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March 25, 2019, 4:53 p.m. EDT


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(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our consolidated audited financial statements and related notes included herein.

                  Life Marketing-We market fixed universal life ("UL"), indexed universal
                  life ("IUL"), variable universal life ("VUL"), bank-owned life
                  insurance ("BOLI"), and level premium term insurance ("traditional")
                  products on a national basis primarily through networks of independent
                  insurance agents and brokers, broker-dealers, financial institutions,
                  independent distribution organizations, and affinity groups.
                  Acquisitions-We focus on acquiring, converting, and/or servicing
                  policies and contracts from other companies. This segment's primary
                  focus is on life insurance policies and annuity products that were sold
                  to individuals. The level of the segment's acquisition activity is
                  predicated upon many factors, including available capital, operating
                  capacity, potential return on capital, and market dynamics. Policies
                  acquired through the Acquisitions segment are typically blocks of
                  business where no new policies are being marketed. Therefore earnings
                  and account values are expected to decline as the result of lapses,
                  deaths, and other terminations of coverage unless new acquisitions are

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                  Annuities-We market fixed and variable annuity ("VA") products. These
                  products are primarily sold through broker-dealers, financial
                  institutions, and independent agents and brokers.
                  Stable Value Products-We sell fixed and floating rate funding
                  agreements directly to the trustees of municipal bond proceeds, money
                  market funds, bank trust departments, and other institutional
                  investors. The segment also issues funding agreements to the Federal
                  Home Loan Bank ("FHLB"), and markets guaranteed investment
                  contracts ("GICs") to 401(k) and other qualified retirement savings
                  plans. We also have an unregistered funding agreement-backed notes
                  program which provides for offers of notes to both domestic and
                  international institutional investors.
                  Asset Protection-We market extended service contracts, guaranteed asset
                  protection ("GAP") products, credit life and disability insurance, and
                  other specialized ancillary products to protect consumers' investments
                  in automobiles and recreational vehicles. GAP products are designed to
                  cover the difference between the scheduled loan pay-off amount and an
                  asset's actual cash value in the case of a total loss. Each type of
                  specialized ancillary product protects against damage or other loss to
                  a particular aspect of the underlying asset.
                  Corporate and Other-This segment primarily consists of net investment
                  income on assets supporting our equity capital, unallocated corporate
                  overhead, and expenses not attributable to the segments above. This
                  segment includes earnings from several non-strategic or runoff lines of
                  business, financing and investment related transactions, and the
                  operations of several small subsidiaries.


        The Lincoln National Life Insurance Company

On May 1, 2018, The Lincoln National Life Insurance Company ("Lincoln Life") completed the acquisition (the "Closing") of Liberty Mutual Group Inc.'s ("Liberty Mutual") Group Benefits Business and Individual Life and Annuity Business (the "Life Business") through the acquisition of all of the issued and outstanding capital stock of Liberty Life Assurance Company of Boston ("Liberty"). In connection with the Closing and pursuant to the Master Transaction Agreement, dated January 18, 2018, the Company and Protective Life and Annuity Insurance Company ("PLAIC"), a wholly owned subsidiary, entered into reinsurance agreements (the "Reinsurance Agreements") and related ancillary documents (including administrative services agreements and transition services agreements) providing for the reinsurance and administration of the Life Business.

Pursuant to the Reinsurance Agreements, Liberty ceded to the Company and PLAIC the insurance policies related to the Life Business on a 100% coinsurance basis. The aggregate ceding commission for the reinsurance of the Life Business was $422.4 million. All policies issued in states other than New York were ceded to us under a reinsurance agreement between Liberty and the Company, and all policies issued in New York were ceded to PLAIC under a reinsurance agreement between Liberty and PLAIC. The aggregate statutory reserves of Liberty ceded to the Company and PLAIC as of the closing of the Transaction were approximately $13.2 billion, which amount was based on initial estimates and is subject to adjustment following the Closing. Pursuant to the terms of the Reinsurance Agreements, each of the Company and PLAIC are required to maintain assets in trust for the benefit of Liberty to secure their respective obligations to Liberty under the Reinsurance Agreements. The trust accounts were initially funded by each of the Company and PLAIC principally with the investment assets that were received from Liberty. Additionally, the Company and PLAIC have each agreed to provide, on behalf of Liberty, administration and policyholder servicing of the Life Business reinsured by it pursuant to administrative services agreements between Liberty and each of the Company and PLAIC. Great-West Life & Annuity Insurance Company On January 23, 2019, we entered into a Master Transaction Agreement (the " GWL&A Master Transaction Agreement") with Great-West Life & Annuity Insurance Company ("GWL&A"), Great-West Life & Annuity Insurance Company of New York ("GWL&A of NY"), The Canada Life Assurance Company ("CLAC") and The Great-West Life Assurance Company ("GWL" and, together with GWL&A, GWL&A of NY and CLAC, the "Sellers"), pursuant to which we will acquire via reinsurance (the "Transaction") substantially all of the Sellers' individual life insurance and annuity business (the "Individual Life Business"). Pursuant to the GWL&A Master Transaction Agreement, the Company and PLAIC, will enter into reinsurance agreements (the "Reinsurance Agreements") and related ancillary documents at the closing of the Transaction. On the terms and subject to the conditions of the Reinsurance Agreements, the Sellers will cede to us and PLAIC, effective as of the closing of the Transaction, substantially all of the insurance policies relating to the Individual Life Business. To support its obligations under the Reinsurance Agreements, we will establish trust accounts for the benefit of GWL&A, CLAC and GWL, and PLAIC will establish a trust account for the benefit of GWL&A of NY. The Sellers will retain a block of participating policies, which will be administered by PLC.

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        The factors which could affect our future results include, but are not limited
        to, general economic conditions and the following risks and uncertainties:
                     exposure to risks related to natural and man-made disasters and
                     catastrophes, such as diseases, epidemics, pandemics, malicious
                     acts, cyber attacks, terrorist acts, and climate change, which could
                     adversely affect our operations and results;
                     a disruption or cyber attack affecting the electronic, communication
                     and information technology systems or other technologies of the
                     Company or those on whom the Company relies could adversely affect
                     our business, financial condition, and results of operations;
                     confidential information maintained in the systems of the Company or
                     other parties upon which we rely could be compromised or
                     misappropriated as a result of security breaches or other related
                     lapses or incidents, damaging our business and reputation and
                     adversely affecting our financial condition and results of
                     our results and financial condition may be negatively affected
                     should actual experience differ from management's models,
                     assumptions, or estimates;
                     we may not realize our anticipated financial results from our
                     acquisitions strategy;

we may experience competition in our acquisition segment;

                     assets allocated to the MONY Closed Block benefit only the holders
                     of certain policies; adverse performance of Closed Block assets or
                     adverse experience of Closed Block liabilities may negatively affect

we are dependent on the performance of others;

                     our risk management policies, practices, and procedures could leave
                     us exposed to unidentified or unanticipated risks, which could
                     negatively affect our business or result in losses;
                     our strategies for mitigating risks arising from our day-to-day
                     operations may prove ineffective resulting in a material adverse
                     effect on our results of operations and financial condition;
                     events that damage our reputation or the reputation of our industry
                     could adversely impact our business, results of operations, or
                     financial condition;
                     we may not be able to protect our intellectual property and may be
                     subject to infringement claims;

developments in technology may impact our business;

        Financial Environment
                     interest rate fluctuations and sustained periods of low or high
                     interest rates could negatively affect our interest earnings and
                     spread income, or otherwise impact our business;
                     our investments are subject to market and credit risks, which could
                     be heightened during periods of extreme volatility or disruption in
                     financial and credit markets;
                     credit market volatility or disruption could adversely impact the
                     Company's financial condition or results from operations;
                     disruption of the capital and credit markets could negatively affect
                     the Company's ability to meet its liquidity and financial needs;

equity market volatility could negatively impact our business;

                     our use of derivative financial instruments within our risk
                     management strategy may not be effective or sufficient;
                     our ability to grow depends in large part upon the continued
                     availability of capital;
                     we could be forced to sell investments at a loss to cover
                     policyholder withdrawals;
                     difficult general economic conditions could materially adversely
                     affect our business and results of operations;
                     we may be required to establish a valuation allowance against our
                     deferred tax assets, which could have a material adverse effect on
                     our results of operations, financial condition, and capital

we could be adversely affected by an inability to access our credit facility;

                     the amount of statutory capital or risk-based capital that we have
                     and the amount of statutory capital or risk-based capital that we
                     must hold to maintain our financial strength and credit ratings and
                     meet other requirements can vary significantly from time to time and
                     is sensitive to a number of factors outside of our control;
                     we could be adversely affected by a ratings downgrade or other
                     negative action by a rating organization;
                     we operate as a holding company and depend on the ability of our
                     subsidiaries to transfer funds to us to meet our obligations;

we could be adversely affected by an inability to access FHLB lending;

our securities lending program may subject us to liquidity and other risks;

                     our financial condition or results of operations could be adversely
                     impacted if our assumptions regarding the fair value and future
                     performance of our investments differ from actual experience;
                     adverse actions of certain funds or their advisers could have a
                     detrimental impact on our ability to sell our variable life and
                     annuity products, or maintain current levels of assets in those

        Industry and Regulation
                     the business of our company is highly regulated and is subject to
                     routine audits, examinations, and actions by regulators, law
                     enforcement agencies, and self-regulatory organizations;
                     we may be subject to regulations of, or regulations influenced by,
                     international regulatory authorities or initiatives;

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                     NAIC actions, pronouncements and initiatives may affect our product
                     profitability, reserve and capital requirements, financial condition
                     or results of operations;
                     our use of captive reinsurance companies to finance statutory
                     reserves related to our term and universal life products and to
                     reduce volatility affecting our variable annuity products, may be
                     limited or adversely affected by regulatory action, pronouncements
                     and interpretations;
                     laws, regulations and initiatives related to unreported deaths and
                     unclaimed property and death benefits may result in operational
                     burdens, fines, unexpected payments or escheatments;
                     we are subject to insurance guaranty fund laws, rules and
                     regulations that could adversely affect our financial condition or
                     results of operations;
                     we are subject to insurable interest laws, rules and regulations
                     that could adversely affect our financial condition or results of
                     the Healthcare Act and related regulations could adversely affect
                     our results of operations or financial condition;
                     laws, rules and regulations promulgated in connection with the
                     enactment of the Dodd-Frank Wall Street Reform and Consumer
                     Protection Act may adversely affect our results of operations or
                     financial condition;
                     new and amended regulations regarding the standard of care or
                     standard of conduct applicable to investment professionals,
                     insurance agencies, and financial institutions that recommend or
                     sell annuities or life insurance products may have a material
                     adverse impact on our ability to sell annuities and other products
                     and to retain in-force business and on our financial condition or
                     results of operations;
                     we may be subject to regulation, investigations, enforcement
                     actions, fines and penalties imposed by the SEC, FINRA and other
                     federal and international regulators in connection with our business
                     changes to tax law, or interpretations of existing tax law could
                     adversely affect our ability to compete with non-insurance products
                     or reduce the demand for certain insurance products;
                     financial services companies are frequently the targets of legal
                     proceedings, including class action litigation, which could result
                     in substantial judgments;
                     the financial services and insurance industries are sometimes the
                     target of law enforcement investigations and the focus of increased
                     regulatory scrutiny;
                     new accounting rules, changes to existing accounting rules, or the
                     grant of permitted accounting practices to competitors could
                     negatively impact us;
                     if our business does not perform well, we may be required to
                     recognize an impairment of our goodwill and indefinite lived
                     intangible assets which could adversely affect our results of
                     operations or financial condition;

use of reinsurance introduces variability in our statements of income;

                     our reinsurers could fail to meet assumed obligations, increase
                     rates, terminate agreements or be subject to adverse developments
                     that could affect us;
                     our policy claims fluctuate from period to period resulting in
                     earnings volatility;
                     we operate in a mature, highly competitive industry, which could
                     limit our ability to gain or maintain our position in the industry
                     and negatively affect profitability; and
                     our ability to maintain competitive unit costs is dependent upon the
                     level of new sales and persistency of existing business.

For more information about the risks, uncertainties, and other factors that could affect our future results, please see Item 1A, Risk Factors, of this report.

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developed based on spreads and, when available, market indices. We use a market-based cash flow analysis to validate the reasonableness of prices received from independent brokers. These analytics, which are updated daily, incorporate various metrics (yield curves, credit spreads, prepayment rates, etc.) to determine the valuation of such holdings. As a result of this analysis, if we determine that there is a more appropriate fair value based upon the analytics, the price received from the independent broker is adjusted accordingly. As of December 31, 2018, we did not adjust any prices received from independent brokers.

Mar 25, 2019

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