
primarily due to increased variable annuity death benefit expense incurred under
guaranteed minimum death benefit provisions.
Reinsurance premium ceded decreased $0.3 million (or 5%) during the first three
months of 2003 as compared to the same period in 2002. The decrease in
reinsurance premium ceded is attributable to a decrease in life insurance
inforce.
Amortization of deferred policy acquisition costs decreased $3.1 million (or
20%) during the first three months of 2003 as compared to the same period in
2002. The decrease in amortization of deferred policy acquisition costs is
primarily due to the decrease in policy charge revenue.
Insurance expenses and taxes decreased $0.6 million (or 5%) during the first
three months of 2003 as compared to the same period in 2002. During the first
three months of 2003, insurance expenses decreased $1.3 million primarily due to
a decrease in system and technology expenses related to new product development,
as well as a decrease in corporate overhead allocations. Partially offsetting
this decrease was an increase of $1.1 million in insurance taxes. This increase
is due to net refunds received from guaranty fund associations during the first
quarter 2002. There were no guaranty fund association refunds received during
the first quarter 2003.
SEGMENT INFORMATION
The products that comprise the Annuity and Life Insurance 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.
15
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.
16
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/ Joseph E. Justice
-----------------------------------------
Joseph E. Justice
Senior Vice President, Treasurer and
Chief Financial Officer
Date: May 12, 2003
Certification of Chief Executive Officer
I, Nikos K. 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 K. Kardassis
-------------------------------------
Nikos K. Kardassis
President and Chief Executive Officer
Dated: May 14, 2003
Certification of Chief Financial Officer
I, Joseph E. Justice, 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/ Joseph E. Justice
-----------------------------
Joseph E. Justice
Senior Vice President and
Chief Financial Officer
Dated: May 14, 2003
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.