-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtBSOASiJSuuzLjBicSVu0t/ep7b6QedmjSczP3DxIPirsXWcCetFRy9sBh8jZh0 qHU+zLlJoa9BIWemdRcU6w== 0000771726-07-000068.txt : 20070315 0000771726-07-000068.hdr.sgml : 20070315 20070315172334 ACCESSION NUMBER: 0000771726-07-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070315 DATE AS OF CHANGE: 20070315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONY LIFE INSURANCE CO OF AMERICA CENTRAL INDEX KEY: 0000835357 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 000000000 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-65423 FILM NUMBER: 07697379 BUSINESS ADDRESS: STREET 1: 1290 AVENUE OF THE AMERICAS STREET 2: MAIL STOP 11-18 CITY: NEW YORK STATE: NY ZIP: 10104 BUSINESS PHONE: 2125541234 MAIL ADDRESS: STREET 1: 1290 AVENUE OF THE AMERICAS STREET 2: MAIL STOP 11-18 CITY: NEW YORK STATE: NY ZIP: 10104 FORMER COMPANY: FORMER CONFORMED NAME: MONY LIFE INSURANCE COMPANY OF AMERICA DATE OF NAME CHANGE: 19981002 10-K 1 e8606.txt ANNUAL REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) [X] OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [ ] SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 333-65423 MONY LIFE INSURANCE COMPANY OF AMERICA (Exact name of registrant as specified in its charter) Arizona 86-0222062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1290 Avenue of the Americas, New York, New York 10104 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 554-1234 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------------------ -------------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] No voting or non-voting common equity of the registrant is held by non-affiliates of the registrant as of June 30, 2006. As of March 14, 2007, 2,500,000 shares of the registrant's Common Stock were outstanding. REDUCED DISCLOSURE FORMAT: Registrant meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore filing this form with the Reduced Disclosure Format. DOCUMENTS INCORPORATED BY REFERENCE: Portions of AllianceBernstein L.P.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 are incorporated by reference into Part I hereof.
TABLE OF CONTENTS Part I Page ------ ---- Item 1. Business...................................................................... 1-1 Overview...................................................................... 1-1 Products...................................................................... 1-1 Competition................................................................... 1-2 Regulation.................................................................... 1-3 Employees..................................................................... 1-4 Parent Company................................................................ 1-4 Other Information............................................................. 1-4 Item 1A. Risk Factors.................................................................. 1A-1 Item 1B. Unresolved Staff Comments..................................................... 1B-1 Item 2. Properties.................................................................... 2-1 Item 3. Legal Proceedings............................................................. 3-1 Item 4. Submission of Matters to a Vote of Security Holders*.......................... 4-1 Part II ------- Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities....................................... 5-1 Item 6. Selected Financial Data*...................................................... 6-1 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management Narrative").............................. 7-1 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 7A-1 Item 8. Financial Statements and Supplementary Data................................... FS-1 Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure........................................................ 9-1 Item 9A. Controls and Procedures....................................................... 9A-1 Item 9B. Other Information............................................................. 9B-1 Part III -------- Item 10. Directors and Executive Officers of the Registrant*........................... 10-1 Item 11. Executive Compensation*....................................................... 11-1 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*................................................ 12-1 Item 13. Certain Relationships and Related Transactions*............................... 13-1 Item 14. Principal Accounting Fees and Services........................................ 14-1 Part IV ------- Item 15. Exhibits, Financial Statement Schedules ...................................... 15-1 Signatures .............................................................................. S-1 Index to Exhibits .............................................................................. E-1
*Omitted pursuant to General Instruction I to Form 10-K i 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", 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 MONY Life Insurance Company of America to market risks, as well as statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by words such as "believes," "estimates," "intends," "anticipates," "plans," "expects," "projects," "should," "probably," "risk," "target," "goals," "objectives," or similar expressions. MONY Life Insurance Company of America 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" and elsewhere in this report. ii PART I, ITEM 1. BUSINESS(1) OVERVIEW MONY Life Insurance Company of America ("MLOA") is an Arizona stock life insurance company and a wholly owned subsidiary of MONY Life Insurance Company ("MONY Life"). MLOA's primary business is to provide life insurance and annuity products to both individuals and businesses. MLOA is licensed to sell its products in 49 states (not including New York), the District of Columbia and Puerto Rico. As of December 31, 2006, MLOA had approximately 220,000 insurance policies and annuity contracts in force. MONY Life is an indirect wholly owned subsidiary of AXA Financial, Inc. ("AXA Financial") and AXA Financial is a wholly owned subsidiary of AXA, a French holding company for an international group of insurance and related financial services companies. AXA is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and files annual reports on Form 20-F. For additional information regarding AXA, see "Parent Company". PRODUCTS Prior to the MONY Acquisition, MLOA offered a broad portfolio of life insurance products consisting primarily of variable life and interest-sensitive life insurance products (including group interest-sensitive life insurance products). In addition, MLOA has offered whole life and a variety of term life insurance products. MLOA has also offered a variety of annuity products, such as variable annuities, fixed deferred annuities and payout annuities. For additional information regarding certain features of MLOA's variable annuity products, see Note 6 of Notes to Financial Statements. Variable life and variable annuity contractholders have a broad selection of investment accounts representing a range of investment objectives in which to invest the assets held under their contracts. The investment options available to MLOA's variable life and variable annuity contractholders are comprised of the proprietary fund families of EQ Advisors Trust, AXA Premier VIP Trust and various non-proprietary fund families. MLOA's variable life insurance contracts had 115 investment options and MLOA's variable annuity contracts had 64 investment options as of December 31, 2006. Depending on the investment options available under the specific contract, variable contractholders may allocate their funds among a wide variety of these investment options. In connection with the integration of the MONY Companies with AXA Financial, management evaluated the products sold by MLOA as part of an overall review of insurance products offered by AXA Equitable and AXA Financial's other insurance subsidiaries with a view towards reducing duplication of products, improving the quality of the product line-up and enhancing the overall profitability of AXA Financial Group. This evaluation resulted in the discontinuation by MLOA in 2005 of new sales of life insurance and annuity products, except for certain variable and fixed annuities in limited markets, interest-sensitive whole life insurance and group term life insurance. In 2006, MLOA launched a new variable life product that has been approved for sale in most states. Since future decisions regarding product development depend on factors and considerations not yet known, management is unable to predict the extent to which MLOA will issue new business. DISTRIBUTION MLOA's annuity and life insurance products are distributed through financial professionals associated with AXA Advisors, LLC, an affiliated broker-dealer, and AXA Network, LLC, an affiliated insurance agency. As of December 31, 2006, AXA Advisors, LLC and AXA Networks, LLC had approximately 5,968 financial professionals. MLOA also distributes its products on a wholesale basis through AXA Distributors, LLC, AXA Financial Group's wholesale distribution company, to third-party broker-dealers and insurance brokerage general agencies. - -------- (1) As used in this Form 10-K, the term "AXA Financial Group" refers to AXA Financial, Inc., a Delaware corporation incorporated in 1991 and its consolidated subsidiaries, including AXA Equitable Life Insurance Company ("AXA Equitable"). The term "MONY" refers to The MONY Group Inc., a Delaware corporation acquired by AXA Financial on July 8, 2004 that merged with and into AXA Financial on July 22, 2004 (the "MONY Acquisition"), and the term "MONY Companies" means MONY Life, MLOA, U.S. Financial Life Insurance Company and the other subsidiaries of MONY acquired by AXA Financial in the MONY Acquisition. The term "Separate Accounts" refers to the separate account investment assets of MLOA excluding the assets held in those separate accounts on which MLOA bears the investment risk. The term "General Account Investment Assets" refers to assets held in the General Account associated with MLOA's continuing operations. 1-1 REINSURANCE MLOA reinsures most of its variable life, interest-sensitive life and term life insurance policies on an excess of retention basis. In 2006, MLOA retained up to a maximum of $4 million of risk on single-life policies and up to a maximum of $6 million on second-to-die policies. For amounts applied for in excess of those limits, reinsurance is ceded to AXA Equitable up to a combined maximum of $25 million of risk on single-life policies and up to a maximum of $30 million on second-to-die policies. For amounts issued in excess of those limits, reinsurance from unaffiliated third parties is sought. The reinsurance arrangements obligate the reinsurer to pay a portion of any death claim in excess of the amount retained by MLOA in exchange for an agreed-upon premium. A contingent liability exists in respect to such reinsurance should the reinsurers be unable to meet their obligations. MLOA evaluates the financial condition of its reinsurers in an effort to minimize its exposure to significant losses from reinsurer insolvencies. MLOA is not a party to any risk reinsurance arrangement with any reinsurer pursuant to which the amount of reserves on reinsurance ceded to such reinsurer equals more than 1.2% of the total policy life reserves of MLOA. MLOA also continues to reinsure a percentage of its exposure on variable annuity products that provide guaranteed minimum income benefit ("GMIB") features and/or guaranteed minimum death benefit ("GMDB") features. At December 31, 2006, MLOA had fully reinsured, subject to certain maximum amounts or caps in any one period, the GMIB benefit and reinsured approximately 55.4% of its net amount at risk to the GMDB obligation on annuity contracts in force as of December 31, 2006. MLOA does not assume reinsurance from any other insurance company. For additional information about reinsurance strategies implemented by MLOA, see Note 7 of Notes to Financial Statements. GENERAL ACCOUNT INVESTMENT PORTFOLIO. The General Account consists of a diversified portfolio of principally fixed-income investments. The following table summarizes General Account Investment Assets by asset category at December 31, 2006: MONY LIFE INSURANCE COMPANY OF AMERICA GENERAL ACCOUNT INVESTMENT ASSETS CARRYING VALUE (DOLLARS IN MILLIONS) AMOUNT % OF TOTAL ----------- ------------- Fixed maturities (1).................. $ 2,140.6 83.0% Mortgages............................. 219.2 8.5 Other invested assets................. 53.4 2.1 Policy loans.......................... 105.1 4.1 Cash and short-term investments (2)... 58.8 2.3 ----------- ------------- Total................................. $ 2,577.1 100.0% =========== ============= -------------------- (1) Includes net unrealized losses of $26.7 million on fixed maturities classified as available for sale. Fixed maturities includes approximately $73.7 million, net amortized cost of securities considered to be other than investment grade. (2) Comprised of cash and short-term investments included within the "Cash and cash equivalent" caption on the balance sheet. As part of MLOA's investment management process, management, with the assistance of its investment advisors, constantly monitors General Account investment performance. This internal review process culminates with a quarterly review of assets by the Investments Under Surveillance Committee that evaluates whether any investments are other than temporarily impaired and whether specific investments should be put on an interest non-accrual basis. COMPETITION There is strong competition among insurers, banks, brokerage firms and other financial institutions and providers seeking clients for the types of products that have been provided by MLOA. Competition is particularly intense among a broad range of financial institutions and other financial service providers for retirement and other savings dollars. The principal competitive factors affecting MLOA's business are financial and claims-paying ratings; size; product quality, range, features/functionality 1-2 and price; crediting rates on fixed products; visibility and brand recognition in the marketplace; and reputation and quality of service. As noted above, ratings are an important factor in establishing the competitive position of insurance companies. As of March 14, 2007 the financial strength or claims-paying rating of MLOA was "AA-" from Standard & Poor's Corporation (4th highest of 21 ratings; with stable outlook), "Aa3" from Moody's Investors Service (4th highest of 22 ratings; with stable outlook), "A+" from A.M. Best Company, Inc. (2nd highest of 15 ratings; with stable outlook), and "AA" from Fitch Investors Service, L.P. (3rd highest of 24 ratings; with stable outlook). REGULATION STATE SUPERVISION. MLOA is licensed to transact insurance business in all states other than New York and is subject to extensive regulation and supervision by insurance regulators in these states and the District of Columbia and Puerto Rico. MLOA is domiciled in Arizona and is primarily regulated by the Director of Insurance of the Arizona Department of Insurance. The extent of state regulation varies, but most jurisdictions have laws and regulations governing sales practices, standards of solvency, levels of reserves, risk-based capital, permitted types and concentrations of investments, and business conduct to be maintained by insurance companies as well as agent licensing, approval of policy forms and, for certain lines of insurance, approval or filing of rates. Insurance regulators have the discretionary authority to limit or prohibit new issuances of business to policyholders within their jurisdictions when, in their judgment, such regulators determine that the issuing company is not maintaining adequate statutory surplus or capital. MLOA is required to file detailed annual financial statements, prepared on a statutory accounting basis, with supervisory agencies in each of the jurisdictions in which it does business. Such agencies may conduct regular or targeted examinations of the operations and accounts of MLOA and may make occasional requests for particular information from MLOA. In recent years, the insurance industry has seen an increase in inquiries from state attorneys general and insurance commissioners regarding compliance with certain state insurance and securities laws. For example, certain attorneys general and insurance commissioners have requested information from insurance companies regarding collusive bidding and revenue sharing practices and practices associated with replacements and exchanges of life insurance and annuities. HOLDING COMPANY AND SHAREHOLDER DIVIDEND REGULATION. Several states, including Arizona, regulate transactions between an insurer and its affiliates under insurance holding company acts. These acts contain certain reporting requirements and restrictions on provision of services and on transactions, such as intercompany service agreements, asset transfers, reinsurance, loans and shareholder dividend payments by insurers. Depending on their size, such transactions and payments may be subject to prior notice to, or approval by, the Arizona Department of Insurance. In 2006, MLOA did not make any shareholder dividend payments. FEDERAL TAX INITIATIVES. Although the Federal government generally does not directly regulate the insurance business, many Federal tax laws affect the business in a variety of ways. There are a number of existing, newly enacted or recently proposed Federal tax initiatives that may significantly affect MLOA. In June 2001, legislation was enacted which, among other things, provides several years of lower rates for estate, gift and generation skipping taxes ("GST") as well as one year of estate and GST repeal (in 2010) before returning to 2001 law for the year 2011 and thereafter. Legislation has been proposed regarding extending or making permanent the repeal of the estate and generation skipping taxes or significantly increasing exemption amounts and lowering rates. If enacted, this legislation would have an adverse impact on sales and surrenders of life insurance in connection with estate planning. Other provisions of the 2001 legislation increased amounts which may be contributed to tax qualified retirement plans and allowed increased funding levels for tax qualified retirement products. These provisions, which were to expire after 2010, have now been made permanent. In 2003, reductions to income tax rates on long-term capital gains and qualifying corporate dividends were enacted which adversely impacted the attractiveness of cash value life insurance and annuity products relative to other investment alternatives that may qualify for these lower rates. While set to expire after 2010, there are proposals to extend or make such reduced rates permanent. Recently proposed Federal legislation and Treasury regulations relating to the creation of new tax-favored savings accounts and modifications to nonqualified deferred compensation and qualified plans (including tax sheltered annuities) could, to the extent enacted or adopted, adversely affect certain sales of life insurance as well as the attractiveness of certain qualified plan arrangements, cash value life insurance and annuities. The U.S. Congress may also consider proposals for the comprehensive overhaul of the Federal tax law which, if enacted, could adversely impact the attractiveness of cash value life insurance, annuities and tax qualified retirement products. For example, in November 2005, The President's Advisory Panel on Federal Tax Reform announced its tax reform options that, if enacted by Congress, would make sweeping changes to many longstanding tax rules. These changes would include the creation of new tax-favored savings accounts that would replace many existing qualified plan arrangements and would eliminate certain tax benefits currently available to cash value life insurance and deferred annuity products by annually taxing any withdrawable cash value build-up in such products. Management believes that the enactment of these options into law in their current or similar form would adversely affect sales, funding and persistency of cash value life insurance and deferred annuity products. Management 1-3 cannot predict what, if any, legislation will actually be proposed or enacted based on these options or what other proposals or legislation, if any, may be introduced or enacted relating to MLOA's business or what the effect of any such legislation might be. SECURITIES LAWS. MLOA and certain policies and contracts offered by MLOA are subject to regulation under the Federal securities laws administered by the Securities and Exchange Commission (the "SEC") and under certain state securities laws. The SEC conducts regular examinations of MLOA's operations, and from time to time makes requests for particular information from MLOA. The SEC and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, issuance of cease-and-desist orders or other sanctions. Sales of variable insurance and annuity products are regulated by the SEC and the National Association of Securities Dealers (the "NASD"). The SEC, the NASD and other regulators have from time to time investigated certain sales practices involving certain sales of variable annuities and transactions in which an existing variable annuity is replaced by, or exchanged for, a new variable annuity. Certain Separate Accounts of MLOA are registered as investment companies under the Investment Company Act of 1940, as amended. Separate Account interests under certain annuity contracts and insurance policies issued by MLOA are also registered under the Securities Act of 1933, as amended. PRIVACY OF CUSTOMER INFORMATION. MLOA has adopted a privacy policy outlining procedures and practices to be followed by members of the AXA Financial Group relating to the collection, disclosure and protection of customer information. Customer information may only be used to conduct company business. AXA Financial Group companies may not disclose customer information to third parties except as required or permitted by law. Customer information may not be sold or rented to third parties. A copy of the privacy policy is mailed to customers on an annual basis. Federal and state laws and regulations require financial institutions to protect the security and confidentiality of customer information and report breaches in which customer information is intentionally or accidentally disclosed to third parties. Violation of these laws and regulations may result in significant fines and remediation costs. Legislation currently under consideration in the U.S. Congress and state legislatures could create additional obligations relating to the use and protection of customer information. EMPLOYEES MLOA has no employees. MLOA has service agreements with affiliates pursuant to which MLOA is provided services necessary to operate its business. For additional information, see Note 8 of Notes to Financial Statements. PARENT COMPANY AXA, the ultimate parent company of MLOA, is the holding company for an international group of insurance and related financial services companies engaged in the financial protection and wealth management business. AXA is one of the largest insurance groups in the world. AXA operates primarily in Western Europe, North America, the Asia/Pacific region and, to a lesser extent, in other regions including in particular the Middle East and Africa and South America. AXA has five operating business segments: life and savings, property and casualty, international insurance (including reinsurance), asset management and other financial services. Neither AXA nor any affiliate of AXA has any obligation to provide additional capital or credit support to MLOA. OTHER INFORMATION All of MLOA's officers, including its chief executive officer, chief financial officer and controller, are subject to the Policy Statement on Ethics (the "Code"), a code of ethics as defined under Regulation S-K. The Code complies with Section 406 of the Sarbanes-Oxley Act of 2002 and is available on AXA Financial's website at www.axa-financial.com. MLOA intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to or waivers from provisions of the Code that apply to its chief executive officer, chief financial officer and controller by posting such information on AXA Financial's website at the above address. 1-4 PART I, ITEM 1A. RISK FACTORS In the course of conducting our business operations, we could be exposed to a variety of risks. This "Risk Factors" section provides a summary of some of the significant risks that could affect our business, financial condition or results of operations. In this section, the terms "we," "us" and "our" refer to MONY Life Insurance Company of America EQUITY MARKET DECLINES AND VOLATILITY MAY ADVERSELY IMPACT OUR PROFITABILITY. Declines or volatility in equity markets can negatively impact the investment returns we earn in those markets as well as our business and profitability. Examples of the effects of declines or volatility in equity markets include the following: o Sustained equity market declines that result in decreases in the account values of our variable life and annuity contracts could reduce the amount of revenue we derive from fees charged on those account values; o Sustained equity market declines that result in decreases in the account values of our variable life and annuity contracts that provide guaranteed benefits would increase the size of our potential obligations related to such guaranteed benefits. This could result in an increase in claims and reserves related to those contracts, net of any reinsurance reimbursements; o Increased volatility of equity markets may result in changes to the fair value of our GMIB reinsurance contracts, which could result in increased volatility of our earnings; o Increased volatility of equity markets may increase surrenders and withdrawals of our variable life and annuity contracts, which could negatively impact our future profitability; o Equity market declines could negatively impact the value of equity securities we hold for investment, thereby reducing our capital; and o Deferred acquisition costs, referred to as DAC, and value of business acquired, referred to as VOBA, are accounting methods for amortizing the sales costs related to the acquisition of new life insurance and annuity business over the period in which that business will generate earnings for us. DAC and VOBA amortization rates are based in part on investment return and related estimates that, in turn, are based on actual market trends and reasonable expectations as to future performance drawn from those trends. Equity market declines could lead to reductions in these estimates that, in turn, could accelerate our DAC and VOBA amortization and reduce our current earnings. INTEREST RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR MARGINS ON INTEREST-SENSITIVE ANNUITY AND LIFE INSURANCE CONTRACTS AND INCREASE SURRENDERS AND WITHDRAWALS FROM THOSE CONTRACTS. Our margin or "spread" on interest-sensitive annuity and life insurance contracts is the difference between the yield we derive from portfolio investments that are intended to support our required payments under these contracts and the interest rates we credit to holders of these contracts. This spread is a significant part of our earnings. If interest rates fall and remain at significantly lower levels, the minimum interest rates that we guarantee on interest-sensitive annuity and life insurance contracts would cause our spreads on these contracts to deteriorate and possibly become negative which could have a material adverse effect on our profitability. Also, such a fall in interest rates could result in increased reserve requirements for those contracts. A rapid and sustained rise in interest rates poses risks of deteriorating spreads and high surrenders of our interest-sensitive annuity and life insurance contracts. In such an environment, we may face pressure to increase credited rates on those contracts to match rates offered by our competitors on new deposits. Such changes in our credited rates on these contracts generally occur more quickly than corresponding changes to the rates we earn on related portfolio investments, thereby reducing our spreads on such contracts. Also, a high level of surrenders associated with a rapid and sustained rise in interest rates could require us to liquidate portfolio investments to fund surrender payments at a time when the value of those investments has decreased. AN OVERALL ECONOMIC DOWNTURN COULD ADVERSELY AFFECT OUR REVENUES AND FINANCIAL POSITION. An overall economic downturn could negatively affect the value of our portfolio investments, reduce new sales of our products and increase surrenders and withdrawals from our existing life insurance and annuity contracts. In particular, an overall 1A-1 economic downturn could significantly affect the value of our portfolio investments since the majority of our portfolio is invested in bonds and mortgage loans that may suffer an increased default rate and may cause credit deterioration during such a downturn. Reductions in the value of our portfolio investments and reduced sales of our products coupled with increased surrenders and withdrawals from our existing contracts could adversely affect our revenues and financial position. An overall economic downturn could also result in higher financing costs and could increase the cost of our hedging programs and other risk mitigation techniques that could result in certain of our products becoming less profitable. These circumstances may cause us to modify certain product features or to cease offering these products OUR RESERVES COULD BE INADEQUATE DUE TO DIFFERENCES BETWEEN OUR ACTUAL EXPERIENCE AND MANAGEMENT'S ESTIMATES AND ASSUMPTIONS. Our reserve requirements are calculated based on a number of estimates and assumptions, including estimates and assumptions related to future mortality, morbidity, persistency, interest rates, claims experience and reinvestment rates. For a description of some of these estimates, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Estimates". Our reserves could be inadequate if actual results differ significantly from our estimates and assumptions. If so, we will be required to increase reserves resulting in a charge to our earnings. LOSSES DUE TO DEFAULTS, ERRORS OR OMISSIONS BY THIRD PARTIES, INCLUDING OUTSOURCING RELATIONSHIPS, COULD ADVERSELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS. We depend on third parties that owe us money, securities or other assets to pay or perform under their obligations. These parties include the issuers whose securities we hold in our investment portfolios, borrowers under the mortgage loans we make, customers, trading counterparties, counterparties under swap and other derivative contracts, clearing agents, exchanges, clearing houses and other financial intermediaries. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, downturns in the economy or real estate values, operational failure or other reasons. Losses associated with defaults by these third parties could adversely impact our business and results of operations. We also rely on third parties to whom we outsource certain technology platforms, information systems and administrative functions. If we do not effectively implement and manage our outsourcing strategy, third party vendor providers do not perform as anticipated or we experience technological or other problems associated with outsourcing transitions, we may not realize anticipated productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and reputational damage. Furthermore, losses associated with defaults or other failures by these third parties and outsourcing partners upon whom we rely could adversely impact our business and results of operations. OUR REINSURANCE PROGRAMS MAY BE INADEQUATE TO PROTECT US AGAINST UNANTICIPATED LEVELS OF EXPOSURE OR LOSSES AND WE MAY INCUR LOSSES FROM OUR REINSURERS' FAILURE TO MEET THEIR OBLIGATIONS. In the normal course of business, we seek to reduce risk through reinsurance programs. Under our reinsurance arrangements, other insurers assume a portion of the claims and related expenses on certain business we underwrite; however, we remain liable as the direct insurer on all risks we reinsure. These reinsurance arrangements do not eliminate our obligation to pay related claims and we are subject to our reinsurers' credit risk with respect to our ability to recover amounts due from them. Although we evaluate periodically the financial condition of our reinsurers, our reinsurers may become financially unsound by the time their financial obligation to us becomes due. The inability of any reinsurer to meet its financial obligations to us could negatively impact our results of operations. See "Business - Reinsurance" and Note 7 of Notes to Financial Statements for additional information regarding our reinsurance arrangements. OUR EARNINGS ARE IMPACTED BY DAC AND VOBA CALCULATIONS THAT ARE BASED ON ESTIMATES THAT ARE SUBJECT TO CHANGE. Our earnings for any period depend in part on the amount of our life insurance and annuity product acquisition costs (including commissions, underwriting, agency and policy issue expenses) that can be deferred as DAC rather than expensed immediately. They also depend in part on the pattern of DAC and VOBA amortization and the recoverability of DAC and VOBA which are both based on models involving numerous estimates and subjective judgments, including those regarding investment, mortality and expense margins, expected market rates of return, lapse rates and anticipated surrender charges. Revisions to our estimates may result in an acceleration in DAC and VOBA amortization, which could negatively impact our earnings for the period in which the estimates are revised. 1A-2 A DOWNGRADE IN OUR FINANCIAL STRENGTH AND CLAIMS-PAYING RATINGS COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS. Claims paying and financial strength ratings are important factors in establishing the competitive position of insurance companies. A downgrade in these ratings could adversely affect our business and results of operations by increasing surrenders and withdrawals from our contracts. A downgrade in our ratings may also adversely affect our cost of raising capital or limit our access to sources of capital. See "Business - Competition" for a full description of our ratings. LEGAL AND REGULATORY ACTIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESSES. A number of lawsuits have been filed against life and health insurers and affiliated distribution companies involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents and other matters. Some of these lawsuits have resulted in the award of substantial judgments against other insurers, including material amounts of punitive damages, or in substantial settlements. In some states, juries have substantial discretion in awarding punitive damages. We are involved in such litigation and our results of operations and financial position could be affected by defense and settlement costs and any unexpected material adverse outcomes in such litigations as well as in other material litigations pending against us. The frequency of large damage awards, including large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given matter. In addition to the litigation described above, examinations by Federal and state regulators and other governmental agencies could result in adverse publicity, sanctions, fines and other costs. At this time, management cannot predict what actions regulators may take or what the impact of such actions might be. Fines, other sanctions and/or other costs could result from ongoing or future regulatory matters. For further information, see "Business - Regulation" . WE MAY BE ADVERSELY AFFECTED TO THE EXTENT THAT WE FACE INCREASED REGULATION, CHANGES IN REGULATIONS AND/OR HEIGHTENED REGULATORY SCRUTINY. We are subject to extensive regulation and supervision by the insurance regulators in all states (other than New York), the District of Columbia and Puerto Rico. In recent years, the insurance industry has seen an increase in inquiries from state attorneys general and insurance commissioners regarding compliance with certain state insurance and securities laws. Federal and state regulators regularly propose new regulations or amend existing regulations, which may have a significant impact on our business operations or may require significant change to our products or compliance procedures. To the extent that the amount of regulatory scrutiny or the amount of regulation continues to increase, our costs of compliance will increase. Such increases in our compliance obligations could materially increase our costs and adversely affect our earnings. In addition, changes in the regulatory environment, including increased activism by state attorneys general, insurance commissioners and other regulators, could have a material adverse impact on our business and results of operations. For additional information, see "Business - Regulation". CHANGES IN U.S. TAX LAWS MAY ADVERSELY AFFECT OUR PROFITABILITY. Currently, special U.S. tax law provisions apply to life insurance and annuity products. Our profitability may be materially affected by changes in tax laws and regulations, including changes relating to savings, retirement funding and taxation. Adverse changes could include the introduction of taxation of annual increases in the account value of life insurance and annuity products, improved tax treatment of mutual funds or other investments as compared to insurance products or repeal of the Federal estate tax. Management cannot predict what proposals may be made, what legislation, if any, may be introduced or enacted or what the effect of any such legislation might be. For additional information, see "Business - Regulation - Federal Tax Initiatives". CHANGES IN ACCOUNTING STANDARDS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. Our financial statements are prepared in accordance with generally accepted accounting principles that are revised from time to time. In the future, new accounting pronouncements, as well as new interpretations of existing accounting pronouncements, may have material adverse effects on our results of operations and/or financial position. For information about recent accounting pronouncements, see Note 2 of Notes to Financial Statements. 1A-3 OUR LOSSES PROVIDED FOR DISCONTINUED OPERATIONS MAY DIFFER FROM THE LOSSES ULTIMATELY REALIZED. The determination of the allowance for future losses from our discontinued operations involves numerous estimates and subjective judgments, including those regarding expected performance of investment assets, asset reinvestment rates, ultimate mortality experience and other factors that affect investment and benefit projections. To the extent actual results or future projections of discontinued operations differ from management's current best estimates underlying the allowance, the difference would be reflected as earnings or loss from discontinued operations. OUR DISCLOSURE AND INTERNAL CONTROL SYSTEM CANNOT GUARANTEE THAT OUR PUBLIC DISCLOSURE AND FINANCIAL STATEMENTS DO NOT CONTAIN ERRORS. There are inherent limitations in the effectiveness of any system of disclosure and internal controls, including the possibilities of faulty judgments in decision-making, simple error or mistake, fraud, the circumvention of controls by individual acts or the collusion of two or more people, or management override of controls. Accordingly, even an effective disclosure and internal control system can provide only reasonable assurance with respect to disclosures and financial statement preparation. Also, the effectiveness of a disclosure and internal control system may vary over time due to changes in conditions. OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THE OCCURRENCE OF A CATASTROPHE, INCLUDING A NATURAL OR MAN-MADE DISASTER. Any catastrophic event, such as pandemic diseases, terrorist attacks, floods, severe storms or hurricanes, could have an adverse effect on our business in several respects: o We could experience long-term interruptions in our service due to the vulnerability of our information and operation systems and those of our significant vendors to the effects of catastrophic events. Some of our operational systems are not fully redundant, and our disaster recovery and business continuity planning cannot account for all eventualities; o The occurrence of a pandemic disease such as the Avian Influenza Virus (H5N1) could have a material adverse effect on our liquidity and operating results due to increased mortality and, in certain cases, morbidity rates. o The occurrence of any pandemic disease, natural disaster or terrorist attacks or any catastrophic event which results in our workforce being unable to be physically located at one of our facilities could result in lengthy interruptions in our service. o A terrorist attack on the financial services industry in the United States could have severe negative effects on our investment portfolio and disrupt our business operations. Any continuous and heightened threat of terrorist attacks could also result in increased costs of reinsurance. ASSUMPTIONS AND MODELS USED IN OUR BUSINESS MAY LEAVE US EXPOSED TO UNIDENTIFIED OR UNANTICIPATED RISK. Our business operations and risk management strategy rely on numerous assumptions and models. We are subject to the risk that our assumptions and models could be flawed or that errors in calculations could occur. As a result, these assumptions and models may not accurately predict future exposure. 1A-4 PART I, ITEM 1B. UNRESOLVED STAFF COMMENTS None 1B-1 PART I, ITEM 2. PROPERTIES MLOA does not lease or own space for its operations. Facilities are provided to MLOA for the conduct of its business pursuant to service agreements with affiliated companies. For additional information, see Note 8 of Notes to Financial Statements. 2-1 PART I, ITEM 3. LEGAL PROCEEDINGS The matters set forth in Note 15 of Notes to Financial Statements for the year ended December 31, 2006 (Part II, Item 8 of this report) are incorporated herein by reference. 3-1 PART I, ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Omitted pursuant to General Instruction I to Form 10-K. 4-1 PART II, ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES All of MLOA's outstanding equity securities are owned by MONY Life and, consequently, there is no public market for these securities. MLOA did not pay any shareholder dividends in 2006 or 2005. Future dividend decisions will be made by the Board of Directors on the basis of a number of factors, including the operating results and financial requirements of MLOA and the impact of regulatory restrictions. 5-1 PART II, ITEM 6. SELECTED FINANCIAL DATA Omitted pursuant to General Instruction I to Form 10-K. 6-1 PART II, ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is omitted pursuant to General Instruction I (2)(a) of Form 10-K. The management narrative for MLOA that follows should be read in conjunction with the financial statements and related notes and information discussed under "Forward-looking Statements" and "Risk Factors" included elsewhere in this Form 10-K. GENERAL The following discussion should be read taking into account the following significant changes to MLOA's operations: (1) in the fourth quarter of 2005, all MODCO reinsurance transactions relating to level term business issued on or subsequent to January 1, 2005 that took place between USFL and MLOA were unwound; and (2) at December 31, 2005, USFL recaptured all of the universal life policies that had previously been assumed by MLOA. In connection with the integration of the MONY Companies with AXA Financial, management evaluated the products sold by MLOA as part of an overall review of insurance products offered by AXA Equitable and AXA Financial's other insurance subsidiaries with a view towards reducing duplication of products, improving the quality of the product line-up and enhancing the overall profitability of AXA Financial Group. This evaluation resulted in the 2005 discontinuation of sales of life insurance and annuity products, except for certain variable and fixed annuities in limited markets, interest-sensitive whole life insurance and group term life insurance. In 2006, MLOA launched a new variable universal life product that has been approved for sale in most states. Since future decisions regarding product development depend on factors and considerations not yet known, management is unable to predict the extent to which MLOA will issue new business. The earnings narrative that follows discusses the results for 2006 compared to the 2005 results. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005 Earnings from continuing operations before income taxes were $56.7 million in 2006, a decrease of $1.3 million from the $58.0 million reported in 2005. Net earnings were $40.1 million in 2006 as compared to net earnings of $41.3 million in 2005. Net earnings in 2006 included a gain on disposal of discontinued operations of $1.1 million pre-tax ($0.7 million post-tax) due to the sale of real estate held-for-sale. Revenues. Total revenues were $355.6 million in 2006, a decrease of $21.3 million as compared to 2005. Universal life and investment-type policy fee income totaled $150.0 million in 2006, an $18.3 million decrease compared to 2005 that was principally due the absence of policy charges assumed under the MODCO agreement with USFL on all universal life policies that was unwound on December 31, 2005. Benefits and Other Deductions. Total benefits and other deductions in 2006 decreased $20.0 million to $298.9 million from $318.9 million reported in 2005. Interest credited to policyholders' account balances decreased $13.8 million to $86.1 million in 2006 compared to $99.9 million in 2005, principally due to lower general account balances and the absence of interest credited assumed under the MODCO agreement with USFL on all universal life policies that was unwound on December 31, 2005. Compensation and other benefits decreased $6.0 million to $27.4 million in 2006 from $33.4 million reported in 2005, principally due to a decrease in the cost of personnel services provided to MLOA under its service agreement with AXA Equitable. This decrease was related to the cessation of sales of certain life insurance and annuity products previously offered by MLOA. Commissions decreased $36.2 million during 2006 to $36.7 million from $72.9 million in 2005, principally due to the absence of the reinsurance expense allowance paid under the MODCO agreement with USFL on all universal life policies prior to its being unwound on December 31, 2005 and a decrease in first year commissions due to the cessation of sales of certain life insurance and annuity products previously offered by MLOA. 7-1 Amortization of DAC and VOBA increased $14.2 million to $55.4 million in 2006 principally due to the $11.9 million increase in VOBA amortization due to higher margins on the variable universal life and variable annuity products. DAC capitalization totaled $27.2 million in 2006, a decrease of $50.9 million from $78.1 million in 2005. The lower capitalization was principally due to respective decrease of $41.6 million and $9.3 million in first year commissions and deferrable operating expenses due to the cessation of sales of certain life insurance and annuity products previously offered by MLOA. Other operating costs and expenses totaling $16.5 million in 2006 decreased $21.5 million from the $38.0 million reported in 2005 principally due a decrease in the cost of services provided to MLOA under its service agreement with AXA Equitable related to the cessation of sales of certain life insurance and annuity products previously offered by MLOA. Premiums and Deposits. Total premiums and deposits for life insurance and annuity products, excluding reinsurance assumed under the MODCO treaty with USFL, in 2006 decreased by $90.6 million to $329.9 million. The decrease was attributable to $12.6 million lower first year sales of life insurance products and lower renewals of life insurance and annuity products of $34.8 million and $43.2 million, respectively. Surrenders and Withdrawals. Surrenders and withdrawals increased from $651.6 million in 2005 to $769.9 million in 2006 due to the $131.8 million increase in individual annuities surrenders and withdrawals offset by a $13.5 million decrease for variable and interest-sensitive life products. The annualized annuities surrender rate increased to 18.1% in 2006 from 13.2% in 2005, while the variable and interest-sensitive life surrender rates decreased from 8.92% in 2005 to 8.27% in 2006. The decrease in surrenders on variable and interest-sensitive life due to lower COLI surrenders, $98.8 million in 2006 compared to $122.6 million in 2005. When the impact of the COLI surrenders is excluded, the trends in surrender and withdrawal rates described above continue to fall within the range of expected experience. LIQUIDITY AND CAPITAL RESOURCES MLOA's principal sources cash flows are premiums and charges on policies and contracts, investment income, repayments of principal and proceeds from sales of fixed maturities, and other General Account Investment Assets and capital contributions from MONY Life. MLOA's liquidity requirements principally relate to the payment of benefits under its various life insurance and annuity products cash payments in connection with policy surrenders, withdrawals and loans and payment of its operating expenses, including debt service on its note payable to an affiliate. Sources of Liquidity. MLOA's primary source of short-term liquidity to support its insurance operations is a pool of highly liquid, high quality short-term instruments structured to provide liquidity in excess of the expected cash requirements. At December 31, 2006, this asset pool included an aggregate of $55.5 million in highly liquid short-term investments, as compared to $126.3 million at December 31, 2005. In addition, a substantial portfolio of public bonds including U.S. Treasury and agency securities and other investment grade fixed maturities is available to meet MLOA's liquidity needs. Management believes there is sufficient liquidity in the form of short-term assets and its bond portfolio together with cash flows from operations and scheduled maturities of fixed maturities to satisfy MLOA's liquidity needs. Management continues to evaluate the products sold by MLOA as part of an overall review of products offered by AXA Equitable and AXA Financial's other insurance subsidiaries with a view towards reducing duplication of products, improving the quality of the product line-up and enhancing the overall profitability of AXA Financial Group. SUPPLEMENTARY INFORMATION At December 31, 2006, MLOA had a $30.6 million, 6.8% note payable outstanding with MONY Benefits Management Corp. ("MBMC"), an affiliate, which matures on March 5, 2014. Principal and interest are payable quarterly to MBMC. A schedule of future payments under certain of MLOA's contractual obligations follows: 7-2 CONTRACTUAL OBLIGATIONS - DECEMBER 31, 2006 (IN MILLIONS)
PAYMENTS DUE BY PERIOD ---------------------------------------------------------------- LESS THAN OVER TOTAL 1 YEAR 1 - 3 YEARS 4 - 5 YEARS 5 YEARS --------------- ---------------- ------------- -------------- --------------- Contractual obligations: Policyholders liabilities - policyholders' account balances, future policy benefits and other policyholders liabilities (1).. $ 4,125.6 $ 228.2 $ 378.9 $ 377.7 $ 3,140.8 Note payable to affiliate.................. 30.6 3.4 7.5 8.6 11.1 --------------- ---------------- ------------- -------------- --------------- Total Contractual Obligations............ $ 4,156.2 $ 231.6 $ 386.4 $ 386.3 $ 3,151.9 =============== ================ ============= ============== ===============
(1) Policyholders liabilities represent estimated cash flows out of the General Account related to the payment of death and disability claims, policy surrenders and withdrawals, annuity payments, minimum guarantees on Separate Account funded contracts, matured endowments, policyholder dividends and future renewal premium-based and fund-based commissions offset by contractual future premiums and deposits on in-force contracts. These estimated cash flows are based on mortality, morbidity and lapse assumptions comparable with the MLOA experience and assume market growth and interest crediting consistent with assumptions used in amortizing DAC and VOBA. These amounts are undiscounted and, therefore, exceed the Policyholders' account balances and Future policy benefits and other policyholder liabilities included in the consolidated balance sheet included elsewhere herein. They do not reflect projected recoveries from reinsurance agreements. Due to the use of assumptions, actual cash flows will differ from these estimates (see "Critical Accounting Estimates - Future Policy Benefits"). Separate Accounts liabilities have been excluded as they are legally insulated from General Account obligations and will be funded by cash flows from Separate Accounts assets. Interest on the note payable to affiliate will be approximately $2.0 million, $1.7 million, $1.5 million, $1.2 million and $1.0 million in 2007, 2008, 2009, 2010 and 2011, respectively. In addition, MLOA has financial obligations under contingent commitments at December 31, 2006 including guarantees or commitments to fund private fixed maturities, agricultural loans and floating rate commercial mortgages. Information on these contingent commitments can be found in Notes 5, 8 and 15 of Notes to Financial Statements. Further, MLOA is exposed to potential risk related to its own ceded reinsurance agreements with other insurers and to insurance guaranty fund laws in 49 states (excluding New York), the District of Columbia and Puerto Rico. Under these laws, insurers doing business in these states can be assessed amounts up to prescribed limits to protect policyholders of companies that become impaired or insolvent. CRITICAL ACCOUNTING ESTIMATES MLOA's management narrative is based upon MLOA's financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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. On an on-going basis, MLOA evaluates its estimates, including those related to investments, recognition of insurance income and related expenses, DAC and VOBA, future policy benefits and related expenses. MLOA bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The results of such factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions. MLOA believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. 7-3 Investments - MLOA records an investment impairment charge when it believes an investment has experienced a decline in fair value that is other than temporary. Identifying those situations requires management's careful consideration of the facts and circumstances including, but not limited to, the duration and extent to which the fair value has been depressed, the financial condition, cash flows, and near-term earnings potential of the issuer, as well as MLOA's ability and intent to retain the investment to allow sufficient time for any anticipated recovery in fair value. The basis for measuring fair value may require utilization of investment valuation methodologies, such as discounted cash flow analysis, if quoted market prices are not readily available. Recognition of Insurance Income and Related Expenses - Profits on non-participating traditional life policies and annuity contracts with life contingencies emerge from the matching of benefits and other expenses against the related premiums. Profits on universal life and investment-type contracts emerge from the matching of benefits and other expenses against the related contract margins. This matching is accomplished by means of the provision for liabilities for future policy benefits and the deferral, and subsequent amortization of policy acquisition costs. Trends in the general population and MLOA's own mortality, morbidity, persistency and claims experience have a direct impact on the benefits and expenses reported in any given period. DAC and VOBA - For universal life and investment-type contracts, DAC and VOBA amortization may be affected by changes in estimated gross profits and margins principally related to investment results, Separate Account fees, mortality and expense margins, lapse rates and anticipated surrender charges. Should revisions to estimated gross profits or margins be required, the effect is reflected in earnings in the period such estimated gross profits are revised. Additionally, the level of operating expenses that can be deferred is another significant factor in MLOA's reported profitability in any given period. VOBA was recorded in conjunction with the MONY Acquisition and represents the present value of estimated future profits from the insurance and annuity policies in-force when the business was acquired by AXA Financial. Future Policy Benefits - Future policy benefit liabilities for traditional policies are based on actuarial assumptions as to such factors as mortality, morbidity, persistency, interest and expenses. Determination of the GMDB/GMIB liabilities is based on models that involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates, mortality experience and, for GMIB, GMIB election rates. Premium deficiency reserves are based upon estimates of future gross premiums, expected policy benefits and other expenses. Pension Cost - Although MLOA has no employees, under service agreements with affiliates, MLOA is charged for services, including personnel services that include a component related to employee benefits (see Note 8 of Notes to Financial Statements). Net periodic pension cost is the aggregation of the compensation cost of benefits promised, interest cost resulting from deferred payment of those benefits, and investment results of assets dedicated to fund those benefits. Each cost component is based on the affiliated companies' best estimate of long-term actuarial and investment return assumptions. Actual experience different from that assumed generally is recognized prospectively over future periods; however, significant variances could result in immediate recognition if they exceed certain prescribed thresholds or in conjunction with a reconsideration of the related assumptions. Purchase Adjustments - The determination of the purchase adjustments relating to investments reflects management's reliance on independent price quotes where available. Other purchase adjustments required significant management estimates and assumptions. The purchase adjustments related to VOBA and liabilities, including policyholder reserves, required management to exercise judgment to assess the value of these items. MLOA's purchase adjustments resulted in a revalued balance sheet, which may result in future earnings trends that differ significantly from historical trends. Share-based and Other Compensation Programs - Although MLOA has no employees, under service agreements with affiliates, MLOA is charged for services, including personnel services that include a component related to employee benefits (see Note 8 of Notes to Financial Statements). Prior to the adoption of SFAS No. 123(R) on January 1, 2006, equity settled stock option awards only resulted in compensation expense if the current market price of the underlying stock exceeded the option strike price at the grant date. Compensation expense for cash settled award programs, such as tandem Stock Appreciation Rights and Performance Units, was recorded based upon changes in the fair value of the AXA ADRs or AXA shares. In connection with the adoption of SFAS No. 123(R), AXA Financial Group began recognizing compensation expense for the unvested portion of awards outstanding on January 1, 2006 over the balance of the vesting period and for new awards after January 1, 2006, for the fair values of the option awards over the vesting period. Significant factors that could affect results include, but are not limited to, assumptions incorporated in the option pricing models, changes in the market price of AXA ADRs and AXA ordinary shares and grants of additional awards. 7-4 PART II, ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MLOA's operations are subject to financial, market, political and economic risks, as well as to risks inherent in the business operations. The discussion that follows provides additional information on market risks arising from its insurance asset/liability management activities. Primary market risk exposure results from interest rate fluctuations and changes in credit quality. MLOA's results of operations significantly depend on profit margins between investment results from General Account Investment Assets and interest credited on individual insurance and annuity products. Management believes its fixed rate liabilities should be supported by a portfolio principally composed of fixed rate investments that generate predictable, steady rates of return. Although these assets are purchased for long-term investment, the portfolio management strategy considers them available for sale in response to changes in market interest rates, changes in prepayment risk, changes in relative values of asset sectors and individual securities and loans, changes in credit quality outlook and other relevant factors. See the "Investments" section of Note 3 of Notes to Financial Statements for the accounting policies for the investment portfolios. The objective of portfolio management is to maximize returns, taking into account interest rate and credit risks. Insurance asset/liability management includes strategies to minimize exposure to loss as interest rates and economic and market conditions change. As a result, the fixed maturity portfolio has modest exposure to call and prepayment risk and the vast majority of mortgage holdings are fixed rate mortgages that carry yield maintenance and prepayment provisions. MLOA's assets with interest rate risk include fixed maturities and mortgage loans that make up 89.4% of the carrying value of General Account Investment Assets at December 31, 2006. As part of its asset/liability management, quantitative analyses are used to model the impact various changes in interest rates have on assets with interest rate risk. The table that follows shows the impact an immediate 100 basis point increase in interest rates at December 31, 2006 and 2005 would have on the fair value of fixed maturities and mortgage loans:
DECEMBER 31, 2006 December 31, 2005 ------------------------------------ --------------------------------- BALANCE AFTER Balance After FAIR +100 BASE Fair +100 Base VALUE POINT CHANGE Value Point Change ----------------- ----------------- --------------- ----------------- (IN MILLIONS) Fixed maturities................................ $ 2,140.6 $ 2,039.8 $ 2,035.6 $ 1,937.0 Mortgage loans on real estate................... 220.0 212.7 291.3 280.4 ----------------- ----------------- --------------- ----------------- Total..................................... $ 2,360.6 $ 2,252.5 $ 2,326.9 $ 2,217.4 ================= ================= =============== =================
A 100 basis point fluctuation in interest rates is a hypothetical rate scenario used to demonstrate potential risk; it does not represent management's view of future market changes. While these fair value measurements provide a representation of interest rate sensitivity of fixed maturities and mortgage loans, they are based on various portfolio exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing portfolio activities in response to management's assessment of changing market conditions and available investment opportunities. At years end 2006 and 2005, the aggregate carrying value of policyholders' liabilities were $2,413.0 million and $2,485.0 million, respectively, including $870.3 million and $971.5 million of liabilities, respectively, related to the General Account's investment contracts. The aggregate fair value of those investment contracts at years end 2006 and 2005 were $897.7 million and $1,039.1 million, respectively. The impact of a relative 1% decrease in interest rates would be an increase in the fair value of those investment contracts to $964.4 million and $1,131.6 million, respectively. Those investment contracts represent only a portion of total policyholders' liabilities. As such, meaningful assessment of net market risk exposure cannot be made by comparing the results of the invested assets sensitivity analyses presented herein to the potential exposure from the policyholders' liabilities quantified in this paragraph. Asset/liability management is integrated into many aspects of MLOA's operations, including investment decisions, product development and determination of crediting rates. As part of the risk management process, numerous economic scenarios are modeled, including cash flow testing required for insurance regulatory purposes, to determine if existing assets would be sufficient to meet projected liability cash flows. Key variables include policyholder behavior, such as persistency, under differing crediting rate strategies. On the basis of these more comprehensive analyses, management believes there is minimal solvency risk to MLOA with respect to interest rate movements of 100 basis points from year-end 2006 levels. 7A-1 PART II, ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SCHEDULES MONY LIFE INSURANCE COMPANY OF AMERICA Report of Independent Registered Public Accounting Firm...................................................... F-1 Financial Statements: Balance Sheets, December 31, 2006 and December 31, 2005.................................................... F-2 Statements of Operations, Years Ended December 31, 2006 (Successor) and 2005 (Successor), Six months Ended December 31, 2004 (Successor) and Six Months Ended June 30, 2004 (Predecessor)......... F-3 Statements of Shareholder's Equity, Years Ended December 31, 2006, 2005 and 2004........................... F-4 Statements of Cash Flows, Years Ended December 31, 2006 (Successor) and 2005 (Successor), Six Months Ended December 31, 2004 (Successor) and Six Months Ended June 30, 2004 (Predecessor)......... F-5 Notes to Financial Statements.............................................................................. F-7 Report of Independent Registered Public Accounting Firm on Financial Statement Schedules..................... F-29 Financial Statement Schedules: Schedule I - Summary of Investments - Other Than Investments in Related Parties, December 31, 2006........ F-30 Schedule IV - Reinsurance, Years Ended December 31, 2006 (Successor) and 2005 (Successor), Six Months Ended December 31, 2004 (Successor) and Six Months Ended June 30, 2004 (Predecessor)......... F-31
FS-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of MONY Life Insurance Company of America In our opinion, the accompanying balance sheets and the related statements of operations, of shareholder's equity and of cash flows present fairly, in all material respects, the financial position of MONY Life Insurance Company of America at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005 and the six months ended December 31, 2004 and the six (predecessor) months ended June 30, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 of the Notes to Financial Statements, the Company changed its method of accounting for share-based compensation on January 1, 2006, for defined benefit pension and other postretirement plans on December 31, 2006 and for certain nontraditional long-duration contracts and separate accounts on January 1, 2004. /s/ PricewaterhouseCoopers LLP New York, New York March 15, 2007 F-1 MONY LIFE INSURANCE COMPANY OF AMERICA BALANCE SHEETS
DECEMBER 31, December 31, 2006 2005 ----------------- ------------------ (IN MILLIONS) ASSETS Investments: Fixed maturities available for sale, at estimated fair value........................... $ 2,140.6 $ 2,035.6 Mortgage loans on real estate.......................................................... 219.2 290.2 Policy loans........................................................................... 105.1 96.3 Other invested assets.................................................................. 53.4 54.8 ----------------- ------------ Total investments.................................................................. 2,518.3 2,476.9 Cash and cash equivalents................................................................. 58.8 129.7 Amounts due from reinsurers............................................................... 136.2 106.2 Deferred policy acquisition costs......................................................... 123.0 106.8 Value of business acquired................................................................ 287.7 328.2 Other assets.............................................................................. 30.6 29.5 Separate Accounts' assets................................................................. 3,289.0 3,485.1 ----------------- ------------ Total Assets ............................................................................. $ 6,443.6 $ 6,662.4 ================= ============ LIABILITIES Policyholders' account balances........................................................... $ 2,057.6 $ 2,175.9 Future policy benefits and other policyholders liabilities................................ 355.4 309.1 Other liabilities......................................................................... 48.3 47.4 Note payable to affiliate................................................................. 30.6 33.8 Income taxes payable...................................................................... 64.9 50.6 Separate Accounts' liabilities............................................................ 3,289.0 3,485.1 ----------------- ------------ Total liabilities.................................................................. $ 5,845.8 $ 6,101.9 Commitments and contingent liabilities (Notes 5, 9, 14 and 15) SHAREHOLDER'S EQUITY Common stock, $1.00 par value; 5.0 million shares authorized, 2.5 million issued and outstanding..................................................... 2.5 2.5 Capital in excess of par value............................................................ 498.5 495.8 Retained earnings......................................................................... 107.9 67.8 Accumulated other comprehensive loss...................................................... (11.1) (5.6) ----------------- ------------ Total shareholder's equity......................................................... 597.8 560.5 ----------------- ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................................................ $ 6,443.6 $ 6,662.4 ================= ============
See Notes to Financial Statements. F-2 MONY LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS
YEAR Year Six Six ENDED Ended Months Ended Months Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------ ------------ ------------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) REVENUES Universal life and investment-type product policy fee income................................................. $ 150.0 $ 168.3 $ 80.8 $ 82.7 Premiums.................................................. 49.9 53.8 85.0 77.4 Net investment income..................................... 141.4 135.0 62.8 64.3 Investment losses, net.................................... (1.2) (2.2) (4.6) (0.7) Other income.............................................. 15.5 22.0 26.7 7.4 ------------- ------------ ------------ ------------- Total revenues..................................... 355.6 376.9 250.7 231.1 BENEFITS AND OTHER DEDUCTIONS Policyholders' benefits................................... 98.1 99.5 91.2 80.8 Interest credited to policyholders' account balances...... 86.1 99.9 50.0 54.1 Compensation and other benefits........................... 27.4 33.4 32.1 45.8 Commissions............................................... 36.7 72.9 76.5 85.5 Interest expense.......................................... 2.2 1.6 1.3 1.3 Amortization of deferred policy acquisition costs and value of business acquired............................. 55.4 41.2 22.4 34.7 Capitalization of deferred policy acquisition costs ...... (27.2) (78.1) (87.5) (93.8) Rent expense.............................................. 3.7 10.5 3.0 9.8 Other operating costs and expenses........................ 16.5 38.0 22.8 38.2 ------------- ------------ ------------ ------------- Total benefits and other deductions............... 298.9 318.9 211.8 256.4 ------------- ------------ ------------ ------------- Earnings (loss) from continuing operations before income taxes.................................... 56.7 58.0 38.9 (25.3) Income tax (expense) benefit.............................. (17.3) (16.7) (12.4) 10.5 ------------- ------------ ------------ ------------- Earnings (loss) from continuing operations................ 39.4 41.3 26.5 (14.8) Gain on disposal of discontinued operations, net of income taxes.................................... 0.7 - - - Cumulative effect of accounting change, net of income taxes.................................... - - - 3.8 ------------- ------------ ------------ ------------- Net Earnings (Loss)....................................... $ 40.1 $ 41.3 $ 26.5 $ (11.0) ============= ============ ============ =============
F-3 See Notes to Financial Statements. MONY LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF SHAREHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
ACCUMULATED CAPITAL OTHER TOTAL COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S STOCK OF PAR EARNINGS INCOME(LOSS) EQUITY ----------- ------------- -------------- --------------- -------------- (IN MILLIONS) Predecessor balance, January 1, 2004................. $ 2.5 $ 599.7 $ 139.2 $ 24.2 $ 765.6 Comprehensive loss: Net loss....................................... - - (11.0) - (11.0) Other comprehensive loss....................... - - - (11.4) (11.4) -------------- Comprehensive loss....................... (22.4) ----------- ------------- -------------- --------------- -------------- Predecessor balance, June 30, 2004................... 2.5 599.7 128.2 12.8 743.2 Effect of push-down accounting of AXA Financial's purchase price on net assets...................... - (153.0) (128.2) (12.8) (294.0) ----------- ------------- -------------- --------------- -------------- Successor balance, July 1, 2004...................... 2.5 446.7 - - 449.2 Capital contributions................................ - 49.1 - - 49.1 Comprehensive income: Net earnings................................... - - 26.5 - 26.5 Other comprehensive income..................... - - - 14.9 14.9 -------------- Comprehensive income..................... 41.4 ----------- ------------- -------------- --------------- -------------- Successor balance, December 31, 2004................. 2.5 495.8 26.5 14.9 539.7 Comprehensive income: Net earnings................................... - - 41.3 - 41.3 Other comprehensive loss....................... - - - (20.5) (20.5) -------------- Comprehensive income..................... 20.8 ----------- ------------- -------------- --------------- -------------- Successor balance, December 31, 2005................. 2.5 495.8 67.8 (5.6) 560.5 Share-based programs................................. - 2.7 - - 2.7 Comprehensive income: Net earnings................................... - - 40.1 - 40.1 Other comprehensive loss....................... - - - (5.5) (5.5) -------------- Comprehensive income......................... 34.6 ----------- ------------- -------------- --------------- -------------- Successor balance, December 31, 2006................. $ 2.5 $ 498.5 $ 107.9 $ (11.1) $ 597.8 =========== ============= ============== =============== ==============
F-4 See Notes to Financial Statements. MONY LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOWS
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------- ------------- ------------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Net earnings (loss)................................................ $ 40.1 $ 41.3 $ 26.5 $ (11.0) Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Interest credited to policyholders' account balances.......... 86.1 99.9 50.0 54.1 Universal life and investment-type product policy fee income.. (150.0) (168.3) (80.8) (82.7) Change in accrued investment income........................... (0.7) (1.8) (3.0) 4.7 Investment losses, net ....................................... 1.2 2.2 4.6 0.7 Change in deferred policy acquisition costs and value of business acquired.................................. 28.2 (36.9) (65.1) (60.8) Change in future policy benefits.............................. 25.7 67.5 (5.3) (1.7) Change in other policyholders liabilities..................... 17.0 (10.0) 6.4 (1.5) Change in other income tax payable............................ 17.3 16.7 12.4 (10.5) Provision for depreciation and amortization................... 12.1 14.1 7.9 1.5 Cumulative effect of the adoption of SOP 03-1................. - - - (5.9) Gain on disposal of discontinued operations................... (0.7) - - - Gain on recapture from reinsurance from USFL.................. - (0.6) (9.0) - Dividend from AllianceBernstein units......................... 4.8 3.8 - - Other, net.................................................... (16.3) (26.7) (32.8) 59.6 ------------- ------------- ------------- ----------- Net cash provided by (used in) operating activities................ 64.8 1.2 (88.2) (53.5) ------------- ------------- ------------- ----------- Cash flows from investing activities: Sales, maturities or repayments of investments: Fixed maturities............................................... 270.8 173.5 188.7 431.5 Mortgage loans on real estate.................................. 87.5 100.8 93.8 43.0 Other invested assets.......................................... 2.7 - 4.3 0.1 Purchases of investments: Fixed maturities............................................... (398.7) (348.0) (473.1) (272.4) Mortgage loans on real estate.................................. (16.1) (18.1) (18.7) (66.1) Other invested assets.......................................... (1.5) (0.1) (0.4) (0.2) Policy loans, net.............................................. (8.9) (3.3) (3.9) (3.0) ------------- ------------- ------------- ----------- Net cash (used in) provided by investing activities................ (64.2) (95.2) (209.3) 132.9 ------------- ------------- ------------- -----------
F-5 See Notes to Financial Statements. MONY LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------- ------------- ------------ (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Cash flows from financing activities: Policyholders' account balances: Deposits................................................. $ 392.9 $ 521.4 $ 284.6 $ 477.8 Withdrawals from and transfers to Separate Accounts...... (463.9) (505.7) (196.9) (337.1) Repayment of note to affiliate.............................. (3.2) (3.0) (1.4) (1.4) Proceeds received from recapture of reinsurance with USFL... - 12.2 10.4 - Other, net.................................................. 2.7 - - - ------------- ------------- ------------- -------------- Net cash (used in) provided by financing activities........... (71.5) 24.9 96.7 139.3 ------------- ------------- ------------- -------------- Change in cash and cash equivalents........................... (70.9) (69.1) (200.8) 218.7 Cash and cash equivalents, beginning of period................ 129.7 198.8 399.6 180.9 ------------- ------------- ------------- -------------- Cash and Cash Equivalents, End of Period...................... $ 58.8 $ 129.7 $ 198.8 $ 399.6 ============= ============= ============= ============== Supplemental cash flow information: Interest Paid............................................... $ 2.2 $ 2.4 $ 1.3 $ 1.3 ============= ============= ============= ============== Income Taxes Refunded....................................... $ - $ - $ (48.2) $ - ============= ============= ============= ============== Schedule of non-cash financing activities: Capital Contribution of AllianceBernstein Units from MONY Life........................................... $ - $ - $ 49.1 $ - ============= ============= ============= =============== Share-based Programs........................................ $ 2.7 $ - $ - $ - ============= ============= ============= =============== Transfer of Bonds from USFL Due to Recapture of Reinsurance with USFL (Note 8)........................... $ - $ - $ 84.6 $ - ============= ============= ============= ===============
F-6 See Notes to Financial Statements. MONY LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS 1) ORGANIZATION MONY Life Insurance Company of America ("MLOA"), an Arizona stock life insurance company whose primary business is to provide life insurance and annuity products to both individuals and businesses, is a wholly-owned subsidiary of MONY Life Insurance Company ("MONY Life"). MONY Life is a wholly owned subsidiary of MONY Holdings, LLC ("MONY Holdings"), which is a downstream holding company of AXA Financial, Inc. ("AXA Financial", which together with its consolidated subsidiaries is referred to herein as "AXA Financial Group"). On July 8, 2004, the acquisition of The MONY Group Inc. ("MONY") by AXA Financial (the "MONY Acquisition") was completed and, under the terms of the related merger agreement, AXA Financial paid or made provisions to pay MONY shareholders approximately $1.5 billion in cash, representing $31.00 for each share of MONY's common stock. MONY shareholders also received a dividend from MONY totaling $0.34755 per share. The MONY Acquisition was accounted for using the purchase method under Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". In connection with the acquisition, MLOA adjusted the cost basis of its assets and liabilities to fair value on the acquisition date (the "Purchase Adjustments"). References in these financial statements to "Predecessor" refer to MLOA prior to July 1, 2004. References to "Successor" refer to MLOA on and after July 1, 2004, after giving effect to the implementation of the Purchase Adjustments. For accounting purposes (due to convenience and immateriality of the results of MONY and its subsidiaries from July 1 through July 8), AXA Financial has consolidated MONY and its subsidiaries and reflected its results from July 1, 2004 in its consolidated statements of earnings and consolidated cash flows. MLOA's activity for the period from July 1, 2004 through July 8, 2004 is therefore included in the Successor's statement of operations and excluded from the Predecessor's statement of operations. The Predecessor's statement of operations is presented using MLOA's historical basis of accounting. The determination of the Purchase Adjustments relating to investments reflects management's reliance on independent price quotes where available. Other Purchase Adjustments required significant management estimates and assumptions. The Purchase Adjustments related to Value of Business Acquired ("VOBA") and liabilities, including policyholder reserves, required management to exercise judgment to assess the value of these items. The Purchase Adjustments resulted in a revalued balance sheet, which may result in future earnings trends that differ significantly from historical trends. MLOA does not anticipate any material impact on its liquidity, or its ability to pay policyholders claims, arising out of the purchase accounting process related to the merger. 2) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation --------------------- The preparation of the accompanying financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and 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 financial statements reflect all adjustments necessary in the opinion of management to present fairly the financial position of MLOA and its results of operations and cash flows for the periods presented. The terms "full year 2006" and "full year 2005" refers to the year ended December 31, 2006 and 2005, respectively. The terms "six months ended December 31, 2004" and "six months ended June 30, 2004" refer to the 2004 Successor and Predecessor periods, respectively. References to "Successor" refer to MLOA on or after July 1, 2004, after giving effect to the implementation of the Purchase Adjustments recorded in connection with the MONY Acquisition. Certain reclassifications have been made in the amounts presented for prior periods to conform to the current presentation. F-7 Accounting Changes ------------------ Although MLOA has no employees, under service agreements with affiliates, MLOA is charged for services, including personnel services and employee benefits, provided on its behalf. On December 31, 2006, AXA Financial Group implemented SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," requiring employers to recognize the over or under funded status of such benefit plans as an asset or liability in the balance sheet for reporting periods ending after December 15, 2006 and to recognize subsequent changes in that funded status as a component of other comprehensive income. The funded status of a plan is measured as the difference between plan assets at fair value and the projected benefit obligation for pension plans or the benefit obligation for any other postretirement plan. SFAS No. 158 does not change the determination of net periodic benefit cost or its presentation in the statement of earnings. However, its requirements represent a significant change to previous accounting guidance that generally delayed recognition of certain changes in plan assets and benefit obligations in the balance sheet and only required disclosure of the complete funded status of the plans in the notes to the financial statements. SFAS No. 158 imposes an additional requirement, effective for fiscal years ending after December 15, 2008, to measure plan assets and benefit obligations as of the date of the employer's year-end balance sheet, thereby eliminating the option to elect an earlier measurement date alternative of not more than three months prior to that date, if used consistently each year. This provision of SFAS No. 158 will have no impact on AXA Financial Group as it already uses a December 31 measurement date for all of its plan assets and benefits obligations. The adoption of SFAS No. 158 did not have an impact on MLOA's results of operations or financial position. On January 1, 2006, AXA Financial Group, including MLOA, adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment". To effect its adoption, AXA Financial Group elected the "modified prospective method" of transition. Under this method, prior-period results were not restated. Prior to the adoption of SFAS No. 123(R), AXA Financial Group, including MLOA, had elected to continue to account for stock-based compensation in accordance with Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," and, as a result, the recognition of stock-based compensation expense generally was limited to amounts attributed to awards of restricted shares, and various other cash-settled programs such as stock appreciation rights. SFAS No. 123(R) requires the cost of all share-based payments to employees to be recognized in the financial statements based on their fair values, resulting in compensation expense for certain types of AXA Financial Group's equity-classified award programs for which no cost previously would have been charged to net earnings under APB No. 25, most notably for employee options to purchase AXA American Depository Receipts ("ADRs") and AXA ordinary shares and for employee stock purchase plans. As a result of adopting SFAS No. 123(R) on January 1, 2006, MLOA's earnings before income taxes and net earnings for 2006 were $2.7 million and $1.7 million lower, respectively, than if these plans had continued to be accounted for under APB No. 25. Under the modified prospective method, AXA Financial Group applied the measurement, recognition, and attribution requirements of SFAS No. 123(R) to stock-based compensation awards granted, modified, repurchased or cancelled on or after January 1, 2006. In addition, beginning in first quarter 2006, costs associated with unvested portions of outstanding employee stock option awards at January 1, 2006, that prior to adoption of SFAS No. 123(R) would have been reflected by MLOA only in pro forma disclosures, were recognized in MLOA's statements of operations over the awards' remaining future service/vesting periods. Liability-classified awards outstanding at January 1, 2006, such as performance units and stock appreciation rights, were remeasured to fair value. The remeasurement resulted in no adjustment to their intrinsic value basis, including the cumulative effect of differences between actual and expected forfeitures, primarily due to the de minimis time remaining to expected settlement of these awards. On January 1, 2006, MLOA adopted the provisions of SFAS No. 154, "Accounting Changes and Error Corrections," a replacement of APB No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include transition provisions. To enhance comparability, this statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The cumulative effect of the change is reported in the carrying value of assets and liabilities as of the first period presented, with the offset applied to opening retained earnings. Each period presented is adjusted to show the period specific effects of the change. Only direct effects of the change will be retrospectively recognized; indirect effects will be recognized in the period of change. SFAS No. 154 carries forward without change APB No. 20's guidance for reporting the correction of an error and a change in accounting estimate as well as SFAS No. 3's provisions governing reporting accounting changes in interim financial statements. The adoption of SFAS No. 154 did not have an impact on MLOA's results of operations or financial position. F-8 Effective January 1, 2004, MLOA adopted the American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". SOP 03-1 required a change in MLOA's accounting policies relating to (a) liabilities associated with market value adjusted fixed rate investment options available in certain variable annuity contracts issued by MLOA, and (b) liabilities related to certain mortality and annuitization benefits, such as the no lapse guarantee feature contained in variable and interest-sensitive life policies. The adoption of SOP 03-1 resulted in a change in liabilities associated with the market value adjustment feature that are now reported at the accrued account balance. Prior to the adoption of SOP 03-1, such liabilities had been reported at market adjusted value. The adoption of SOP 03-1 resulted in a change in the method of determining liabilities associated with the no lapse guarantee feature contained in variable and interest-sensitive life contracts. While both MLOA's previous method of establishing the no lapse guarantee reserve and the SOP 03-1 method are based on accumulation of a portion of the charges for the no lapse guarantee feature, SOP 03-1 specifies a different approach for identifying the portion of the fee to be accrued and establishing the related reserve. The adoption of SOP 03-1 as of January 1, 2004 resulted in a decrease in the six months ended June 30, 2004 Predecessor net loss of $3.8 million related to the cumulative effect of the required changes in accounting. The determination of liabilities associated with mortality and annuitization benefits, as well as related impacts on deferred acquisition costs, is based on models that involve numerous estimates and subjective judgments. There can be no assurance that the ultimate actual experience will not differ from management's estimates. New Accounting Pronouncements ----------------------------- On September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". SFAS No. 157 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 are already required or permitted by other accounting standards, except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, with earlier application encouraged. Management is currently assessing the potential impacts of adoption of SFAS No. 157. On July 13, 2006, the FASB issued its Interpretation ("FIN") 48, "Accounting for Uncertainty in Income Taxes," to clarify the criteria used to recognize and measure the economic benefits associated with tax positions taken or expected to be taken in a tax return. Under FIN 48, a tax benefit is recognized only if it is "more likely than not" to be sustained assuming examination by the taxing authority, based on the technical merits of the position. Tax positions meeting the recognition criteria are required to be measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon ultimate settlement and, accordingly, requires consideration of the amounts and probabilities of potential settlement outcomes. FIN 48 also addresses subsequent derecognition of tax positions, changes in the measurement of recognized tax positions, accrual and classification of interest and penalties, and accounting in interim periods. FIN 48 is effective for fiscal years beginning after December 15, 2006, thereby requiring application of its provisions, including the threshold criteria for recognition, to all tax positions of MLOA as at January 1, 2007. The cumulative effect of applying FIN 48, if any, is to be reported as an adjustment to the opening balance of retained earnings. In addition, annual disclosures with respect to income taxes have been expanded by FIN 48 and require inclusion of a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the reporting period. Management is currently assessing the potential impacts of adoption of FIN 48. On September 19, 2005, the AICPA released SOP 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts". SOP 05-1 requires identification of transactions that result in a substantial change in an insurance contract. Transactions subject to review include internal contract exchanges, contract modifications via amendment, rider or endorsement and elections of benefits, features or rights contained within the contract. If determined that a substantial change has occurred, the related deferred policy acquisition costs ("DAC"), VOBA and other related balances must be written off. The SOP is effective for transactions occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. Restatement of previously issued annual financial statements is not permitted, and disclosure of the pro forma effects of retroactive application or the pro forma effect on the year of adoption is not required. The adoption of SOP 05-1 is not expected to have a material impact on MLOA's results of operations or financial position. F-9 Investments ----------- The carrying values of fixed maturities identified as available for sale are reported at estimated fair value. Changes in estimated fair value are reported in comprehensive income. The amortized cost of fixed maturities is adjusted for impairments in value deemed to be other than temporary. The redeemable preferred stock investments reported in fixed maturities include real estate investment trust ("REIT") perpetual preferred stock, other perpetual preferred stock and redeemable preferred stock. These securities may not have a stated maturity, may not be cumulative and do not provide for mandatory redemption by the issuer. Mortgage loans on real estate are stated at unpaid principal balances, net of unamortized discounts and valuation allowances. Valuation allowances are based on the present value of expected future cash flows discounted at the loan's original effective interest rate or on its collateral value if the loan is collateral dependent. However, if foreclosure is or becomes probable, the collateral value measurement method is used. Impaired mortgage loans without provision for losses are loans where the fair value of the collateral or the net present value of the expected future cash flows related to the loan equals or exceeds the recorded investment. Interest income earned on loans where the collateral value is used to measure impairment is recorded on a cash basis. Interest income on loans where the present value method is used to measure impairment is accrued on the net carrying value amount of the loan at the interest rate used to discount the cash flows. Changes in the present value attributable to changes in the amount or timing of expected cash flows are reported as investment gains or losses. Real estate held for the production of income, including real estate acquired in satisfaction of debt, is stated at depreciated cost less valuation allowances. At the date of foreclosure (including in-substance foreclosure), real estate acquired in satisfaction of debt is valued at estimated fair value. Impaired real estate is written down to fair value with the impairment loss being included in investment gains (losses), net. Depreciation of real estate held for production of income is computed using the straight-line method over the estimated useful lives of the properties, which generally range from 40 to 50 years. Valuation allowances are netted against the asset categories to which they apply. Policy loans are stated at unpaid principal balances. Partnerships and joint venture interests in which MLOA has control and a majority economic interest (that is, greater than 50% of the economic return generated by the entity) or those that meet FIN 46(R), "Consolidation of Variable Interest Entities, Revised," requirements for consolidation are consolidated; those in which MLOA does not have control and a majority economic interest and those that do not meet FIN 46(R) requirements for consolidation are reported on the equity basis of accounting and are included either with Equity real estate or Other equity investments, as appropriate. Equity securities include common stock classified as available for sale securities are carried at estimated fair value and are included in Other invested assets. Units held in AllianceBernstein L.P. ("AllianceBernstein") are carried on the equity method and reported in Other invested assets. Short-term investments are stated at amortized cost that approximates fair value and are included in Other invested assets. Cash and cash equivalents includes cash on hand, amounts due from banks and highly liquid debt instruments purchased with an original maturity of three months or less. All securities owned including U.S. government and agency securities and mortgage-backed securities are recorded in the financial statements on a trade date basis. Net Investment Income, Investment Gains (Losses), Net and Unrealized -------------------------------------------------------------------- Investment Gains (Losses) ------------------------- Realized investment gains (losses) are determined by identification with the specific asset and are presented as a component of revenue. Changes in the valuation allowances are included in investment gains or losses. Unrealized investment gains and losses on fixed maturities and equity securities available for sale held by MLOA are accounted for as a separate component of accumulated comprehensive income, net of related deferred income taxes, amounts attributable to DAC and VOBA related to universal life and investment-type products. F-10 Fair Value of Financial Instruments ----------------------------------- MLOA defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time MLOA's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. Certain financial instruments are excluded from fair value disclosures, particularly insurance liabilities other than financial guarantees and investment contracts. Fair values for mortgage loans on real estate are estimated by discounting future contractual cash flows using interest rates at which loans with similar characteristics and credit quality would be made. Fair values for foreclosed mortgage loans and problem mortgage loans are limited to the estimated fair value of the underlying collateral if lower. Fair values of policy loans are estimated by discounting the face value of the loans from the time of the next interest rate review to the present, at a rate equal to the excess of the current estimated market rates over the current interest rate charged on the loan. The estimated fair values for MLOA's supplementary contracts not involving life contingencies ("SCNILC") and certain annuities, which are included in policyholders' account balances, are estimated using projected cash flows discounted at rates reflecting expected current offering rates. The fair values for single premium deferred annuities, included in policyholders' account balances, are estimated as the discounted value of projected account values. Current account values are projected to the time of the next crediting rate review at the current crediting rates and are projected beyond that date at the greater of current estimated market rates offered on new policies or the guaranteed minimum crediting rate. Expected cash flows and projected account values are discounted back to the present at the current estimated market rates. Fair values for the note payable to affiliate are determined using contractual cash flows discounted at market interest rates. Recognition of Insurance Income and Related Expenses ---------------------------------------------------- Premiums from universal life and investment-type contracts are reported as deposits to policyholders' account balances. Revenues from these contracts consist of amounts assessed during the period against policyholders' account balances for mortality charges, policy administration charges and surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policyholders' account balances. Premiums from non-participating traditional life and annuity policies with life contingencies generally are recognized as income when due. Benefits and expenses are matched with such income so as to result in the recognition of profits over the life of the contracts. This match is accomplished by means of the provision for liabilities for future policy benefits and the deferral and subsequent amortization of policy acquisition costs. For contracts with a single premium or a limited number of premium payments due over a significantly shorter period than the total period over which benefits are provided, premiums are recorded as revenue when due with any excess profit deferred and recognized in income in a constant relationship to insurance in-force or, for annuities, the amount of expected future benefit payments. DAC and VOBA ------------ Acquisition costs that vary with and are primarily related to the acquisition of new and renewal insurance business, including commissions, underwriting, agency and policy issue expenses, are deferred. DAC is subject to recoverability testing at the time of policy issue and loss recognition testing at the end of each accounting period. VOBA, which arose from the MONY Acquisition, was established in accordance with business combination purchase accounting guidance. VOBA is the actuarially determined present value of estimated future gross profits of insurance contracts in force at the date of the acquisition. VOBA is amortized over the expected life of the contracts (approximately 10-30 years) F-11 according to the type of contract using the methods described below as applicable. VOBA is subject to loss recognition testing at the end of each accounting period. For universal life products and investment-type products, DAC and VOBA are amortized over the expected total life of the contract group as a constant percentage of estimated gross profits arising principally from investment results, Separate Account fees, mortality and expense margins and surrender charges based on historical and anticipated future experience, updated at the end of each accounting period. The effect on the amortization of DAC and VOBA of revisions to estimated gross profits is reflected in earnings in the period such estimated gross profits are revised. A decrease in expected gross profits would accelerate DAC and VOBA amortization. Conversely, an increase in expected gross profits would slow DAC and VOBA amortization. The effect on the DAC and VOBA assets that would result from realization of unrealized gains (losses) is recognized with an offset to accumulated comprehensive income in shareholder's equity as of the balance sheet date. A significant assumption in the amortization of DAC and VOBA on variable and interest-sensitive life insurance and variable annuities relates to projected future Separate Account performance. Expected future gross profit assumptions related to Separate Account performance are set by management using a long-term view of expected average market returns by applying a reversion to the mean approach. In applying this approach to develop estimates of future returns, it is assumed that the market will return to an average gross long-term return estimate, developed with reference to historical long-term equity market performance and subject to assessment of the reasonableness of resulting estimates of future return assumptions. For purposes of making this reasonableness assessment, management has set limitations as to maximum and minimum future rate of return assumptions, as well as a limitation on the duration of use of these maximum or minimum rates of return. Currently, the average gross long-term annual return estimate is 9.0% (6.9% net of product weighted average Separate Account fees), and the gross maximum and minimum annual rate of return limitations are 15.0% (12.92% net of product weighted average Separate Account fees) and 0% (-2.08% net of product weighted average Separate Account fees), respectively. The maximum duration over which these rate limitations may be applied is 5 years. This approach will continue to be applied in future periods. If actual market returns continue at levels that would result in assuming future market returns of 15% for more than 5 years in order to reach the average gross long-term return estimate, the application of the 5-year maximum duration limitation would result in an acceleration of DAC and VOBA amortization. Conversely, actual market returns resulting in assumed future market returns of 0% for more than 5 years would result in a required deceleration of DAC and VOBA amortization. As of December 31, 2006, current projections of future average gross market returns assume a 0.5% return for 2007, which is within the maximum and minimum limitations, and assume a reversion to the mean of 9.0% after 7 quarters. In addition, projections of future mortality assumptions related to variable and interest-sensitive life products are based on a long-term average of actual experience. This assumption is updated quarterly to reflect recent experience as it emerges. Improvement of life mortality in future periods from that currently projected would result in future deceleration of DAC and VOBA amortization. Conversely, deterioration of life mortality in future periods from that currently projected would result in future acceleration of DAC and VOBA amortization. Generally, life mortality experience has been improving in recent years. Other significant assumptions underlying gross profit estimates relate to contract persistency and general account investment spread. For non-participating traditional life policies, DAC and VOBA are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings in the period such deviations occur. For these contracts, the amortization periods generally are for the total life of the policy. Policyholders' Account Balances and Future Policy Benefits ---------------------------------------------------------- Policyholders' account balances for universal life and investment-type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments plus credited interest less expense and mortality charges and withdrawals. MLOA issues certain variable annuity products with a Guaranteed Minimum Death Benefit ("GMDB") feature. MLOA also issues certain variable annuity products that contain a Guaranteed Minimum Income Benefit ("GMIB") feature which, if elected by the policyholder after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates that may be in excess of what the contract account value can purchase at then-current annuity purchase rates. This minimum lifetime annuity is based on predetermined annuity purchase rates applied to a guaranteed minimum income benefit base. The risk associated with the GMDB and GMIB features is that a protracted under-performance of the financial markets could result in GMDB and GMIB benefits being higher than what accumulated policyholder account balances would support. Reserves for GMDB and GMIB obligations are calculated on the basis of actuarial assumptions related to projected benefits and related contract charges generally over the lives of the contracts using assumptions consistent with F-12 those used in estimating gross profits for purposes of amortizing DAC and VOBA. The determination of this estimated liability is based on models which involve numerous estimates and subjective judgments, including those regarding expected market rates of return and volatility, contract surrender rates, mortality experience, and, for GMIB, GMIB election rates. Assumptions regarding Separate Account performance used for purposes of this calculation are set using a long-term view of expected average market returns by applying a reversion to the mean approach, consistent with that used for DAC and VOBA amortization. There can be no assurance that ultimate actual experience will not differ from management's estimates. For reinsurance contracts, reinsurance recoverable balances are calculated using methodologies and assumptions that are consistent with those used to calculate the direct liabilities. For non-participating traditional life insurance policies, future policy benefit liabilities are estimated using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established at policy issue. Assumptions established at policy issue as to mortality and persistency are based on MLOA's experience that, together with interest and expense assumptions, includes a margin for adverse deviation. When the liabilities for future policy benefits plus the present value of expected future gross premiums for a product are insufficient to provide for expected future policy benefits and expenses for that product, DAC and VOBA are written off and thereafter, if required, a premium deficiency reserve is established by a charge to earnings. Benefit liabilities for traditional annuities during the accumulation period are equal to accumulated contractholders' fund balances and, after annuitization, are equal to the present value of expected future payments. Interest rates used in establishing such liabilities range from 3.0% to 6.0% for life insurance liabilities and from 3.0% to 6.75% for annuity liabilities. Separate Accounts ----------------- Generally, Separate Accounts established under Arizona State Insurance Law are not chargeable with liabilities that arise from any other business of MLOA. Separate Accounts' assets are subject to General Account claims only to the extent Separate Accounts' assets exceed Separate Accounts' liabilities. Assets and liabilities of the Separate Accounts represent the net deposits and accumulated net investment earnings less fees, held primarily for the benefit of contractholders, and for which MLOA does not bear the investment risk. Separate Accounts' assets and liabilities are shown on separate lines in the balance sheets. Assets held in the Separate Accounts are carried at quoted market values or, where quoted values are not readily available, at estimated fair values as determined by MLOA. The investment results of Separate Accounts on which MLOA does not bear the investment risk are reflected directly in Separate Accounts' liabilities and are not reported in revenues in the statements of operations. For the years ended December 31, 2006, 2005 and 2004, investment results of such Separate Accounts were gains of $358.6 million, $197.5 million and $371.2 million, respectively. Deposits to Separate Accounts are reported as increases in Separate Accounts' liabilities and are not reported in revenues. Mortality, policy administration and surrender charges on all policies including those funded by Separate Accounts are included in revenues. Other Accounting Policies ------------------------- MLOA filed a consolidated Federal income tax return with its parent, MONY Life, and with MONY Life's other life and non-life subsidiaries for the Predecessor periods. Beginning in the Successor period, MLOA files a consolidated Federal income tax return with its parent, MONY Life, and with MONY Life's other life subsidiaries. Under the life insurance provisions of the Internal Revenue Code, life insurance companies cannot file a consolidated Federal income tax return with their ultimate parent for a period of five years from the date of acquisition. Deferred income tax assets and liabilities are recognized based on the difference between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws. The method of allocation between the companies is subject to written agreement, approved by the Board of Directors. The allocation of Federal income taxes will be based upon separate return calculations with current credit for losses and other Federal income tax credits provided to the life insurance members of the affiliated group. Intercompany balances are settled annually in the fourth quarter of the year in which the return is filed. Discontinued operations include real estate held-for-sale. Real estate investments meeting the following criteria are classified as real estate held-for-sale: o Management having the authority to approve the action commits the organization to a plan to sell the property. o The property is available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets. F-13 o An active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated and are continuing. o The sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year. o The asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. o Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Real estate held-for-sale is stated at depreciated cost less valuation allowances. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or current estimated fair value, net of disposition costs. Depreciation is discontinued on real estate held-for-sale. Real estate held-for-sale is included in the Other assets line in the balance sheets. The results of operations for real estate held-for-sale in each of the three years ended December 31, 2006 were not significant. 3) INVESTMENTS Fixed Maturities ---------------- The following table provides additional information relating to fixed maturities.
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE -------------- --------------- ---------------- -------------- (IN MILLIONS) DECEMBER 31, 2006 ----------------- Fixed Maturities: Available for Sale: Corporate......................... $ 1,869.0 $ 6.7 $ 31.1 $ 1,844.6 Mortgage-backed................... 20.2 - - 20.2 U.S. Treasury, government and agency securities........... 138.5 0.4 0.5 138.4 States and political subdivisions.................... 1.1 - - 1.1 Foreign governments............... 4.1 - 0.1 4.0 Redeemable preferred stock........ 134.4 1.4 3.5 132.3 -------------- --------------- ---------------- -------------- Total Available for Sale........ $ 2,167.3 $ 8.5 $ 35.2 $ 2,140.6 ============== =============== ================ ============== December 31, 2005 ----------------- Fixed Maturities: Available for Sale: Corporate......................... $ 1,843.9 $ 9.3 $ 23.4 $ 1,829.8 Mortgage-backed................... 24.9 0.3 - 25.2 U.S. Treasury, government and agency securities........... 92.3 0.4 0.5 92.2 States and political subdivisions.................... 1.1 - - 1.1 Foreign governments............... 10.2 0.1 0.1 10.2 Redeemable preferred stock........ 77.6 1.1 1.6 77.1 -------------- --------------- ---------------- -------------- Total Available for Sale........ $ 2,050.0 $ 11.2 $ 25.6 $ 2,035.6 ============== =============== ================ ==============
For publicly traded fixed maturities, estimated fair value is determined using quoted market prices. For fixed maturities without a readily ascertainable market value, MLOA determines estimated fair values using a discounted cash flow approach, including provisions for credit risk, generally based on the assumption such securities will be held to maturity. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the dates of the balance sheets. At December 31, 2006 and 2005, securities without a readily ascertainable market value having an amortized cost of $534.7 million and $527.1 million, respectively, had estimated fair values of $529.6 million and $527.0 million, respectively. F-14 The contractual maturity of bonds at December 31, 2006 is shown below:
AVAILABLE FOR SALE ------------------------------------ AMORTIZED ESTIMATED COST FAIR VALUE ---------------- ----------------- (IN MILLIONS) Due in one year or less.............................................. $ 99.8 $ 99.3 Due in years two through five........................................ 495.7 489.4 Due in years six through ten......................................... 1,131.7 1,116.4 Due after ten years.................................................. 285.5 283.0 ---------------- ----------------- Subtotal.......................................................... 2,012.7 1,988.1 Mortgage-backed securities........................................... 20.2 20.2 ---------------- ----------------- Total................................................................ $ 2,032.9 $ 2,008.3 ================ =================
Bonds not due at a single maturity date have been included in the above 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. MLOA's management, with the assistance of its investment advisors, monitors the investment performance of its portfolio. This review process culminates with a quarterly review of certain assets by AXA Financial Group's Investments Under Surveillance Committee that evaluates whether any investments are other than temporarily impaired. Based on the analysis, a determination is made as to the ability of the issuer to service its debt obligations on an ongoing basis. If this ability is deemed to be other than temporarily impaired, then the appropriate provisions are taken. The following table discloses fixed maturities (224 issues) that have been in a continuous unrealized loss position for less than a twelve-month period and greater than a twelve month period as of December 31, 2006:
LESS THAN 12 MONTHS 12 MONTHS OR LONGER TOTAL ----------------------------- --------------------------- ---------------------------- GROSS GROSS GROSS ESTIMATED UNREALIZED ESTIMATED UNREALIZED ESTIMATED UNREALIZED FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES ------------ ------------- ------------ ------------ ------------ ------------- (IN MILLIONS) Fixed Maturities: Corporate.................. $ 430.5 $ 4.8 $ 914.3 $ 26.3 $ 1,344.8 $ 31.1 U.S. Treasury, government and agency securities............... 20.6 - 49.4 0.5 70.0 0.5 States and political subdivisions............. - - 1.1 - 1.1 - Foreign governments........ 2.1 - 2.0 0.1 4.1 0.1 Redeemable preferred stock.......... 7.3 0.1 76.8 3.4 84.1 3.5 ------------ ------------- ------------ ------------ ------------ ------------- Total Temporarily Impaired Securities ....... $ 460.5 $ 4.9 $ 1,043.6 $ 30.3 $ 1,504.1 $ 35.2 ============ ============= ============ ============ ============ =============
MLOA's fixed maturity investment portfolio includes corporate high yield securities consisting primarily of public high yield bonds. These corporate high yield securities are classified as other than investment grade by the various rating agencies, i.e., a rating below Baa3/BBB- or National Association of Insurance Commissioners ("NAIC") designation of 3 (medium grade), 4 or 5 (below investment grade) or 6 (in or near default). At December 31, 2006, approximately $73.7 million, or 3.4%, of the $2,167.3 million aggregate amortized cost of fixed maturities held by MLOA was considered to be other than investment grade. At December 31, 2006, MLOA had no fixed maturities which were non-income producing for the twelve months preceding that date. F-15 Mortgage Loans -------------- Interest income recognized on impaired mortgage loans totaled $0.3 million, $0.3 million, $0.1 million and $0.0 million for full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively. Mortgage loans on real estate are placed on nonaccrual status once management believes the collection of accrued interest is doubtful. Once mortgage loans on real estate are classified as nonaccrual loans, interest income is recognized under the cash basis of accounting and the resumption of the interest accrual would commence only after all past due interest has been collected or the mortgage loan on real estate has been restructured to where the collection of interest is considered likely. At December 31, 2006 and 2005, the carrying value of mortgage loans on real estate that had been classified as nonaccrual loans was $2.8 million and $3.3 million, respectively. Impaired mortgage loans along with the related investment valuation allowances follow:
DECEMBER 31, --------------------------------------- 2006 2005 ----------------- ------------------ (IN MILLIONS) Impaired mortgage loans with investment valuation allowances....... $ - $ - Impaired mortgage loans without investment valuation allowances.... 3.1 3.6 ----------------- ------------------ Recorded investment in impaired mortgage loans..................... 3.1 3.6 Investment valuation allowances.................................... - - ----------------- ------------------ Net Impaired Mortgage Loans........................................ $ 3.1 $ 3.6 ================= ==================
Investment valuation allowances for mortgage loans and equity real estate and changes thereto in 2004 follow; there were no valuation allowances for such investments in 2006 and 2005:
Six Months Six Months Ended Ended December 31, June 30, 2004 2004 ----------- ---------- (Successor) (Predecessor) (In Millions) Balances, beginning of period............................ $ 1.7 $ 4.4 Additions charged to income.............................. - 0.3 Deductions for writedowns and asset dispositions......... - (3.0) Effect of push-down accounting of AXA Financial's purchase price of net assets.......................... (1.7) - ----------- ---------- Balances, End of Period.................................. $ - $ 1.7 =========== ========== Balances, end of period comprise: Mortgage Loans on Real Estate............................ $ - $ 1.7 =========== ==========
Other Invested Assets --------------------- MLOA holds equity in limited partnership interests and other equity method investments that primarily invest in securities considered to be other than investment grade. The carrying values at December 31, 2006 and 2005 were $3.4 million and $3.9 million, respectively. F-16 The following presents MLOA's investment in 1.2 million units in AllianceBernstein, an affiliate:
ALLIANCEBERNSTEIN UNITS ------------------ (IN MILLIONS) Balance at January 1, 2005 ............................... $ 49.1 Equity in net earnings.................................... 4.1 Dividends received........................................ (3.8) ------------------ Balance at December 31, 2005 ............................. 49.4 Equity in net earnings.................................... 5.2 Dividends received........................................ (4.8) ------------------ Balance at December 31, 2006.............................. $ 49.8 ==================
4) VALUE OF BUSINESS ACQUIRED The following presents MLOA's VOBA asset related to the MONY Acquisition as of December 31, 2006 and 2005:
LESS: LESS: GROSS CARRYING ACCUMULATED IMPACT OF AMOUNT AMORTIZATION (1) RECAPTURE (2) NET -------------- ----------------- ---------------- -------------- (IN MILLIONS) VOBA ---- DECEMBER 31, 2006................... $ 416.5 $ (83.9) $ (44.9) $ 287.7 ============== ================= ================ ============== December 31, 2005................... $ 416.5 $ (43.4) $ (44.9) $ 328.2 ============== ================= ================ ==============
(1) Includes reactivity to unrealized investment gains (losses). (2) Relates to the December 31, 2005 and 2004 recapture by USFL of universal life insurance contracts and level term premium insurance contracts previously ceded to MLOA under the modified coinsurance ("MODCO") agreement between MLOA and USFL. For full year 2006, full year 2005 and six months ended December 31, 2004, total amortization expense related to VOBA was $44.4 million, $32.5 million and $16.7 million, respectively. VOBA amortization is estimated to range between $33.7 million and $25.1 million annually through 2011. 5) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and estimated fair values for financial instruments not otherwise disclosed in Notes 3 and 8 of Notes to Financial Statements are presented below:
DECEMBER 31, ------------------------------------------------------------------- 2006 2005 -------------------------------- -------------------------------- CARRYING ESTIMATED Carrying Estimated VALUE FAIR VALUE Value Fair Value --------------- --------------- --------------- --------------- (IN MILLIONS) Mortgage loans on real estate .................... $ 219.2 $ 220.0 $ 290.2 $ 291.3 Policy loans ..................................... 105.1 121.1 96.3 111.6 Policyholders liabilities: investment contracts... 870.3 897.7 971.5 1,039.1 Note payable to affiliate ........................ 30.6 30.6 33.8 33.8
F-17 6) GMDB, GMIB AND NO LAPSE GUARANTEE FEATURES A) Variable Annuity Contracts - GMDB and GMIB ------------------------------------------ MLOA has certain variable annuity contracts with GMDB and GMIB features in force that guarantee one of the following: o Return of Premium: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals); o Ratchet: the benefit is the greatest of current account value, premiums paid (adjusted for withdrawals), or the highest account value on any anniversary up to contractually specified ages (adjusted for withdrawals); o Roll-Up: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified interest rates up to specified ages; or o Combo: the benefit is the greater of the ratchet benefit or the roll-up benefit. The following table summarizes the GMDB and GMIB liabilities, before reinsurance ceded, reflected in the General Account in future policy benefits and other policyholders' liabilities:
GMDB GMIB TOTAL ----------------- ----------------- ----------------- (IN MILLIONS) Balance at January 1, 2004................................. $ 3.5 $ - $ 3.5 Impact of adoption of SOP 03-1.......................... (2.8) 0.1 (2.7) Paid guarantee benefits................................. (3.0) - (3.0) Other changes in reserve ............................... 3.3 - 3.3 ----------------- ----------------- ----------------- Balance at December 31, 2004............................... 1.0 0.1 1.1 Paid guarantee benefits ................................ (2.9) - (2.9) Other changes in reserve................................ 2.6 0.1 2.7 ----------------- ----------------- ----------------- Balance at December 31, 2005............................... 0.7 0.2 0.9 Paid guarantee benefits................................. (2.2) - (2.2) Other changes in reserve ............................... 2.2 0.2 2.4 ----------------- ----------------- ----------------- Balance at December 31, 2006............................... $ 0.7 $ 0.4 $ 1.1 ================= ================= =================
Related GMDB reinsurance ceded amounts were:
GMDB ---------------- (IN MILLIONS) Balance at January 1, 2004.......................... $ - Impact of adoption of SOP 03-1.................... (0.3) Paid guarantee benefits........................... 2.9 Other changes in reserve.......................... (3.5) ---------------- Balance at December 31, 2004........................ $ (0.9) Paid guarantee benefits........................... (0.1) Other changes in reserve.......................... 1.2 ---------------- Balance at December 31, 2005........................ 0.2 Paid guarantee benefits........................... (0.1) Other changes in reserve.......................... 0.5 ---------------- Balance at December 31, 2006........................ $ 0.6 ================
The December 31, 2006 values for those variable annuity contracts with GMDB and GMIB features are presented in the following table. For contracts with the GMDB feature, the net amount at risk in the event of death is the amount by which the GMDB benefits exceed related account values. For contracts with the GMIB feature, the net amount at risk in the event of annuitization is the amount by which the present value of the GMIB benefits exceeds related account values, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. Since variable annuity F-18 contracts with GMDB guarantees may also offer GMIB guarantees in the same contract, the GMDB and GMIB amounts listed are not mutually exclusive:
RETURN OF PREMIUM RATCHET ROLL-UP COMBO TOTAL ------------- ------------ ------------- ---------- ---------- (IN MILLIONS) GMDB: ----- Account values invested in: General Account........... $ 170 $ 272 N/A $ 31 $ 473 Separate Accounts......... $ 793 $ 1,416 N/A $ 172 $ 2,381 Net amount at risk, gross...... $ 8 $ 174 N/A $ 52 $ 234 Net amount at risk, net of amounts reinsured............ $ 8 $ 96 N/A $ - $ 104 Average attained age of contractholders.............. 61.6 61.6 N/A 60.5 61.5 Percentage of contractholders over age 70.................. 18.7% 17.1% N/A 13.2% 17.6% Contractually specified interest return rates....... N/A N/A N/A 5.0% GMIB: ----- Account values invested in: General Account........... N/A N/A $ 31 N/A $ 31 Separate Accounts......... N/A N/A $ 172 N/A $ 172 Net amount at risk, gross...... N/A N/A $ - N/A $ - Net amount at risk, net of amounts reinsured............ N/A N/A $ - N/A $ - Weighted average years remaining until earliest annuitization............... N/A N/A 5.7 N/A 5.7 Contractually specified interest return rates....... N/A N/A 5.0% N/A
B) Separate Account Investments by Investment Category Underlying GMDB and ----------------------------------------------------------------------- GMIB Features ------------- The total account values of variable annuity contracts with GMDB and GMIB features include amounts allocated to the guaranteed interest option which is part of the General Account and variable investment options which invest through Separate Accounts in variable insurance trusts. The following table presents the aggregate fair value of assets, by major investment category, held by Separate Accounts that support variable annuity contracts with GMDB and GMIB benefits and guarantees. The investment performance of the assets impacts the related account values and, consequently, the net amount of risk associated with the GMDB and GMIB benefits and guarantees. Since variable annuity contracts with GMDB benefits and guarantees may also offer GMIB benefits and guarantees in each contract, the GMDB and GMIB amounts listed are not mutually exclusive: F-19 INVESTMENT IN VARIABLE INSURANCE TRUST MUTUAL FUNDS
DECEMBER 31, December 31, 2006 2005 ---------------- ------------------ (IN MILLIONS) GMDB: ----- Equity................................. $ 1,911 $ 2,054 Fixed income........................... 332 400 Balanced............................... 55 62 Other.................................. 83 94 ---------------- ------------------ Total.................................. $ 2,381 $ 2,610 ================ ================== GMIB: ----- Equity................................. $ 136 $ 127 Fixed income........................... 28 33 Balanced............................... 3 3 Other.................................. 5 5 ---------------- ------------------ Total.................................. $ 172 $ 168 ================ ==================
C) Variable and Interest-sensitive Life Insurance Policies - No Lapse ------------------------------------------------------------------ Guarantee --------- The no lapse guarantee feature contained in variable and interest-sensitive life insurance policies keeps them in force in situations where the policy value is not sufficient to cover monthly charges then due. The no lapse guarantee remains in effect so long as the policy meets a contractually specified premium funding test and certain other requirements. At December 31, 2006 and 2005, MLOA had liabilities of $0.5 million and $0.1 million, respectively, for no lapse guarantees reflected in the General Account in future policy benefits and other policyholders liabilities. 7) REINSURANCE During the Predecessor periods, MLOA used a variety of indemnity reinsurance agreements with reinsurers to control its loss exposure. Under the terms of these reinsurance agreements, the reinsurer was liable to reimburse MLOA for the portion of paid claims ceded to it in accordance with the applicable reinsurance agreement. However, MLOA remains contingently liable for all benefits payable even if the reinsurers fail to meet their obligations to MLOA. Life insurance business written by MLOA was ceded under various reinsurance contracts. MLOA's general practice was to retain no more than $4.0 million of risk on any one person for individual products and $6.0 million for last survivor products. For its variable annuity products, MLOA retained 100% of the risk in connection with the return of premium death benefit. The benefits in connection with guaranteed minimum death benefits in excess of the return of premium benefit, which are offered under certain of MLOA's annuity contracts, were 100% reinsured up to specified limits. Benefits in connection with the earnings increase benefit rider under the new MONY variable annuity were similarly reinsured. The guaranteed minimum income benefit in the new variable annuity product was 100% reinsured up to individual and aggregate limits as well as limits that are based on benefit utilization. During 2006, MLOA reinsured most of its new variable life and universal life policies on an excess of retention basis, retaining up to a maximum of $4.0 million on single-life policies and $6.0 million on second-to-die policies. For amounts applied for in excess of those limits, reinsurance is ceded to AXA Equitable Life Insurance Company ("AXA Equitable"), an affiliate, which is a wholly-owned subsidiary of AXA Financial, up to a combined maximum of $25.0 million on single-life policies and $30.0 million on second-to-die policies. For amounts applied in excess of those limits, reinsurance from unaffiliated third parties is now sought. A contingent liability exists with respect to reinsurance ceded should the reinsurers be unable to meet their obligations. Beginning September 2006, the no lapse guarantee riders on the new variable universal life product are being reinsured on a 90% first dollar quota share basis through AXA Financial Reinsurance Company (Bermuda), LTD ("AXA Bermuda"), an affiliate. At December 31, 2006 and 2005, respectively, reinsurance recoverables related to insurance contracts amounted to $136.2 million and $106.2 million, of which $63.0 million and $51.3 million relates to one specific reinsurer. F-20 The following table summarizes the effect of reinsurance:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ----------- ----------- ------------ ----------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Direct premiums............................ $ 89.0 $ 93.4 $ 44.8 $ 37.7 Reinsurance assumed from USFL.............. - - 59.2 53.2 Reinsurance ceded.......................... (39.1) (39.6) (19.0) (13.5) ----------- ----------- ----------- ----------- Premiums................................... $ 49.9 $ 53.8 $ 85.0 $ 77.4 =========== =========== =========== =========== Universal Life and Investment-type Product Policy Fee Income Ceded......... $ 31.6 $ 33.9 $ 22.7 $ 15.9 =========== =========== =========== =========== Policyholders' Benefits Ceded.............. $ 65.0 $ 57.9 $ 24.0 $ 10.8 =========== =========== =========== ===========
8) RELATED PARTY TRANSACTIONS Under its respective service agreements with affiliates, AXA Equitable (Successor Period) and MONY Life (Predecessor Period), personnel services, employee benefits, facilities, supplies and equipment are provided to MLOA to conduct its business. The associated costs related to the service agreements are allocated to MLOA based on methods that management believes are reasonable, including a review of the nature of such costs and activities performed to support MLOA. As a result of such allocations, MLOA incurred expenses of $49.6 million, $74.7 million, $54.1 million and $88.7 million for the full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively. At December 31, 2006, MLOA reported a $5.4 million payable to AXA Equitable and at December 31, 2005 a $6.3 million receivable from AXA Equitable in connection with its service agreement. In addition to the agreements discussed above, MLOA has various other service and investment advisory agreements with affiliates. The amount of expenses incurred by MLOA related to these agreements was $2.3 million, $2.4 million, $2.5 million, and $3.0 million for the full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively, related to these agreements. As more fully described in Note 7 in Notes to Financial Statements, MLOA ceded new variable and universal life policies on an excess of retention basis with AXA Equitable and reinsured the no lapse guarantee riders through AXA Bermuda. MLOA entered into a modified coinsurance ("MODCO") agreement with U.S. Financial Life Insurance Company ("USFL"), an affiliate, effective January 1, 1999, whereby MLOA agreed to reinsure 90% of all level premium term life insurance policies written by USFL after January 1, 1999. Effective January 1, 2000, this agreement was amended to reinsure 90% of all term life and universal life insurance policies written by USFL after January 1, 2000. A second amendment, effective April 1, 2001, added a new series of term life insurance policies issued by USFL and a DAC tax provision. Under the agreement, MLOA shared in all premiums and benefits for the reinsured policies based on the 90% quota share percentage, after consideration of existing reinsurance agreements previously in force on this business. In addition, MLOA reimbursed USFL for its quota share of expense allowances, as defined in the MODCO agreement. As of December 31, 2004, USFL recaptured all of the term life policies that had previously been assumed by MLOA under this MODCO agreement. Other income for the six months ended December 31, 2004 reflects the resulting pre-tax gains on the recaptures of the term life reinsurance from USFL of $9.0 million ($5.9 million net of income taxes). As of December 31, 2005, USFL recaptured all of the universal life policies that had previously been assumed by MLOA under this MODCO agreement. Other income for the year ended December 31, 2005 reflects the resulting pre-tax gains on the recaptures of the universal life and term life reinsurance from USFL of $0.6 million ($0.4 million net of income taxes). The MODCO agreement remained in effect for level premium term life insurance issued during 2005. However, in the fourth quarter of 2005, the MODCO agreement was terminated effective January 1, 2005, and all MODCO reinsurance transactions relating to level term that took place between USFL and MLOA during 2005 were unwound. In connection with this unwinding, F-21 MLOA received a payment of $0.7 million representing interest on net payments made to USFL during the year under the MODCO agreement. The statements of operations include certain revenues and expenses assumed from USFL under the MODCO agreement as follows:
Year Six Months Six Months Ended Ended Ended December 31, December 31, June 30, 2005 2004 2004 -------------- ------------ ----------- (Successor) (Successor) (Predecessor) (In Millions) REVENUES: Universal life and investment-type product policy fee income........................... $ 19.9 $ 7.8 $ 7.3 Premiums................................................ - 59.2 53.2 Other (loss) income..................................... (0.2) 16.2 (4.6) -------------- ----------- ----------- Total revenues...................................... 19.7 83.2 55.9 -------------- ----------- ----------- BENEFITS AND OTHER DEDUCTIONS: Policyholders' benefits................................. 10.5 53.2 40.7 Interest credited to policyholders' account balances.... 6.1 2.6 2.3 Amortization of deferred policy acquisition costs and value of business acquired.......................... 2.4 6.0 8.7 Capitalization of deferred policy acquisition costs .... (14.0) (34.9) (33.4) Commissions............................................. 14.2 43.4 44.3 -------------- ----------- ----------- Total benefits and other deductions................. 19.2 70.3 62.6 -------------- ----------- ----------- Earnings (Loss) Before Income Taxes..................... $ 0.5 $ 12.9 $ (6.7) ============== =========== ===========
The following table presents the impact on MLOA's assets and liabilities of the recaptures of reinsurance from USFL:
December 31, 2005 -------------------- (In Millions) ASSETS Fixed maturities.............................................. $ - Cash and cash equivalents..................................... 12.2 Accrued investment income..................................... - Deferred policy acquisition costs............................. (20.1) VOBA.......................................................... (12.8) Other assets.................................................. (1.6) -------------------- Total assets.............................................. $ (22.3) -------------------- LIABILITIES Future policy benefits........................................ $ (26.5) Other liabilities............................................. 3.6 Income taxes payable.......................................... 0.2 -------------------- Total liabilities......................................... (22.7) -------------------- Net Impact of Recapture of Reinsurance From USFL.............. $ 0.4 ====================
At December 31, 2005 MLOA recorded payables of $3.1 million to USFL in connection with the MODCO agreement. In accordance with the guidance contained in FASB Derivates Implementation Group Issue B36, the MODCO agreement between USFL and MLOA was considered to contain an embedded derivative representing a total return swap. The embedded derivative asset of $1.6 million was written off as of December 31, 2005 in connection with the termination of the MODCO agreement. Changes in fair value of the total return swap asset resulted in (losses) income of $(1.4) million, $7.1 million and $(4.6) million for the full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively. F-22 On March 5, 1999, MLOA borrowed $50.5 million from MONY Benefit Management Corp. ("MBMC"), an affiliate, in exchange for a note payable in the same amount. The note bears interest at 6.8% per annum and matures on March 5, 2014. Principal and interest are payable quarterly to MBMC. The carrying value of the note is $30.6 million and $33.8 million at December 31, 2006 and 2005, respectively. 9) SHARE-BASED COMPENSATION For the full year 2006, MLOA recognized $2.7 million, of compensation costs under SFAS No. 123(R) for employee stock options, including $0.8 million, resulting from unvested awards at January 1, 2006. Prior to adoption of SFAS No. 123(R), AXA Financial Group, including MLOA, had elected to continue accounting for employee stock option awards under APB No. 25 and, therefore, no compensation cost for these awards was recognized in the statements of operations in the full year 2005. The following table illustrates the effect on net income had compensation expense for employee stock option awards been measured and recognized by MLOA under the fair-value-based method of SFAS No. 123. These pro forma disclosures are not adjusted from amounts previously reported and, therefore, retain the original grant-date fair values of the underlying awards, continue to attribute cost over the awards' service-vesting periods, and do not include estimates of pre-vesting forfeitures.
AXA Financial Group MONY ------------- ------------ Year Six Months Ended Ended December 31, June 30, 2005 2004 ------------- ------------ (Successor) (Predecessor) (In Millions) Net earnings (loss) as reported............................... $ 41.3 $ (11.0) Less: total stock-based employee compensation expense determined under fair value method for all awards, net of income taxes....................................... (1.6) (1.9) ----------- ------------ Pro Forma Net Earnings (Loss)................................. $ 39.7 $ (12.9) =========== ============
As of December 31, 2006, approximately $1.0 million of unrecognized compensation cost related to unvested employee stock option awards, net of estimated pre-vesting forfeitures, is expected to be recognized by MLOA over a weighted average period of 2.0 years. F-23 10) NET INVESTMENT INCOME AND INVESTMENT GAINS (LOSSES) The sources of net investment income follow:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------ ------------ ------------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Fixed maturities.......................... $ 113.3 $ 107.1 $ 45.8 $ 51.8 Mortgage loans on real estate............. 23.7 25.2 16.0 16.0 Policy loans.............................. 6.3 6.0 3.0 2.9 Other investment income................... 4.0 4.4 2.1 (0.9) ------------- ------------ ----------- ---------- Gross investment income................. 147.3 142.7 66.9 69.8 Investment expenses....................... (5.9) (7.7) (4.1) (5.5) ------------- ------------ ----------- ---------- Net Investment Income..................... $ 141.4 $ 135.0 $ 62.8 $ 64.3 ============= ============ =========== ===========
Investment (losses) gains , net including changes in the valuation allowances, follow:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------- ------------- ------------ (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Fixed maturities.......................... $ (2.3) $ (2.2) $ (4.6) $ (3.4) Mortgage loans on real estate............. 1.1 - - 2.7 ------------- ------------ ----------- ---------- Investment (Losses) Gains, Net............ $ (1.2) $ (2.2) $ (4.6) $ (0.7) ============= ============ =========== ===========
Writedowns of fixed maturities amounted to $3.7 million, $2.0 million, $5.1 million and $0.9 million for full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively. There were no writedowns of mortgage loans on real estate and equity real estate for full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004. For full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004, respectively, proceeds received on sales of fixed maturities classified as available for sale amounted to $55.9 million, $53.4 million, $48.9 million and $363.1 million. Gross gains of $2.8 million, $1.0 million, $2.1 million and $6.9 million and gross losses of $1.2 million, $1.4 million, $1.3 million and $10.0 million, respectively, were realized on these sales. The change in unrealized investment gains (losses) related to fixed maturities classified as available for sale for full year 2006, full year 2005, six months ended December 31, 2004 and six months ended June 30, 2004 amounted to $(12.4) million, $(50.5) million, $36.1 million and $(41.0) million, respectively. F-24 The net unrealized investment gains (losses) included in the balance sheets as a component of accumulated other comprehensive income and the changes for the corresponding years, on a line-by-line basis, follow:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------ ------------ ----------- ----------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Balance, beginning of period........................ $ (5.6) $ 14.9 $ 12.8 $ 24.2 Changes in unrealized investment (losses) gains..... (12.3) (50.5) 36.1 (41.5) Changes in unrealized investment gains (losses) attributable to: DAC and VOBA................................. 3.9 18.9 (13.2) 23.9 Deferred income taxes........................ 2.9 11.1 (8.0) 6.2 Effect of push-down accounting of AXA Financial's purchase price on MLOA's net assets.......... - - (12.8) - ------------ ------------ ----------- ----------- Balance, end of period.............................. $ (11.1) $ (5.6) $ 14.9 $ 12.8 ============ ============ =========== =========== Balance, end of period comprises: Unrealized investment (losses) gains on fixed maturities............................... $ (26.7) $ (14.4) $ 36.1 $ 43.5 Amounts of unrealized investment gains (losses) attributable to: DAC and VOBA................................... 9.6 5.7 (13.2) (23.9) Deferred income taxes.......................... 6.0 3.1 (8.0) (6.8) ------------ ------------ ----------- ----------- Balance, end of period.............................. $ (11.1) $ (5.6) $ 14.9 $ 12.8 ============ ============ =========== ===========
Changes in unrealized gains (losses) reflect changes in fair value of only those fixed maturities classified as available for sale and do not reflect any changes in fair value of policyholders' account balances and future policy benefits. 11) INCOME TAXES A summary of the income tax expense in the statements of operations follows:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ----------- ----------- ----------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Income tax expense (benefit): Current expense (benefit)..................... $ 10.7 $ 2.5 $ - $ (29.3) Deferred expense.............................. 6.6 14.2 12.4 18.8 ------------- ----------- ----------- ----------- Total......................................... $ 17.3 $ 16.7 $ 12.4 $ (10.5) ============= =========== =========== ===========
The Federal income taxes attributable to operations are different from the amounts determined by multiplying the earnings before income taxes by the expected Federal income tax rate of 35%. The sources of the difference and their tax effects follow: F-25
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------- ------------ ------------ (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Tax at statutory rate........................ $ 19.8 $ 20.3 $ 13.6 $ (8.9) Dividends received deduction................. (2.7) (3.7) (1.2) (1.6) Other........................................ 0.2 0.1 - - ------------ ------------ ----------- ----------- Income Tax Expense (Benefit)................. $ 17.3 $ 16.7 $ 12.4 $ (10.5) ============ ============ =========== ===========
The components of the net deferred income taxes are as follows:
DECEMBER 31, 2006 December 31, 2005 --------------------------------- --------------------------------- ASSETS LIABILITIES Assets Liabilities --------------- ---------------- --------------- --------------- (IN MILLIONS) Reserves and reinsurance............... $ 200.6 $ - $ 189.2 $ - DAC.................................... 1.7 - 35.1 - VOBA................................... - 100.7 - 112.8 Investments............................ - 163.5 - 153.5 Tax loss carryforwards................. - - 5.3 - Goodwill and intangibles............... - 10.7 - 5.2 Other.................................. 12.1 - - 15.0 -------------- --------------- -------------- -------------- Total.................................. $ 214.4 $ 274.9 $ 229.6 $ 286.5 ============== =============== ============== ==============
At December 31, 2006, MLOA had no Federal tax loss carryforwards. The Internal Revenue Service ("IRS") is examining MLOA's Federal income tax returns for the years 1998 through June 30, 2004. The tax years 1994 through 1997 are currently under review by the Appeals Office of the IRS. Management believes the examination of MLOA's returns will have no material adverse effect on MLOA's results of operations or financial position. 12) DISCONTINUED OPERATIONS In 2006, one real estate property with a book value of $1.6 million that had been previously reported in equity real estate was reclassified as real estate held-for-sale. Prior periods have been restated to reflect these properties as discontinued operations. In third quarter 2006, this property was sold resulting in a gain of $1.1 million pre-tax ($0.7 million post-tax). At December 31, 2005, equity real estate held-for-sale was $1.6 million and was included in Other assets. F-26 13) OTHER COMPREHENSIVE (LOSS) INCOME The components of other comprehensive (loss) income for the past three years follow:
YEAR Year Six Months Six Months ENDED Ended Ended Ended DECEMBER 31, December 31, December 31, June 30, 2006 2005 2004 2004 ------------- ------------- ------------- ------------- (SUCCESSOR) (Successor) (Successor) (Predecessor) (IN MILLIONS) Net unrealized (losses) gains on investments: Net unrealized (losses) gains arising during the period....................... $ (12.3) $ (50.5) $ 36.3 $ (41.7) Losses (gains) reclassified into net earnings during the period.............. - - (0.2) 0.2 ------------- ----------- ----------- ----------- Net unrealized (losses) gains on investments.. (12.3) (50.5) 36.1 (41.5) Adjustments for DAC and VOBA and deferred income taxes..................... 6.8 30.0 (21.2) 30.1 ------------- ----------- ----------- ----------- Total Other Comprehensive (Loss) Income....... $ (5.5) $ (20.5) $ 14.9 $ (11.4) ============= =========== =========== ===========
14) COMMITMENTS AND CONTINGENT LIABILITIES MLOA had $6.6 million in commitments under existing mortgage loan agreements at December 31, 2006. 15) LITIGATION MLOA is involved in various legal actions and proceedings in connection with its business. Some of the actions and proceedings have been brought on behalf of various alleged classes of claimants and certain of these claimants seek damages of unspecified amounts. While the ultimate outcome of such matters cannot be predicted with certainty, in the opinion of management no such matter is likely to have a material adverse effect on MLOA's financial position or results of operations. However, it should be noted that the frequency of large damage awards, including large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given matter. 16) STATUTORY FINANCIAL INFORMATION MLOA is restricted as to the amounts it may pay as dividends to MONY Life. Under Arizona Insurance Law, a domestic life insurer may, without prior approval of the Superintendent, pay a dividend to its shareholder not exceeding an amount calculated based on a statutory formula. For 2006, 2005 and 2004, MLOA's statutory net gain (loss) was $27.7 million, $(5.6) million and $(83.4) million, respectively. Statutory surplus, capital stock and Asset Valuation Reserve ("AVR") totaled $320.1 million and $269.8 million at December 31, 2006 and 2005, respectively. There were no shareholder dividends paid to MONY Life by MLOA in 2006, 2005 and 2004. At December 31, 2006, MLOA, in accordance with various government and state regulations, had $6.1 million of securities deposited with such government or state agencies. At December 31, 2006 and for the year then ended, there were no differences in net income and capital and surplus resulting from practices prescribed and permitted by the State of Arizona Insurance Department (the "AID") and those prescribed by NAIC Accounting Practices and Procedures effective at December 31, 2006. Accounting practices used to prepare statutory financial statements for regulatory filings of stock life insurance companies differ in certain instances from GAAP. The differences between statutory surplus and capital stock determined in accordance with Statutory Accounting Principles ("SAP") and total shareholder's equity under GAAP are primarily: (a) the inclusion in SAP of an AVR intended to stabilize surplus from fluctuations in the value of the investment portfolio; (b) future policy benefits and F-27 policyholders' account balances under SAP differ from GAAP due to differences between actuarial assumptions and reserving methodologies; (c) certain policy acquisition costs are expensed under SAP but deferred under GAAP and amortized over future periods to achieve a matching of revenues and expenses; (d) under SAP, Federal income taxes are provided on the basis of amounts currently payable with provisions made for deferred amounts that reverse within one year while under GAAP, deferred taxes are recorded for temporary differences between the financial statements and tax basis of assets and liabilities where the probability of realization is reasonably assured; (e) the valuation of assets under SAP and GAAP differ due to different investment valuation and depreciation methodologies, as well as the deferral of interest-related realized capital gains and losses on fixed income investments; (f) the valuation of the investment in Alliance Units under SAP reflects a portion of the market value appreciation rather than the equity in the underlying net assets as required under GAAP; (g) computer software development costs are capitalized under GAAP but expensed under SAP; (h) certain assets, primarily pre-paid assets, are not admissible under SAP but are admissible under GAAP and (i) the fair valuing of all acquired assets and liabilities including VOBA assets required for GAAP purchase accounting. 17) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The quarterly results of operations for 2006 and 2005 are summarized below:
THREE MONTHS ENDED --------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------------- --------------- ---------------- -------------- (IN MILLIONS) 2006 ---- Total Revenues...................... $ 90.7 $ 86.0 $ 92.3 $ 86.6 ============ =========== ============ ============ Earnings from Continuing Operations........................ $ 11.0 $ 13.4 $ 11.6 $ 3.4 ============ =========== ============ ============ Net Earnings........................ $ 11.0 $ 13.4 $ 12.3 $ 3.4 ============ =========== ============ ============ 2005 (1)(2) ----------- Total Revenues...................... $ 99.6 $ 101.9 $ 100.7 $ 74.7 ============ =========== ============ ============ (Loss) Earnings from Continuing Operations........................ $ (0.1) $ 13.5 $ 7.7 $ 20.2 ============ =========== ============ ============ Net (Loss) Earnings................. $ (0.1) $ 13.5 $ 7.7 $ 20.2 ============ =========== ============ ============
(1) Results for the three months ended December 31, 2005 include the net gain of $0.4 million recorded from the recapture by USFL of all of the universal life policies that had previously been assumed by MLOA under its MODCO agreement with USFL and the net gain of $1.9 million from the unwinding of the MODCO transactions related to level premium term life insurance issued during the first nine months of 2005 under MLOA's MODCO agreement with USFL (see Note 8 of Notes to Financial Statements). (2) Results for the three months ended December 31, 2005 include recorded adjustments related to prior quarters' inter-company expense allocations and DAC capitalization. The effect of these adjustments was to increase net income for the period by $7.1 million. Net earnings for each of the three months ended March 31, June 30 and September 30, 2005 were understated by $2.1 million, $2.1 million and $2.9 million, respectively. F-28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of MONY Life Insurance Company of America: Our audits of the financial statements referred to in our report dated March 15, 2007 appearing on page F-1 of this Annual Report on Form 10-K also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. PricewaterhouseCoopers LLP New York, New York March 15, 2007 F-29 MONY LIFE INSURANCE COMPANY OF AMERICA SCHEDULE I SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2006
ESTIMATED CARRYING TYPE OF INVESTMENT COST (A) FAIR VALUE VALUE ------------------ ----------------- ----------------- ----------------- (IN MILLIONS) Fixed maturities: U.S. government, agencies and authorities............ $ 138.5 $ 138.4 $ 138.4 Mortgage-backed...................................... 20.2 20.2 20.2 State, municipalities and political subdivisions..... 1.1 1.1 1.1 Foreign governments.................................. 4.1 4.0 4.0 Public utilities..................................... 229.6 227.5 227.5 All other corporate bonds............................ 1,639.4 1,617.1 1,617.1 Redeemable preferred stocks.......................... 134.4 132.3 132.3 ----------------- ----------------- ----------------- Total fixed maturities............................... 2,167.3 2,140.6 2,140.6 ----------------- ----------------- ----------------- Mortgage loans on real estate........................... 219.2 220.0 219.2 Real estate joint ventures.............................. 3.4 - 3.4 Policy loans............................................ 105.1 121.1 105.1 ----------------- ----------------- ----------------- Total Investments....................................... $ 2,495.0 $ 2,481.7 $ 2,468.3 ================= ================= =================
(A) Cost for fixed maturities represents original cost, reduced by repayments and writedowns and adjusted for amortization of premiums or accretion of discount; cost for equity securities represents original cost reduced by writedowns; cost for other limited partnership interests represents original cost adjusted for equity in earnings and reduced by distributions. (B) Other invested assets excludes a $49.8 million investment in units of AllianceBernstein L.P., a related party. F-30 MONY LIFE INSURANCE COMPANY OF AMERICA SCHEDULE IV REINSURANCE AT AND FOR THE YEAR ENDED DECEMBER 31, 2006 (SUCCESSOR), YEAR ENDED DECEMBER 31, 2005 (SUCCESSOR), SIX MONTHS ENDED DECEMBER 31, 2004 (SUCCESSOR) AND SIX MONTHS END JUNE 30, 2004 (PREDECESSOR)
ASSUMED PERCENTAGE CEDED TO FROM OF AMOUNT GROSS OTHER OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET ---------------- ----------------- ----------------- ---------------- --------------- (IN MILLIONS) 2006 (Successor) ---------------- Life Insurance In-force...... $ 56,298.8 $ 22,958.0 $ - $ 33,340.8 - ================ ================= ================= ================ Premiums: Life insurance and annuities............... $ 89.0 $ 39.1 $ - $ 49.9 - Accident and health....... - - - - - ---------------- ----------------- ----------------- ---------------- Total Premiums............... $ 89.0 $ 39.1 $ - $ 49.9 - ================ ================= ================= ================ 2005 (Successor) ---------------- Life Insurance In-force...... $ 59,916.9 $ 24,727.1 $ - $ 35,189.8 - ================ ================= ================= ================ Premiums: Life insurance and annuities............... $ 93.4 $ 39.6 $ - $ 53.8 - Accident and health....... - - - - - ---------------- ----------------- ----------------- ---------------- Total Premiums............... $ 93.4 $ 39.6 $ - $ 53.8 - ================ ================= ================= ================ Six Months Ended December 31, ----------------------------- 2004 (Successor) ---------------- Life Insurance In-force...... $ 55,603.7 $ 21,088.4 $ 1,653.1 $ 36,168.4 4.57% ================ ================= ================= ================ Premiums: Life insurance and annuities............... $ 44.8 $ 19.0 $ 59.2 $ 85.0 69.65% Accident and health....... - - - - - ---------------- ----------------- ----------------- ---------------- Total Premiums............... $ 44.8 $ 19.0 $ 59.2 $ 85.0 69.65% ================ ================= ================= ================ Six months Ended June 30, ------------------------- 2004 (Predecessor) ------------------ Life Insurance In-force...... $ 75,405.0 $ 18,502.2 $ 25,568.0 $ 82,470.8 31.00% ================ ================= ================= ================ Premiums: Life insurance and annuities............... $ 37.7 $ 13.5 $ 53.2 $ 77.4 68.73% Accident and health....... - - - - - ---------------- ----------------- ----------------- ---------------- Total Premiums............... $ 37.7 $ 13.5 $ 53.2 $ 77.4 68.73% ================ ================= ================= ================
F-31 PART II, ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 9-1 PART II, ITEM 9A. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of MLOA's disclosure controls and procedures as of December 31, 2006. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that MLOA's disclosure controls and procedures are effective. There has been no change in MLOA's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, MLOA's internal control over financial reporting. 9A-1 PART II, ITEM 9B. OTHER INFORMATION None. 9B-1 PART III, ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Omitted pursuant to General Instruction I to Form 10-K. 10-1 PART III, ITEM 11. EXECUTIVE COMPENSATION Omitted pursuant to General Instruction I to Form 10-K. 11-1 PART III, ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Omitted pursuant to General Instruction I to Form 10-K. 12-1 PART III, ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to General Instruction I to Form 10-K. 13-1 PART III, ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP ("PwC") for the audit of MLOA's annual financial statements for 2006 and 2005, and fees for other services rendered by PwC. The amounts shown represent the amounts allocated to MLOA under its service agreements with affiliates (see Note 8 of Notes to Financial Statements). 2006 2005 ------------ ----------- (IN THOUSANDS) Principal Accounting Fees and Services: Audit fees.................................. $ 374 $ 583 Audit related fees.......................... 38 81 Tax fees.................................... 33 65 All other fees.............................. 1 3 ------------ ----------- Total.................................. $ 446 $ 732 ============ =========== Audit fees consist of the aggregate billed or to be billed by PwC for professional services rendered for the audit of MLOA's annual financial statements, review of financial statements included in MLOA's Quarterly Reports on Form 10-Q and services that were provided in connection with statutory and regulatory filings or engagements. Audit related fees consist of assurance and related services that are reasonably related to the performance of the audit or review of MLOA's financial statements. The nature of the services performed includes fees related to the execution of audits and attest services not required by statute or regulations, due diligence related to investments, and consultations concerning financial accounting and reporting standards. Tax fees consist of the aggregate fees billed for professional services rendered by PwC for tax compliance, tax advice, and tax planning. All other fees consist principally of information technology implementation projects. MLOA's audit committee has determined that all services to be provided by its independent registered public accounting firm must be reviewed and approved by the audit committee on a case-by-case basis; provided, however, that the audit committee has delegated to its chairperson the ability to pre-approve any non-audit engagement where the fees are expected to be less than or equal to $100,000 per engagement. Any exercise of this delegated authority by the audit committee chairperson is required to be reported at the next audit committee meeting. All services provided by PWC in 2006 were pre-approved in accordance with these procedures. 14-1 PART IV, ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report: 1. Financial Statements The financial statements are listed in the Index to Financial Statements and Schedules on page FS-1. 2. Financial Statement Schedules The financial statement schedules are listed in the Index to Financial Statements and Schedules on page FS-1. 3. Exhibits: The exhibits are listed in the Index to Exhibits that begins on page E-1. 15-1 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, MONY Life Insurance Company of America has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 15, 2007 MONY LIFE INSURANCE COMPANY OF AMERICA By: /s/ Christopher M. Condron ------------------------------------------- Name: Christopher M. Condron Chairman of the Board, President and Chief Executive Officer, Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Christopher M. Condron Chairman of the Board, President and Chief March 15, 2007 - -------------------------- Executive Officer, Director Christopher M. Condron /s/ Richard S. Dziadzio Executive Vice President and March 15, 2007 - -------------------------- Chief Financial Officer Richard S. Dziadzio /s/ Alvin H. Fenichel Senior Vice President and Controller March 15, 2007 - -------------------------- Alvin H. Fenichel /s/ Henri de Castries Director March 15, 2007 - -------------------------- Henri de Castries /s/ Bruce W. Calvert Director March 15, 2007 - -------------------------- Bruce W. Calvert /s/ Denis Duverne Director March 15, 2007 - -------------------------- Denis Duverne /s/ Charlynn Goins Director March 15, 2007 - -------------------------- Charlynn Goins /s/ Anthony J. Hamilton Director March 15, 2007 - -------------------------- Anthony J. Hamilton /s/ Mary R. Henderson Director March 15, 2007 - -------------------------- Mary R. Henderson /s/ James F. Higgins Director March 15, 2007 - -------------------------- James F. Higgins
S-1 /s/ Scott D. Miller Director March 15, 2007 - -------------------------- Scott D. Miller /s/ Joseph H. Moglia Director March 15, 2007 - -------------------------- Joseph H. Moglia /s/ Lorie A. Slutsky Director March 15, 2007 - -------------------------- Lorie A. Slutsky /s/ Ezra Suleiman Director March 15, 2007 - -------------------------- Ezra Suleiman /s/ Peter J. Tobin Director March 15, 2007 - -------------------------- Peter J. Tobin
S-2 INDEX TO EXHIBITS
Number Description Method of Filing - ---------- ----------------------------------------- --------------------------------------------- 1.1 Form of Underwriting Agreement among Filed as Exhibit 3(a) to Post-Effective MLOA, MONY Securities Corp. and MONY Amendment No. 3 dated February 28, 1991 to Series Fund, Inc. Registration Statement No. 33-20453 and incorporated by reference herein. 3.1 Articles of Incorporation of MLOA Filed as Exhibit 6(a) to Registration Statement No. 33-13183 dated April 6, 1987 and incorporated by reference herein. 3.2 By-Laws of MLOA Filed as Exhibit 6(b) to Registration Statement No. 33-13183 dated April 6, 1987 and incorporated by reference herein. 10.1 Forms of MLOA's Policy Contract Riders Filed as Exhibit 10.6 to MLOA's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated by reference herein. 10.2 Amended and Restated Services Filed as Exhibit 10.2 to MLOA's Agreement between MLOA and AXA Report on Form 10-K for the fiscal year Annual Equitable Life Insurance Company dated ended December 31, 2005 and incorporated as of February 1, 2005 by reference herein. 21 Subsidiaries of the registrant Omitted pursuant to General Instruction I of Form 10-K 31.1 Section 302 Certification made by the Filed herewith registrant's Chief Executive Officer 31.2 Section 302 Certification made by the Filed herewith registrant's Chief Financial Officer 32.1 Section 906 Certification made by the Filed herewith registrant's Chief Executive Officer 32.2 Section 906 Certification made by the Filed herewith registrant's Chief Financial Officer
E-1 EX-31.1 2 e8606_ex31-1.txt CEO CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION I, Christopher M. Condron, Chairman of the Board, President and Chief Executive Officer of MONY Life Insurance Company of America, certify that: 1. I have reviewed this annual report on Form 10-K of MONY Life Insurance Company of America (the "Registrant"); 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 15, 2007 /s/ Christopher M. Condron -------------------------------------- Christopher M. Condron Chairman of the Board, President and Chief Executive Officer EX-31.2 3 e8606_ex31-2.txt CFO CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION I, Richard S. Dziadzio, Executive Vice President and Chief Financial Officer of MONY Life Insurance Company of America, certify that: 1. I have reviewed this annual report on Form 10-K of MONY Life Insurance Company of America (the "Registrant"); 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: March 15, 2007 /s/ Richard S. Dziadzio ---------------------------- Richard S. Dziadzio Executive Vice President and Chief Financial Officer EX-32.1 4 e8606_ex32-1.txt CEO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.1 MONY LIFE INSURANCE COMPANY OF AMERICA CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the year ended December 31, 2006 of MONY Life Insurance Company of America (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher M. Condron, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Christopher M. Condron ------------------------------------- Christopher M. Condron Chairman of the Board, President and Chief Executive Officer Date: March 15, 2007 EX-32.2 5 e8606_ex32-2.txt CFO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.2 MONY LIFE INSURANCE COMPANY OF AMERICA CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the year ended December 31, 2006 of MONY Life Insurance Company of America (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard S. Dziadzio, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Richard S. Dziadzio ---------------------------- Richard S. Dziadzio Executive Vice President and Chief Financial Officer Date: March 15, 2007 -----END PRIVACY-ENHANCED MESSAGE-----