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EX-32.1 - AXA EQUITABLE LIFE INSURANCE COe10945_ex32-1.txt
EX-32.2 - AXA EQUITABLE LIFE INSURANCE COe10945_ex32-2.txt
EX-31.1 - AXA EQUITABLE LIFE INSURANCE COe10945_ex31-1.txt
EX-31.2 - AXA EQUITABLE LIFE INSURANCE COe10945_ex31-2.txt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended    September 30, 2009

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

Commission File No. 0-25280

AXA Equitable Life Insurance Company
(Exact name of registrant as specified in its charter)


New York
13-5570651
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes    x  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
Yes   x
No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o
       
Accelerated filer  o
Non-accelerated filer  x  (Do not check if a smaller reporting company.)
 
Smaller reporting company  o

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

As of November 9, 2009, 2,000,000 shares of the registrant’s Common Stock were outstanding.


REDUCED DISCLOSURE FORMAT:

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


Page 1 of 57
 
 

 

AXA EQUITABLE LIFE INSURANCE COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS




   
Page

PART I
FINANCIAL INFORMATION
 

Item 1:
Consolidated Financial Statements
 
  ·   
Consolidated Balance Sheets, September 30, 2009 and December 31, 2008
4
  ·   
Consolidated Statements of Earnings, Three Months and Nine Months Ended
 
        September 30, 2009 and 2008 5
  ·   
Consolidated Statements of  Equity, Nine Months Ended September 30, 2009 and 2008
6
  ·   
Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2009 and 2008
7
  ·   
Notes to Consolidated Financial Statements
9
     
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
          (“Management Narrative”)
46
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk*
54
     
Item 4(T):
Controls and Procedures   
54
     
     
PART II
OTHER INFORMATION
 
     
Item 1:
Legal Proceedings    
55
     
Item 1A:
Risk Factors   
55
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds* 
55
     
Item 3:
Defaults Upon Senior Securities*
55
     
Item 4:
Submission of Matters to a Vote of Security Holders*
55
     
Item 5:
Other Information  
55
     
Item 6:
Exhibits  
56
     
SIGNATURES
 
57
     
     

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


 
2

 

 
FORWARD-LOOKING STATEMENTS
 

Some of the statements made in this report, including statements made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” and elsewhere, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include, among other things, discussions concerning potential exposure of AXA Equitable Life Insurance Company and its subsidiaries to market risks and the impact of new accounting pronouncements, as well as statements expressing management’s expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by words such as “believes,” “estimates,” “intends,” “anticipates,” “plans,” “expects,” “projects,” “should,” “probably,” “risk,” “target,” “goals,” “objectives,” or similar expressions.  AXA Equitable Life Insurance Company assumes no duty to update any forward-looking statement.  Forward-looking statements are based on management’s expectations and beliefs concerning future developments and their potential effects and are subject to risks and uncertainties.  Forward-looking statements are not a guarantee of future performance.  Actual results could differ materially from those anticipated by forward-looking statements due to a number of important factors, including those discussed under “Risk Factors” in Part I, Item 1A of AXA Equitable Life Insurance Company’s Annual Report on Form 10-K for the year ended December 31, 2008, Part II, Item 1A in this Form 10-Q and elsewhere in this report.
 
 
 
 
 

 
 
3

 

PART I  FINANCIAL INFORMATION
Item 1:  Consolidated Financial Statements.

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
             
   
September 30,
2009
   
December 31,
2008
 
   
(In Millions)
 
ASSETS
           
Investments:
           
Fixed maturities available for sale, at fair value     
  $ 27,213.1     $ 23,831.0  
Mortgage loans on real estate              
    3,606.6       3,673.9  
Equity real estate, held for the production of income      
    6.3       56.3  
Policy loans                                 
    3,610.8       3,700.3  
Other equity investments         
    1,506.7       1,646.8  
Trading securities                      
    524.2       322.7  
Other invested assets                                                                                          
    1,369.4       1,501.4  
Total investments                                                                                     
    37,837.1       34,732.4  
Cash and cash equivalents                                                                                            
    2,081.5       2,403.2  
Cash and securities segregated, at fair value  
    1,274.3       2,572.6  
Broker-dealer related receivables   
    1,192.2       1,020.4  
Deferred policy acquisition costs       
    7,690.9       7,482.0  
Goodwill and other intangible assets, net       
    3,683.6       3,702.4  
Amounts due from reinsurers        
    2,974.2       2,897.2  
Loans to affiliates                      
    900.0       588.3  
Other assets                   
    8,882.2       13,240.8  
Separate Accounts’ assets       
    81,516.2       67,627.0  
Total Assets                                                                                            
  $ 148,032.2     $ 136,266.3  
                 
LIABILITIES
               
Policyholders’ account balances             
  $ 24,241.2     $ 24,742.5  
Future policy benefits and other policyholders liabilities       
    17,200.9       17,733.1  
Broker-dealer related payables            
    533.9       485.5  
Customers related payables                
    1,617.7       2,753.1  
Amounts due to reinsurers          
    112.2       64.2  
Short-term and long-term debt      
    1,577.0       484.6  
Loans from affiliates                        
    -       1,325.0  
Income taxes payable                          
    3,454.0       3,794.4  
Other liabilities                                                                                            
    3,335.9       2,861.4  
Noncontrolling interest subject to redemption rights       
    -       135.0  
Separate Accounts’ liabilities         
    81,516.2       67,627.0  
Total liabilities                                           
    133,589.0       122,005.8  
                 
Commitments and contingent liabilities (Note 11)
               
                 
EQUITY
               
AXA Equitable’s equity:
               
Common stock, $1.25 par value, 2.0 million shares authorized,
               
issued and outstanding                                
    2.5       2.5  
Capital in excess of par value           
    5,626.9       5,184.1  
Retained earnings          
    6,675.3       8,412.6  
Accumulated other comprehensive loss  
    (1,077.1 )     (2,235.6 )
Total AXA Equitable’s equity   
    11,227.6       11,363.6  
Noncontrolling interest       
    3,215.6       2,896.9  
Total equity    
    14,443.2       14,260.5  
Total Liabilities and Equity   
  $ 148,032.2     $ 136,266.3  
 
 
 
See Notes to Consolidated Financial Statements.

 
4

 


AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
 
 
 
                         
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
     
2009
     
2008
     
2009
     
2008
 
   
(In Millions)
 
                         
REVENUES
                       
Universal life and investment-type
                       
product policy fee income    
  $ 748.8     $ 756.5     $ 2,159.1     $ 2,226.7  
Premiums                    
    74.7       190.7       315.5       593.7  
Net investment (loss) income:
                               
Investment (loss) income from
                               
derivative instruments
    (740.0 )     897.1       (2,493.8 )     1,458.9  
Other investment income 
    667.5       383.5       1,530.5       1,468.3  
Total net investment (loss) income 
    (72.5 )     1,280.6       (963.3 )     2,927.2  
Investment (losses) gains, net:
                               
Total other-than-temporary impairment losses
    (49.2 )     (199.7 )     (142.4 )     (260.7 )
Portion of loss recognized in other
                               
comprehensive income 
    .8       -       4.1       -  
Net impairment losses recognized
    (48.4 )     (199.7 )     (138.3 )     (260.7 )
Other investment gains (losses), net 
    22.5       (13.5 )     198.4       8.0  
Total investment (losses) gains, net
    (25.9 )     (213.2 )     60.1       (252.7 )
Commissions, fees and other income
    864.0       1,159.5       2,440.0       3,677.7  
Increase (decrease) in fair value of reinsurance contracts
    96.0       203.6       (2,039.8 )     389.0  
Total revenues                                                        
    1,685.1       3,377.7       1,971.6       9,561.6  
                                 
BENEFITS AND OTHER DEDUCTIONS
                               
Policyholders’ benefits  
    499.9       655.3       988.7       1,672.4  
Interest credited to policyholders’
                               
account balances   
    259.2       261.0       763.4       789.0  
Compensation and benefits 
    488.8       474.8       1,427.3       1,610.7  
Commissions   
    217.9       368.6       766.3       1,106.8  
Distribution plan payments  
    55.2       70.0       146.4       227.9  
Amortization of deferred sales commissions
    13.4       19.4       42.1       61.9  
Interest expense   
    26.7       10.4       80.7       36.9  
Amortization of deferred policy acquisition costs
    7.9       1,202.1       (65.7 )     1,714.1  
Capitalization of deferred policy acquisition costs
    (206.0 )     (344.4 )     (735.4 )     (1,081.6 )
Rent expense 
    67.4       62.2       192.1       182.1  
Amortization of other intangible assets  
    6.2       5.9       18.4       17.8  
Other operating costs and expenses  
    316.9       277.4       988.1       900.9  
Total benefits and other deductions
    1,753.5       3,062.7       4,612.4       7,238.9  
                                 

 
 

 
5

 


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

 

    Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2009      2008      2009      2008  
 
 
    (In Millions)  
(Loss) earnings from continuing operations before
                       
income taxes                                                            
  $ (68.4 )   $ 315.0     (2,640.8 )   $ 2,322.7  
Income tax benefit (expense)                                                              
    75.9       (96.3 )     1,079.0       (693.8 )
                                 
Earnings (loss) from continuing operations
                               
net of income taxes                                                            
    7.5       218.7       (1,561.8 )     1,628.9  
(Loss) earnings from discontinued operations,
                               
net of income taxes                                                            
    (4.5 )     5.0       4.1       16.0  
Gain on disposal of discontinued
                               
operations, net of income taxes
    -       -       -       6.3  
                                 
Net earnings (loss)                                                              
    3.0       223.7       (1,557.7 )     1,651.2  
Less: net earnings attributable to the
                               
noncontrolling interest                                                        
    (148.1 )     (127.1 )     (241.6 )     (436.6 )
                                 
Net (Loss) Earnings Attributable to AXA Equitable
  $ (145.1 )   $ 96.6     $ (1,799.3 )   $ 1,214.6  
                                 
Amounts attributable to AXA Equitable:
                               
(Loss) earnings from continuing operations,
                               
net of income taxes
  (140.6 )   $ 91.6     (1,803.4 )   $ 1,192.3  
(Loss) earnings from discontinued operations,
                               
net of income taxes
    (4.5 )     5.0       4.1       16.0  
Gain on disposal of discontinued
                               
operations, net of income taxes
    -       -       -       6.3  
                                 
Net (Loss) Earnings Attributable to AXA Equitable
  $ (145.1 )   $ 96.6     $ (1,799.3 )   $ 1,214.6  






See Notes to Consolidated Financial Statements.

 
6

 


AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)

   
2009
   
2008
 
   
(In Millions)
 
       
EQUITY
           
AXA Equitable’s Equity:
           
Common stock, at par value, beginning of year and end of period
  $ 2.5     $ 2.5  
                 
Capital in excess of par value, beginning of year 
    5,184.1       5,265.4  
Changes in capital in excess of par value 
    442.8       34.6  
Capital in excess of par value, end of period 
    5,626.9       5,300.0  
                 
Retained earnings, beginning of year 
    8,412.6       5,186.0  
Net (loss) earnings attributable to AXA Equitable
    (1,799.3 )     1,214.6  
Impact of implementing new accounting standards, net of taxes
    62.0       -  
Retained earnings, end of period
    6,675.3       6,400.6  
                 
Accumulated other comprehensive loss, beginning of year
    (2,235.6 )     (267.9 )
Impact of implementing new accounting standards, net of taxes
    (62.0 )     -  
Other comprehensive gain (loss) 
    1,220.5       (1,221.3 )
Accumulated other comprehensive loss, end of period
    (1,077.1 )     (1,489.2 )
                 
Total AXA Equitable’s equity, end of period
    11,227.6       10,213.9  
                 
Noncontrolling interest, beginning of year 
    2,896.9       2,478.9  
Net earnings attributable to noncontrolling interest 
    241.6       436.6  
Other comprehensive (loss) income attributable to noncontrolling interest
    67.8       (24.6 )
Purchase of AllianceBernstein Units by noncontrolling interest
    -       31.9  
Exercise of AllianceBernstein Put                                                                                            
    135.0       -  
Dividends paid to noncontrolling interest 
    (168.7 )     (460.7 )
Capital contributions
    19.4       12.8  
Other changes in noncontrolling interest
    23.6       27.9  
                 
Noncontrolling interest, end of period
    3,215.6       2,502.8  
                 
Total Equity, End of Period
  $ 14,443.2     $ 12,716.7  















See Notes to Consolidated Financial Statements.

 
7

 

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)

   
2009
   
2008
 
   
(In Millions)
 
             
Net (loss) earnings                                                                                            
  $ (1,557.7 )   $ 1,651.2  
Adjustments to reconcile net (loss) earnings to net cash provided
               
by operating activities:
               
Interest credited to policyholders’ account balances 
    763.4       789.0  
Universal life and investment-type product policy fee income
    (2,159.1 )     (2,226.7 )
Net change in broker-dealer and customer related receivables/payables
    (1,334.8 )     (487.1 )
Change in net investment income related to derivative instruments
    2,493.8       (1,458.9 )
Investment (gains) losses, net 
    (60.1 )     252.7  
Change in segregated cash and securities, net 
    1,298.3       10.2  
Change in deferred policy acquisition costs   
    (801.1 )     632.5  
Change in future policy benefits  
    (578.0 )     184.1  
Change in income taxes payable  
    (1,031.6 )     490.4  
Change in fair value of guaranteed minimum income
               
benefit reinsurance contracts        
    2,039.8       (388.9 )
Change in reinsurance recoverable with affiliate     
    1,485.7       -  
Equity loss (income) in other limited partnerships    
    128.6       (39.4 )
Amortization of deferred sales commissions  
    42.1       61.9  
Other depreciation and amortization   
    114.2       99.9  
Amortization of reinsurance cost    
    230.1       -  
Amortization of other intangible assets, net    
    18.4       17.8  
Other, net            
    349.9       122.9  
                 
Net cash provided by (used in) operating activities   
    1,441.9       (288.4 )
                 
Cash flows from investing activities:
               
Maturities and repayments of fixed maturities and mortgage loans on real estate
    1,490.5       1,285.1  
Sales of investments 
    4,785.2       617.4  
Sale of AXA Equitable Life and Annuity     
    -       60.8  
Purchases of investments.              
    (6,357.6 )     (1,708.6 )
Cash settlements related to derivative instruments    
    (2,161.3 )     1,659.6  
Change in short-term investments            
    226.7       12.6  
Increase in loans to affiliates                 
    (250.0 )     -  
Change in capitalized software, leasehold improvements
               
and EDP equipment                   
    (95.5 )     (109.7 )
Other, net        
    (26.8 )     74.0  
                 
Net cash (used in) provided by investing activities 
    (2,388.8 )     1,891.2  
                 

See Notes to Consolidated Financial Statements.

 
8

 

AXA EQUITABLE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 - CONTINUED
(UNAUDITED)

   
2009
   
2008
 
   
(In Millions)
 
             
             
Cash flows from financing activities:
           
Policyholders’ account balances:
           
Deposits                                                                                        
  $ 2,724.5     $ 3,189.7  
Withdrawals and transfers to Separate Accounts
    (1,872.7 )     (1,887.6 )
Net change in short-term financings                                                                                          
    (228.9 )     231.6  
Decrease in collateralized pledged liabilities
    (371.7 )     -  
Capital contribution                                                                                          
    438.9       -  
Other, net                                                                                          
    (64.9 )     (252.7 )
                 
Net cash provided by financing activities                                                                                            
    625.2       1,281.0  
                 
Change in cash and cash equivalents    
    (321.7 )     2,883.8  
Cash and cash equivalents, beginning of year  
    2,403.2       1,173.2  
                 
Cash and Cash Equivalents, End of Period   
  $ 2,081.5     $ 4,057.0  
                 
Supplemental cash flow information
               
Interest Paid                                                                                          
  $ 8.7     $ 18.1  
Income Taxes Paid                                                                                          
  $ 25.6     $ 214.7  


 
9

 

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

1)
ORGANIZATION AND BASIS OF PRESENTATION

The preparation of the accompanying unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  The accompanying unaudited interim consolidated financial statements reflect all adjustments necessary in the opinion of management for a fair statement of the consolidated financial position of AXA Equitable and its consolidated results of operations and cash flows for the periods presented.  All significant intercompany transactions and balances have been eliminated in consolidation.  These statements should be read in conjunction with the audited consolidated financial statements of AXA Equitable for the year ended December 31, 2008.  The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year. Events and transactions subsequent to the balance sheet date have been evaluated by management, for purpose of recognition or disclosure in these consolidated financial statements, through their date of issue on November 9, 2009.

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

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

On August 1, 2008, AXA Equitable sold its wholly-owned insurance subsidiary, AXA Life, to AXA Equitable Financial Services, LLC, a wholly owned subsidiary of AXA Financial, for $60.8 million in cash which approximated AXA Equitable’s investment in AXA Life.  Effective September 22, 2008, AXA Life and Annuity Company was renamed AXA Equitable Life and Annuity Company.

The terms “third quarter 2009” and “third quarter 2008” refer to the three months ended September 30, 2009 and 2008, respectively.  The terms “first nine months of 2009” and “first nine months of 2008” refer to the nine months ended September 30, 2009 and 2008, respectively.

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


2)  
ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS

FASB Accounting Standards Codification

On June 30, 2009, the FASB issued Accounting Standards Update No. (“ASU”) 2009-01 to the FASB Accounting Standards CodificationTM (“ASC” or the “Codification”) establishing the Codification as the source of authoritative principles and standards recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP.  SEC rules and interpretative releases continue to be sources of authoritative U.S. GAAP for SEC registrants.  Going forward, the FASB will issue ASUs instead of Statements, FSPs or EITF abstracts.  While not authoritative in their own right, ASUs will serve to update the Codification, provide background information about the guidance, and provide the rationale for the change(s) in the Codification.

10

The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  References to authoritative accounting guidance made in these consolidated financial statements reflect either the FASB Codification topic or sub-topic description, as appropriate.

Accounting Changes

Effective December 31, 2008, the Company adopted the new guidance for Beneficial Interests in Securitized Financial Assets.  This guidance broadens the other-than-temporary impairment assessment for interests in securitized financial assets to conform to the model applicable to all other debt securities by permitting reasonable management judgment of the probability to collect all projected cash flows.  Debt securities with amortized cost and fair values of approximately $1,659.7 million and $1,192.3 million, respectively at September 30, 2009 and $1,616.8 million and $1,156.3 million, respectively at December 31, 2008 are potentially impacted by this amendment.  Adoption of this guidance did not have an impact on the Company’s consolidated results of operations or financial position.

Beginning first quarter 2009, the Company began implementing the new disclosure requirements which requires enhanced disclosures of an entity’s objectives and strategies for using derivatives, including tabular presentation of fair value amounts, gains and losses, and related hedged items, with appropriate cross-referencing to the financial statements.  This guidance was effective for interim and annual reporting periods beginning January 1, 2009.

Effective January 1, 2009, the Company began implementation of the new guidance for the presentation of noncontrolling interests.  The Company was required to:
 
·   
Recharacterize minority interests, previously classified within liabilities, as noncontrolling interests reported as a component of consolidated equity on the balance sheet,
 
·   
Include total income in net income, with separate disclosure on the face of the consolidated income statement of the attribution of income between controlling and noncontrolling interests, and
 
·   
Account for increases and decreases in noncontrolling interests as equity transactions with any difference between proceeds of a purchase or issuance of noncontrolling interests being accounted for as a change to the controlling entity’s equity instead of as current period gains/losses in the consolidated income statement.  Only when the controlling entity loses control and deconsolidates a subsidiary will a gain or loss be recognized.
 
This guidance was effective prospectively for fiscal years beginning on or after December 15, 2008 except for its specific transition provisions for retroactive adoption of the balance sheet and income statement presentation and disclosure requirements for existing minority interest that are reflected in these consolidated financial statements for all periods presented.  As a result of the implementation of this guidance, which required retrospective application of presentation requirements, total equity at December 31, 2008 and 2007 increased by $2,896.9 million and $2,478.9 million, respectively, representing noncontrolling interest, and total liabilities at December 31, 2008 and 2007 decreased by $2,896.9 million and $2,478.9 million, respectively, as a result of the elimination of minority interest.  Additionally, for third quarter and the nine months ended September 30, 2008, respectively, (Loss) earnings from continuing operations, net of income taxes increased by $127.1 million and $436.6 million and net earnings attributable to the noncontrolling interest increased by $127.1 million and $436.6 million.

Effective second quarter 2009, the Company implemented the interim period transition disclosure requirements about the fair value of financial instruments, including the method(s) and significant assumptions used to estimate fair value.  This guidance requires presentation of comparative disclosures only for periods ending after initial adoption.  The disclosures required by this guidance are provided herein in Note 7 of Notes to Consolidated Financial Statements.

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

11

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

As required by the transition provisions of this guidance, a cumulative effect adjustment was calculated for all AFS debt securities held as of April 1, 2009 for which an OTTI previously was recognized and for which at April 1, 2009 there was no intention or likely requirement to sell the security before recovery of its amortized cost.  As a result, an increase to Retained earnings of $62.0 million was recorded as of April 1, 2009 with a corresponding decrease to Accumulated Other Comprehensive Income (“AOCI”) to reclassify the noncredit portion of these previously recognized OTTI amounts.  In addition, the amortized cost basis of the AFS debt securities comprising the reclassification amount was increased by $107.9 million at April 1, 2009, or the amount of the cumulative effect adjustment, pre-DAC and tax.  The fair value of AFS debt securities at April 1, 2009 was not changed as a result of the implementation of this guidance.

(Loss) earnings from continuing operations, net of income taxes, and Net (loss) earnings attributable to AXA Equitable for third quarter and the first nine months of 2009 reflect increases of $0.7 million and $4.1 million, respectively, from recognition in OCI of the noncredit portions of OTTI subsequent to initial implementation of this guidance at April 1, 2009.  The consolidated financial statements have been modified to separately present the total OTTI recognized in Investment (losses) gains, net, with an offset for the amount of noncredit OTTI recognized in OCI, on the face of the consolidated statements of earnings, and to present the OTTI recognized in AOCI on the face of the consolidated statements of equity and comprehensive income for all periods subsequent to implementation of this guidance.  In addition, Note 3 of Notes to Consolidated Financial Statements has been expanded to include new and more frequent disclosures about OTTI for debt and equity securities regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.

Effective April 1, 2009, the Company implemented the new guidance related to the Fair Value Measurements and Disclosures.  This modification retains the “exit price” objective of fair value measurement and provides additional guidance for estimating fair value when the volume and level of market activity for the asset or liability have significantly decreased in relation to normal market activity.  This guidance also references guidance on distinguishing distressed or forced transactions not determinative of fair value from orderly transactions between market participants under prevailing market conditions.  As further described in Note 7 of Notes to Consolidated Financial Statements, beginning in fourth quarter 2008, under previous guidance, the Company concluded that markets for certain CMBS securities were inactive and, consequently, changed its methodology for measuring the fair value of these CMBS securities to minimize reliance on market trading activity and the pricing of isolated transactions.  Implementation of the revised guidance did not have an impact on the Company’s consolidated results of operations or financial position.  New and expanded interim period disclosures required by this guidance with respect to fair value measurements are provided in Note 7 of Notes to Consolidated Financial Statements.

Effective January 1, 2008, the Company implemented new guidance which establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements.  It applies only to fair value measurements that were already required or permitted under U.S. GAAP, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value.  Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The Company’s implementation of this guidance at January 1, 2008 required only a remeasurement of the fair value of the GMIB reinsurance asset, resulting in an increase in net income of $68.8 million, related to an increase in the fair value of the GMIB reinsurance asset of $210.6 million, offset by increased DAC amortization of $104.7 million and increased Federal income taxes of $37.1 million.  This increase in the GMIB reinsurance asset’s fair value was due primarily to updates to the capital markets assumptions and risk margins, reflective of market participant assumptions required by the exit value model of this guidance.

12

New Accounting Pronouncements and Accounting Standards Updates

New guidance was issued in September 2009 permitting an entity as a practical expedient to fair value investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent), using the investment’s NAV.  Such investees may include hedge funds, offshore fund vehicles and fund of funds.  Among other requirements, the NAV must have been calculated in accordance with U.S. GAAP for investment companies.  Additional disclosure requirements such as the nature of any restrictions on redemption, any unfunded commitments and the investment strategies of the investees are required of all such investments regardless of whether the fair value is measured using the practical expedient.  This guidance is effective for interim and annual reporting periods ending after December 15, 2009 and, though earlier adoption is permitted, it will be implemented by the Company in its year end 2009 consolidated financial statements.  Management has not yet determined the possible effect this new guidance will have on the Company.

New guidance for the fair value measurement of liabilities was issued in August 2009 providing clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques:
·   
a valuation technique that uses:
o   
the quoted price of the identical liability when traded as an asset
o   
quoted prices for similar liabilities or similar liabilities when traded as assets, or
·   
another valuation technique that is consistent with the principles of Fair Value Measurements and Disclosures, such as an income approach (like a present value technique) or a market approach (like a technique based on the amount the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability at the measurement date.
This guidance is effective for the first reporting period (including interim periods) beginning after issuance and, therefore, will be adopted by the Company in its year end 2009 consolidated financial statements.  Management has not yet determined the possible effect this new guidance will have on the Company.

On June 12, 2009, the FASB issued new guidance that eliminates the concept of qualifying special-purpose entities (“QSPEs”) and their exemption from consolidation in the financial statements of a transferor of financial assets.  In addition, the new guidance modifies and clarifies the conditions for derecognition of transferred financial assets, including partial transfers and subsequent measurement of retained interests.  Enhanced disclosure also is required about financial asset transfers and any continuing involvement of the transferor.  For calendar-year consolidated financial statements, such as those of the Company, this new guidance is effective for interim and annual reporting periods beginning January 1, 2010.  Management does not expect the implementation will have a material effect on the Company’s consolidated financial statements.
 
Also issued by the FASB on June 12, 2009 was new guidance that modifies the approach and increases the frequency for assessing whether a VIE must be consolidated and requires additional disclosures about an entity’s involvement with VIEs.  The guidance removes the quantitative-based risks-and-rewards calculation for identifying the primary beneficiary and, instead, requires a variable-interest holder to qualitatively assess whether it has a controlling financial interest in a VIE, without consideration of kick-out and participating rights unless unilaterally held.  Continuous reassessments of whether an enterprise is the primary beneficiary of a VIE are required.  For calendar-year consolidated financial statements, such as those of the Company, this new guidance is effective for interim and annual reporting periods beginning January 1, 2010.  Earlier application is prohibited.  Management is currently evaluating the impact this new guidance may have on the Company.  The implementation of this guidance may require a significant amount of assets, liabilities, revenues and expenses of certain VIEs in which AllianceBernstein has a minimal financial ownership interest to be included in the Company’s consolidated financial statements, with corresponding offsets to noncontrolling interest.


 
13

 


3)  
INVESTMENTS

Fixed Maturities and Equity Securities

The following table provides information relating to fixed maturities and equity securities classified as available for sale:

Available for Sale Securities by Classification

 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
     
Fair Value
   
Other-than-
temporary
Impairments
in AOCI (3)
 
   
(In Millions)
 
                               
September 30, 2009:
                             
Fixed Maturities:
                             
Corporate                                         
  $ 19,024.2     $ 1,014.9     $ 290.9     $ 19,748.2     $ 1.1  
U.S. Treasury, government
                                       
and agency                                       
    1,540.2       5.3       61.9       1,483.6       -  
States and political
                                       
subdivisions                                       
    253.4       9.4       1.8       261.0       -  
Foreign governments                                         
    247.6       35.4       -       283.0       -  
Commercial mortgage-backed
    2,103.1       3.5       490.6       1,616.0       -  
Residential mortgage-backed (1)
    1,882.7       47.2       1.9       1,928.0       -  
Asset-backed (2)                                         
    438.1       23.3       27.9       433.5       14.9  
Redeemable preferred stock
    1,746.4       5.3       291.9       1,459.8       -  
Total Fixed Maturities
    27,235.7       1,144.3       1,166.9       27,213.1       16.0  
                                         
Equity securities                                             
    39.1       6.0       -       45.1       -  
                                         
Total at September 30, 2009
  $ 27,274.8     $ 1,150.3     $ 1,166.9     $ 27,258.2     $ 16.0  
       
December 31, 2008
                             
Fixed Maturities:
                             
Corporate                                         
  $ 18,689.6     $ 231.4     $ 1,713.3     $ 17,207.7       -  
U.S. Treasury, government
                                       
and agency                                       
    907.0       260.9       -       1,167.9       -  
States and political
                                       
subdivisions                                       
    181.5       12.0       9.1       184.4       -  
Foreign governments                                         
    214.3       37.3       5.6       246.0       -  
Commercial mortgage-backed
    2,215.5       4.0       544.8       1,674.7       -  
Residential mortgage-backed (1)
    1,244.8       51.2       -       1,296.0       -  
Asset-backed (2)                                         
    937.4       40.3       35.2       942.5       -  
Redeemable preferred stock
    1,820.9       1.5       710.6       1,111.8       -  
Total Fixed Maturities
    26,211.0       638.6       3,018.6       23,831.0       -  
                                         
Equity securities                                             
    31.7       -       4.9       26.8          
                                         
Total at December 31, 2008
  $ 26,242.7     $ 638.6     $ 3,023.5     $ 23,857.8       -  

(1)  
Includes publicly traded agency pass-through securities and collateralized mortgage obligations
(2)  
Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans
(3)  
Amounts represent OTTI losses in AOCI, which were not included in earnings since the adoption of new guidance on April 1, 2009.

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

14

The contractual maturities of AFS fixed maturities (excluding redeemable preferred stock) at September 30, 2009 are shown in the table below.  Bonds not due at a single maturity date have been included in the table in the year of final maturity.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 
Available for Sale
 
 
Amortized
     
 
Cost
 
Fair Value
 
 
(In Millions)
 
     
Due in one year or less
  $ 592.2     $ 602.9  
Due in years two through five
    8,732.9       9,127.5  
Due in years six through ten
    7,766.1       7,965.8  
Due after ten years
    3,974.2       4,079.6  
Subtotal
    21,065.4       21,775.8  
Commercial mortgage-backed securities 
    2,103.1       1,616.0  
Residential mortgage-backed securities
    1,882.7       1,928.0  
Asset-backed securities
    438.1       433.5  
Total
  $ 25,489.3     $ 25,753.3  

For the first nine months of 2009 and 2008, proceeds received on sales of fixed maturities classified as available for sale amounted to $2,263.1 million and $361.7 million, respectively.  Gross gains of $207.1 million and $4.7 million and gross losses of $62.0 million and $34.4 million were realized on these sales for the first nine months of 2009 and of 2008, respectively.

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

As discussed in Note 2 of Notes to Consolidated Financial Statements, if there is no intent to sell or likely requirement to dispose of the fixed maturity security before its recovery, only the credit loss component of any resulting OTTI is recognized in earnings and the remainder of the fair value loss is recognized in OCI.  The amount of credit loss is the shortfall of the present value of the cash flows expected to be collected as compared to the amortized cost basis of the security.  The present value is calculated by discounting management’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment.  Projections of future cash flows are based on assumptions regarding probability of default and estimates regarding the amount and timing of recoveries.  These assumptions and estimates require use of management judgment and consider internal credit analyses as well as market observable data relevant to the collectability of the security.  For mortgage- and asset-backed securities, projected future cash flows also include assumptions regarding prepayments and underlying collateral value.

During the first nine months of 2009, the Company recognized total OTTI of $142.4 million on AFS securities, all related to fixed maturities.  Total OTTI of fixed maturities for the first nine months of 2009 was comprised of $138.3 million credit losses and $4.1 million non-credit related declines in fair value below amortized cost.  The Company does not intend to sell and does not expect to be required to sell these impaired fixed maturities prior to recovering their amortized cost.  For third quarter 2009, the Company recognized total OTTI of $49.2 million on AFS fixed maturities, of which $48.5 million of credit losses were recorded in earnings and the remaining $0.8 million non-credit related portion of the decline in fair value was recorded in OCI.  The following table sets forth the amount of credit loss impairments on fixed maturity securities held by the Company at the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

15

Fixed Maturities - Credit Loss Impairments
(In Millions)

Balance at March 31, 2009
 
$
-
 
Cumulative adjustment related to implementing new guidance on April 1, 2009
   
(127.3
 )
Previously recognized impairments on securities that matured, paid, prepaid or sold
   
29.9
 
Previously recognized impairments on securities impaired to fair value this period (1)
   
-
 
Impairments recognized this period on securities not previously impaired
   
(69.8
 )
Additional impairments this period on securities previously impaired
   
(22.1
 )
Increases due to passage of time on previously recorded credit losses
   
-
 
Accretion of previously recognized impairments due to increases in expected cash flows
   
-
 
Balance at June 30, 2009                                                                                                        
   
(189.3
 )
Previously recognized impairments on securities that matured, paid, prepaid or sold
   
10.7
 
Previously recognized impairments on securities impaired to fair value this period (1)
   
-
 
Impairments recognized this period on securities not previously impaired
   
(48.5
 )
Additional impairments this period on securities previously impaired 
   
-
 
Increases due to passage of time on previously recorded credit losses     
   
-
 
Accretion of previously recognized impairments due to increases in expected cash flows
   
-
 
Balance at September 30, 2009                                                                                                        
 
$
(227.1
 )

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

Net unrealized investment gains and losses on fixed maturities and equity securities classified as available for sale and certain other long-term investments are included in the consolidated balance sheets as a component of AOCI.  The table below presents these amounts as of the dates indicated:

   September 30,  
December 31,
 
 
2009
 
2008
 
   (In Millions)  
     
AFS Securities:
           
Fixed maturities:
           
With OTTI loss                                                                                     
  $ (3.7 )   $ -  
All other                                                                                     
    (18.9 )     (2,380.0 )
Equity securities                                                                                       
    6.0       (4.9 )
Net Unrealized Losses
  $ (16.6 )   $ (2,384.9 )


 
16

 

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

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

                           
AOCI
 
   
Net
               
Deferred
   
(Loss)
 
   
Unrealized
               
Income
   
Related to Net
 
   
Gains
               
Tax
   
Unrealized
 
   
(Losses) on
         
Policyholders
   
(Liability)
   
Investment
 
   
Investments
   
DAC
   
Liabilities
   
Asset
   
Gains (Losses)
 
   
(In Millions)
 
                               
Balance, June 30, 2009
  $ (73.5 )   $ 15.0     $ -     $ 20.5     $ (38.0 )
Cumulative impact of implementing
                                       
new guidance on April 1, 2009
    -       -       -       -       -  
Net investment gains (losses)
                                       
arising during the period
    69.8       -       -       -       69.8  
Reclassification adjustment for
                                       
OTTI (losses) included in
                                       
Net earnings
    -       -       -       -       -  
Reclassification adjustment for
                                       
OTTI (losses) excluded from
                                       
Net earnings (1) 
    -       -       -       -       -  
Impact of net unrealized investment
                                       
gains (losses) on DAC
    -    
(13.1
    -       -       (13.1
Impact of net unrealized investment
                                       
gains (losses) on deferred income
                                       
taxes
    -       -       -    
(19.8
    (19.8
Impact of net unrealized investment
                                       
gains (losses) on Policyholders
                                       
liabilities
    -       -       (.1     -       (.1
Balance, September 30, 2009
  $ (3.7 )    $ 1.9     $ (.1    $ .7     $ (1.2 )
                                         
Balance, March 31, 2009
  $ -     $ -     $ -     $ -     $ -  
Cumulative impact of implementing
                                       
new guidance on April 1, 2009
    (35.1 )     5.5       -       10.3       (19.3 )
Net investment gains (losses)
                                       
arising during the period
    12.1       -       -       -       12.1  
Reclassification adjustment for
                                       
OTTI (losses) included in
                                       
Net earnings
    22.1       -       -       -       22.1  
Reclassification adjustment for
                                       
OTTI (losses) excluded from
                                       
Net earnings (1) 
    (2.8 )     -       -       -       (2.8 )
Impact of net unrealized investment
                                       
gains (losses) on DAC
    -    
(3.6
    -       -       (3.6
Impact of net unrealized investment
                                       
gains (losses) on deferred income
                                       
taxes
    -       -       -    
(9.6
    (9.6
Impact of net unrealized investment
                                       
gains (losses) on Policyholders
                                       
liabilities
    -       -       (.1     -       (.1
Balance, September 30, 2009
  $ (3.7 )    $ 1.9     $ (.1    $ .7     $ (1.2 )
                                         
(1)
Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

 
17

 

All Other Net Unrealized Investment Gains (Losses) in AOCI

                           
AOCI
 
   
Net
               
Deferred
   
(Loss)
 
   
Unrealized
               
Income
   
Related to Net
 
   
Gains
               
Tax
   
Unrealized
 
   
(Losses) on
         
Policyholders
   
(Liability)
   
Investment
 
   
Investments
   
DAC
   
Liabilities
   
Asset
   
Gains (Losses)
 
   
(In Millions)
 
                               
Balance, June 30, 2009
  $ (1,395.8 )   $ 285.2     $ -     $ 389.8     $ (720.8 )
Cumulative impact of implementing
                                       
new guidance on April 1, 2009
    -       -       -       -       -  
Net investment gains (losses)