-----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, Dxo/YrzHuFDpVDHICkl95P38U9T+d7YoTHQuhlCPm82CGk+PysvjpqOYUlnNKXWQ b72M1iXJPoNFCU8uUU/gnw== /in/edgar/work/20000814/0000881453-00-000214/0000881453-00-000214.txt : 20000921 0000881453-00-000214.hdr.sgml : 20000921 ACCESSION NUMBER: 0000881453-00-000214 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKANDIA LIFE ASSURANCE CORP/CT CENTRAL INDEX KEY: 0000881453 STANDARD INDUSTRIAL CLASSIFICATION: [6399 ] IRS NUMBER: 061241288 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-44202 FILM NUMBER: 698845 BUSINESS ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039261888 MAIL ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 10-Q 1 0001.txt ASLAC 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2000 Commission file numbers: 33-77213, 33-62953, 33-88360, 33-89676, 333-00995, 333-02867, 333-24989, 333-25761, 33-91400, 333-25733, and 333-26695 American Skandia Life Assurance Corporation Incorporated in the State of Connecticut 06-1241288 (Federal Employer Identification No.) One Corporate Drive Shelton, Connecticut 06484 Telephone Number (203) 926-1888 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No __ As of August 11, 2000, there were 25,000 shares of outstanding common stock, par value $100 per share, of the registrant, consisting of 100 shares of voting and 24,900 shares of non-voting common stock, all of which were owned by American Skandia Inc., a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Statements of Financial Condition - June 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income (unaudited) - Six months ended June 30, 2000 and June 30, 1999 4 Consolidated Statements of Income (unaudited) - Three months ended June 30, 2000 and June 30, 1999 5 Consolidated Statements of Shareholder's Equity - Six months ended June 30, 2000 (unaudited) and year ended December 31, 1999 6 Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2000 and June 30, 1999 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Six months ended June 30, 2000 11 Item 3. Quantitative and Qualitative Disclosures of Market Risk 15 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Colsolidated Statements of Financial Condition (in thousands)
June 30, December 31, 2000 1999 ---------------- ---------------- (unaudited) ASSETS Investments: Fixed maturities - at amortized cost $ - $ 3,360 Fixed maturities - at fair value 205,294 198,165 Investment in mutual funds - at fair value 22,531 16,404 Derivative instruments - 189 Policy loans 1,932 1,270 -------------- -------------- Total investments 229,757 219,388 Cash and cash equivalents 106,999 89,212 Accrued investment income 3,698 4,054 Deferred acquisition costs 1,322,191 1,087,705 Reinsurance receivable 1,453 4,062 Income tax receivable - deferred 42,001 51,726 Income tax recoverable 200 - State insurance licenses 4,188 4,263 Fixed assets 5,425 3,305 Other assets 74,056 36,698 Separate account assets 32,277,596 29,381,166 ---------------- ---------------- Total assets $ 34,067,564 $ 30,881,579 ================ ================ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Reserves for future insurance policies and contracts $ 86,614 $ 73,292 Drafts outstanding 54,231 51,059 Accounts payable and accrued expenses 155,971 158,590 Income tax payable - 24,268 Payable to affiliates 196,819 68,736 Future fees payable to parent 706,566 576,034 Short-term borrowing 10,000 10,000 Surplus notes 179,000 179,000 Separate account liabilities 32,277,596 29,381,166 ---------------- ---------------- Total Liabilities 33,666,797 30,522,145 ---------------- ---------------- Shareholder's equity: Common stock, $100 par value, 25,000 shares authorized, issued and outstanding 2,500 2,500 Additional paid-in capital 217,479 215,879 Retained earnings 180,271 141,162 Accumulated other comprehensive income 517 (107) ---------------- ---------------- Total Shareholder's equity 400,767 359,434 ---------------- ---------------- Total liabilities and shareholder's equity $ 34,067,564 $ 30,881,579 ================ ================
See notes to unaudited consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Income (in thousands) (unaudited)
Six Months Ended June 30, 2000 1999 ------------- -------------- REVENUES Annuity and life insurance charges and fees $ 211,208 $ 128,807 Fee income 62,056 36,290 Net investment income 6,504 5,496 Premium income 2,259 908 Net realized capital gains (707) 320 Other 1,118 842 ------------- -------------- Total revenues 282,438 172,663 ------------- -------------- EXPENSES Benefits: Annuity and life insurance benefits 278 380 Change in annuity and life insurance policy reserves 9,505 9,278 Cost of minimum death benefit reinsurance - 2,955 Return credited to contractowners (2,362) (3,862) ------------- -------------- 7,421 8,751 Expenses: Underwriting, acquisition and other insurance expenses 164,425 93,941 Interest expense 56,220 29,218 ------------- -------------- 220,645 123,159 ------------- -------------- Total benefits and expenses 228,066 131,910 ------------- -------------- Income from operations before income tax 54,372 40,753 Income tax expense 30,342 10,986 ------------- -------------- Net income $ 39,109 $ 29,767 ============= ==============
See notes to unaudited consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Income (in thousands) (unaudited)
Three Months Ended June 30, 2000 1999 ------------- -------------- REVENUES Annuity and life insurance charges and fees $ 106,375 $ 68,486 Fee income 30,913 19,313 Net investment income 3,628 2,842 Premium income 1,656 159 Net realized capital gains (1,436) 25 Other 442 477 ------------- -------------- Total revenues 141,578 91,302 ------------- -------------- EXPENSES Benefits: Annuity and life insurance benefits 145 159 Change in annuity and life insurance policy reserves 6,881 8,521 Cost of minimum death benefit reinsurance - 1,206 Return credited to contractowners 314 (432) ------------- -------------- 7,340 9,454 Expenses: Underwriting, acquisition and other insurance expenses 88,133 42,956 Interest expense 25,952 15,393 ------------- -------------- 114,085 58,349 ------------- -------------- Total benefits and expenses 121,425 67,803 ------------- -------------- Income from operations before income tax 20,153 23,499 Income tax expense 5,225 7,142 ------------- -------------- Net income $ 14,928 $ 16,357 ============= ==============
See notes to unaudited consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Shareholder's Equity (in thousands)
June 30, December 31, 2000 1999 --------------- ------------------ (unaudited) Common stock: Beginning balance $ 2,500 $ 2,000 Increase in par value - 500 --------------- ------------------ Ending balance 2,500 2,500 --------------- ------------------ Additional paid in capital: Beginning balance 215,879 179,889 Transferred to common stock - (500) Additional contributions 1,600 36,490 --------------- ------------------ Ending balance 217,479 215,879 --------------- ------------------ Retained earnings: Beginning balance 141,162 64,993 Net income 39,109 76,169 --------------- ------------------ Ending balance 180,271 141,162 --------------- ------------------ Accumulated other comprehensive income: Beginning balance (107) 3,535 Other comprehensive income 624 (3,642) --------------- ------------------ Ending Balance 517 (107) --------------- ------------------ Total shareholder's equity $ 400,767 $ 359,434 =============== ==================
See notes to unaudited consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) consolidated Statements of Cash Flows (in thousands) (unaudited)
Six Months Ended June 30, 2000 1999 ------------- ------------- Cash flow from operating activities: Net income $ 39,109 $ 29,767 Adjustments to reconcile net income to net cash used in operating activities: Amortization and depreciation 2,514 135 Deferred tax expense/(benefit) 9,389 (673) Increase in policy reserves 9,381 11,633 Increase in payable to affiliates 128,083 638 Decrease in income tax payable (24,468) (4,545) Increase in other assets (69,523) (1,068) Decrease/(increase) in accrued investment income 356 (220) Decrease/(increase) in reinsurance receivable 2,609 (638) Increase in deferred acquisition costs (234,485) (163,591) Decrease/increase in accounts payable and accrued expenses (2,620) 16,404 Increase in drafts outstanding 3,172 2,133 Change in foreign currency translation, net (248) 704 Net realized capital gain 707 (320) ------------- ------------- Net cash used in operating activities (136,024) (109,641) ------------- ------------- Cash flow from investing activites: Purchase of fixed maturity investments (102,374) (29,582) Proceeds from sale and maturity of fixed maturity investments 100,268 29,504 Purchase of derivatives (2,274) - Purchase of shares in mutual funds (10,600) (13,918) Proceeds from sale of shares in mutual funds 3,274 11,879 Purchase of fixed assets (2,059) - Increase in policy loans (662) (168) ------------- ------------- Net cash used in investing activities (14,427) (2,285) ------------- ------------- Cash flow from financing activities: Capital contribution from parent 1,600 11,690 Increase in future fees payable to parent, net 130,532 95,932 Net deposits to/(withdrawals from) contractowner accounts 36,106 (3,551) ------------- ------------- Net cash provided by financing activities 168,238 104,071 ------------- ------------- Net increase/(decrease) in cash and cash equivalents 17,787 (7,855) Cash and cash equivalents at beginning of period 89,212 77,525 ------------- ------------- Cash and cash equivalents at end of period $ 106,999 $ 69,670 ============= ============= Income taxes paid $ 15,263 $ 16,205 ============= ============= Interest paid $ 50,284 $ 29,900 ============= =============
See notes to unaudited consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of American Skandia Life Assurance Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto in the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 1999. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). Subsequently, in July 1999, the FASB issued FAS 137 "Deferral of the Effective Date of FASB Statement 133". The adoption date was delayed to fiscal years beginning after June 15, 2000. The Company is currently evaluating the potential impact of this statement on its financial position. 3. SEGMENT REPORTING During 1998, to complement its annuity products, the Company launched marketing and operational activities towards the release of variable life insurance and qualified retirement plan annuity products. Assets under management and sales for the products other than variable annuities have not been significant enough to warrant full segment disclosures as required by FAS 131, "Disclosures about Segments of an Enterprise and Related Information." AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2000 4. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, for the six months ended June 30, 2000 and 1999 were as follows: (in thousands) 2000 1999 Net income $39,109 $29,767 Other comprehensive income: Net Unrealized investment gain/(loss) on available for sale securities 785 (4,083) Foreign currency translation (161) 456 Other comprehensive income 624 (3,627) Comprehensive income $39,733 $26,140 The components of accumulated other comprehensive income, net of tax, as of June 30, 2000 and December 31, 1999 were as follows: (in thousands) 2000 1999 Unrealized investment gains/(losses) $ 530 ($ 255) Foreign currency translation (13) 148 Accumulated other comprehensive income $ 517 ($ 107) 5. FOREIGN ENTITY The Company has a 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico, selling long-term savings products within Mexico. Skandia Vida, which is fully consolidated in the accompanying financial statements, had total shareholders' equity of $5,392,000 as of June 30, 2000 and $4,592,000 as of December 31, 1999 and has generated losses of $552,000 and $1,220,000 for the six months ended June 30, 2000 and 1999, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 2000 6. FUTURE FEES PAYABLE TO PARENT On March 22, 2000, the Company sold to its Parent, American Skandia, Inc. ("ASI"), certain rights to receive future fees and charges expected to be realized on the variable portion of a designated block of deferred annuity contracts issued during the period August 1, 1999 through January 31, 2000. In connection with this transaction, ASI, through a trust, issued collateralized notes in a private placement which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreement, the rights sold provide for ASI to receive a percentage of future mortality and expense charges and contingent deferred sales charges expected to be realized over the remaining surrender charge period of the designated contracts, generally seven years. The Company did not sell the rights to receive future fees and charges after the expiration of the surrender charge period. The proceeds from the sale have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present value of the future fees and charges expected to be realized on the designated contracts at March 22, 2000, discounted at 7.5%, was $169,459,000. Expected payments of future fees payable to ASI under this transaction are as follows: (in thousands) Period Ending December 31, Amount 2000 $ 11,807 2001 18,068 2002 20,266 2003 22,653 2004 25,243 2005 28,053 2006 28,097 2007 15,272 -------- Total $169,459 ======== 7. SUBSEQUENT EVENT On July 18, 2000, the Company sold certain rights to receive future fees and contract charges expected to be received on variable portions of a designated block of deferred annuity contracts issued between February 1, 2000 and April 30, 2000. This transaction is the latest in a series of agreements with ASI, as described in Note 6. This transaction has an effective date of July 18, 2000. The present value as of this date, discounted at 7.25%, was $92,399,000. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six months ended June 30, 2000 Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the June 30, 2000 financial statements and the notes included herein. American Skandia Life Assurance Corporation ("the Company"), with its principal offices in Shelton, Connecticut, is a wholly owned subsidiary of American Skandia, Inc. ("ASI"), whose ultimate parent is Skandia Insurance Company Ltd., a Swedish corporation. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. The Company's products are sold to individuals, businesses and pension plans to provide for long-term savings and retirement purposes and to address the economic impact of premature death, estate and business planning concerns and supplemental retirement needs. The Company markets its products to independent financial planners and broker-dealers through an internal field marketing staff. In addition, the Company markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities and life insurance. The Company is primarily in the business of issuing long-term savings and retirement products to individuals, groups and qualified pension plans. The Company was the second largest provider of variable annuity contracts for the individual market in the United States during the first six months of 2000 according to The Variable Annuity Research & Data Service ("VARDS"). Since its business inception in 1988, the Company has offered an increasingly wide array of annuities, including: a) certain deferred annuities that are registered with the Securities and Exchange Commission, including variable annuities and fixed interest rate annuities that include a market value adjustment feature; b) certain other fixed deferred annuities that are not registered with the Securities and Exchange Commission; c) non-registered group variable annuities designed as funding vehicles for various types of qualified retirement plans; and d) fixed and adjustable immediate annuities. In May 1999, the Company introduced a benefit feature to all of its variable annuity products which provides certain benefits if the policyowner's account value has not reached a "target value" on its tenth anniversary. At the option of the policyowner, the benefit will be distributed in the form of an annual or, if annuitization is selected, a lump-sum credit to the contractowner's account. The Company also offers single premium and flexible premium variable life insurance products and a term life insurance product in support of an affiliate's mutual fund products. Results of Operations Annuity and life insurance sales volume for the six months ended June 30, 2000 and 1999 was $5,080,947,000 and $3,260,180,000, respectively, an increase of 56%. This increase was the result of favorable market conditions in the first three months of 2000 combined with the continued development of new products and new product features and business relationships with top producers. The Company also attributes much of its sales growth over the past several quarters to the strong performance of the underlying mutual funds, which support the Separate Account assets. Sales of annuity and life insurance products for the three month period ended June 30, 2000 were $2,358,000,000 as compared with $2,723,000,000 for the three months ended March 31, 2000, a decrease of 13%. The Company believes that this decrease was largely the result of recent volatility in equity markets. As a result of the growth in sales and assets under management, contractowner fees and charges and charges generated from transfer agency-type and investment support activities increased $108,167,000 or 66% over the six months ended June 30, 1999. The increase in fee income for the six month period ended June 30, 1999 from the six month period ended June 30, 1998 was 52%. The increase in premium income of $1,351,000 from the six months ended June 30, 1999 was due to issuance of supplementary contracts. Sales of immediate annuities with life contingencies and certain life insurance products have been minimal during both 2000 and 1999. Annuity benefits relate to annuity contracts with mortality risks, such as, immediate annuity contracts with life contingencies and supplementary contracts with life contingencies. Due to the age of these policies in force and the relative insignificance of these products to the Company's overall portfolio of products, fluctuations in these benefits were of marginal importance to the Company's total operations. The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as well as the Company's guaranteed minimum death benefit("GMDB") liability. During the second quarter of 1999, the Company's agreement to reinsure substantially all of its exposure on the GMDB was terminated and the business was recaptured, as the reinsurer had announced its intention to exit this market. The increase in reserves resulting from this change was offset by a decrease in reserves associated with the change in reserve methodology on the GMDB. The new reserve methodology complies with the National Association of Insurance Commissioners Actuarial Guideline XXXIV. In the latter half of 1999, the Company instituted a hedge program to manage the market risk and reserve fluctuations associated with the GMDB liability through the use of equity put options. The Company is currently continuing this program while evaluating alternative hedging strategies. The reinsurance premium associated with the GMDB exposure was based on levels of assets under management. Due to increased sales and account growth, this cost had increased in recent years and reached $2,955,000 for the six months of 1999 before the treaty was terminated. Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable life insurance, offset by the benefit payments and changes in reserves required on this business. Through the first six months of 2000 and 1999, the Separate Account investment returns on the market value adjusted annuities exceeded the expected returns as calculated in the reserves. Despite the positive returns in the second quarter of 2000, the return credited to contractowners increased as a result of the amortization of unearned target value credits. Underwriting, acquisition and other insurance expenses for the six months ended June 30, 2000 and 1999 were as follows: (in thousands) 2000 1999 Change Commissions and general expenses $396,860 $257,532 $139,328 Net capitalization of deferred acquisition costs (232,435) (163,591) (68,844) Underwriting, acquisition and other insurance expenses $164,425 $ 93,941 $ 70,484 Commissions, general operating expenses and the net deferral of acquisition costs have all increased in 2000, due largely to record sales. Current sales trends have resulted in a shift to asset based commission agreements. This coupled with increased asset levels from increased sales and equity market appreciation have led to a 54% increase in commissions and general expenses. Interest expense increased $27,002,000 or 92% over the six months ended June 30, 2000 as a result of additional financing transactions, which consisted of the sale of future fees to ASI, through a trust ("securitization transactions") initiated throughout 1999 and 2000, offset by a decrease in surplus notes outstanding. Surplus notes as of June 30, 2000 and December 31, 1999 totaled $179,000,000. The effective income tax rate for the six months ended June 30, 2000, and 1999 was 28% and 27%, respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most significant item being the dividend received deduction. Management believes that based on the taxable income produced in 1999 and the first six months of 2000, as well as the continued growth in annuity sales, the Company will produce sufficient taxable income in the future to realize its deferred tax assets. The Company generated net income after tax of $39,109,000 and $29,767,000 for the six months ended June 30, 2000 and 1999, respectively, as a result of strong sales growth and favorable market conditions. The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $552,000 and $1,220,000 during the same time periods, respectively. Total assets grew $3,185,985,000 or 10% since December 31, 1999 as a result of the substantial sales volume and market performance of the separate account assets. The net sales growth also drove increases in deferred acquisition costs, as well as fixed maturity investments held in support of the Company's risk based capital requirements. Liabilities grew $3,144,652,000 or 10%, since December 31, 1999 as a result of the reserve increases required based on sales activity along with the sale of future fees and charges during these periods. These sales of future fees and charges to ASI are needed to fund the acquisition costs of the Company's variable annuity and life insurance business. Liquidity and Capital Resources The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from ASI and the sale of rights to future fees and charges to ASI. The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products which carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made available by insurance operations and investments of the Company to financing in the form of surplus notes, capital contributions, the sale of certain rights to future fees and charges as well as modified coinsurance reinsurance arrangements: o During the first six months of 2000 and 1999, the Company received $1,600,000 and $1,690,000, respectively, from ASI to support its investment in Skandia Vida. o Funds received from new securitization transactions amounted to $169,459,000 and $120,632,000 for the first six months of 2000 and 1999, respectively. o The Company continues to extend its reinsurance agreements for new blocks of business. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain anticipated from acquisition costs on the coming years' sales volume. The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI. The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance regulators to identify companies which may need regulatory attention. The RBC model law requires that insurance companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula includes components for asset risk, insurance risk, interest risk and business risk. The Company has complied with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital. Year 2000 Compliance The Company's computer support is provided by its affiliate, American Skandia Information Services and Technology Corporation, which also provides such support for the Company's affiliated broker-dealer, American Skandia Marketing, Incorporated and the Company's affiliated investment advisory firm, American Skandia Investment Services, Incorporated. Because of the nature of the Company's business, any assessment of the potential impact of the Year 2000 issues on the Company must be an assessment of the potential impact of these issues on all these companies, which are referred to below as "American Skandia". The Company experienced no significant errors or disruptions in computer service, interfaces with computer systems of investment managers, sub-advisors, third party administrators, vendors and other business partners on or after January 1, 2000. American Skandia engaged external information technology specialists to review its operating systems and internally developed software. American Skandia continues to review new and existing systems and has contingency plans in place as part of its Business Continuity Plan. This plan involves virtually all aspects of the business and will continue to be a focus of management beyond the Year 2000 event. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company's market risk during the first half of 2000. The Company has provided a discussion of its market risks in Item 7A of Part II of the December 31, 1999 Form 10-K. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index (b) None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Skandia Life Assurance Corporation (Registrant) by: /s/Thomas M. Mazzaferro Thomas M. Mazzaferro Executive Vice President and Chief Financial Officer August 4, 2000 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Skandia Life Assurance Corporation (Registrant) by: _____________________ Thomas M. Mazzaferro Executive Vice President and Chief Financial Officer August 4, 2000 EXHIBIT INDEX Exhibit Number Description Location (2) Plan of acquisition, reorganization, arrangement, liquidation or succession None (4) Instruments defining the rights of security holders, including indentures None (10) Material Contracts None (11) Statement Re: Computation of per share earnings None (15) Letter Re: Unaudited interim financial information None (18) Letter Re: Change in accounting principles None (19) Report furnished to security holders None (22) Published report regarding matters submitted to vote of security holders None (23) Consents of experts and counsel None (24) Power of attorney None (99) Additional exhibits None EX-27 2 0002.txt FDS -- ASLAC 10-Q JUNE 30, 2000
7 0000881453 American Skandia Life Assurance Corporation 1,000 U.S. Dollars 6-MOS DEC-31-2000 JAN-01-2000 Jun-30-2000 1 205,294 205,294 205,294 22,531 0 0 229,757 106,999 1,453 1,322,191 34,067,564 86,614 0 0 0 189,000 0 0 2,500 398,267 34,067,564 2,259 6,504 (707) 274,382 7,421 78,011 142,634 54,372 15,263 0 0 0 0 39,109 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $32,277,596. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $32,277,596. Other income includes annuity charges and fees of $211,208 and fee income of $62,056.
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