-----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, T2yD68HVWU0Wp7yizWU+Fwfsw0EBqUOGo5cezmcUeodh4nQFWsW/yus0rgeK66/x x3t6nS15reCchen4CYZtsw== /in/edgar/work/0000881453-00-000324/0000881453-00-000324.txt : 20001115 0000881453-00-000324.hdr.sgml : 20001115 ACCESSION NUMBER: 0000881453-00-000324 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 765124 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 3RD QUARTER 2000 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 September 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 November 14, 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 - September 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income (unaudited) - Nine months ended September 30, 2000 and September 30, 1999 4 Consolidated Statements of Income (unaudited) - Three months ended September 30, 2000 and September 30, 1999 5 Consolidated Statements of Shareholder's Equity - Nine months ended September 30, 2000 (unaudited) and year ended December 31, 1999 6 Consolidated Statements of Cash Flows (unaudited) - Nine months ended September 30, 2000 and September 30, 1999 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Nine months ended September 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.) Consolidated Statements of Financial Condition (in thousands)
September 30, December 31, 2000 1999 ---------------- ---------------- (unaudited) ASSETS Investments: Fixed maturities - at amortized cost $ - $ 3,360 Fixed maturities - at fair value 205,495 198,165 Equity Securities - at fair value 23,215 16,404 Derivative instruments 569 189 Policy loans 2,748 1,270 -------------- -------------- Total investments 232,027 219,388 Cash and cash equivalents 111,257 89,212 Accrued investment income 3,963 4,054 Deferred acquisition costs 1,376,831 1,087,705 Reinsurance receivable 2,672 4,062 Income tax receivable - deferred 36,085 51,726 Income tax recoverable 1,975 - State insurance licenses 4,150 4,263 Fixed assets 6,323 3,305 Other assets 90,382 36,698 Separate account assets 33,024,812 29,381,166 ---------------- ---------------- Total assets $ 34,890,477 $ 30,881,579 ================ ================ LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Reserves for future insurance policy and contract benefits $ 93,928 $ 73,292 Drafts outstanding 52,040 51,059 Accounts payable and accrued expenses 138,703 158,590 Income tax payable - 24,268 Payable to affiliates 206,459 68,736 Future fees payable to parent 771,529 576,034 Short-term borrowing 10,000 10,000 Surplus notes 179,000 179,000 Separate account liabilities 33,024,812 29,381,166 ---------------- ---------------- Total Liabilities 34,476,471 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 218,329 215,879 Retained earnings 190,841 141,162 Accumulated other comprehensive income (loss) 2,336 (107) ---------------- ---------------- Total Shareholder's equity 414,006 359,434 ---------------- ---------------- Total liabilities and shareholder's equity $ 34,890,477 $ 30,881,579 ================ ================
See notes to unaudited consolidated financial statements. 3 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Income (in thousands) (unaudited)
Nine Months Ended September 30, 2000 1999 ------------- -------------- REVENUES Annuity and life insurance charges and fees $ 325,052 $ 204,103 Fee income 95,130 58,184 Net investment income 10,690 8,231 Premium income 7,804 1,236 Net realized capital gains (losses) (1,565) 526 Other 1,610 1,279 ------------- -------------- Total revenues 438,721 273,559 ------------- -------------- EXPENSES Benefits: Annuity and life insurance benefits 533 480 Change in annuity and life insurance policy reserves 12,024 2,519 Cost of minimum death benefit reinsurance - 2,946 Return credited to contractowners 11,085 (1,208) ------------- -------------- 23,642 4,737 Expenses: Underwriting, acquisition and other insurance expenses 262,626 152,264 Interest expense 84,344 46,505 ------------- -------------- 346,970 198,769 ------------- -------------- Total benefits and expenses 370,612 203,506 ------------- -------------- Income from operations before income tax 68,109 70,053 Income tax expense 18,430 18,884 ------------- -------------- Net income $ 49,679 $ 51,169 ============= ==============
See notes to unaudited consolidated financial statements. 4 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Income (in thousands)
Three Months Ended September 30, 2000 1999 ------------- -------------- REVENUES Annuity and life insurance charges and fees $ 113,844 $ 75,296 Fee income 33,074 21,894 Net investment income 4,186 2,735 Premium income 5,545 328 Net realized capital gains (losses) (858) 206 Other 492 437 ------------- -------------- Total revenues 156,283 100,896 ------------- -------------- EXPENSES Benefits: Annuity and life insurance benefits 255 100 Change in annuity and life insurance policy reserves 2,519 (6,759) Cost of minimum death benefit reinsurance - (9) Return credited to contractowners 13,447 2,654 ------------- -------------- 16,221 (4,014) Expenses: Underwriting, acquisition and other insurance expenses 98,201 58,323 Interest expense 28,124 17,288 ------------- -------------- 126,325 75,611 ------------- -------------- Total benefits and expenses 142,546 71,597 ------------- -------------- Income from operations before income tax 13,737 29,299 Income tax expense 3,167 7,898 ------------- -------------- Net income $ 10,570 $ 21,401 ============= ==============
See notes to unaudited consolidated financial statements. 5 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Shareholder's Equity (in thousands)
September 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 2,450 36,490 --------------- ------------------ Ending balance 218,329 215,879 --------------- ------------------ Retained earnings: Beginning balance 141,162 64,993 Net income 49,679 76,169 --------------- ------------------ Ending balance 190,841 141,162 --------------- ------------------ Accumulated other comprehensive income (loss): Beginning balance (107) 3,535 Other comprehensive income (loss) 2,443 (3,642) --------------- ------------------ Ending Balance 2,336 (107) --------------- ------------------ Total shareholder's equity $ 414,006 $ 359,434 =============== ==================
See notes to unaudited consolidated financial statements. 6 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Consolidated Statements of Cash Flows (in thousands) (unaudited)
Nine Months Ended September 30, 2000 1999 ------------- ------------- Cash flow from operating activities: Net income $ 49,679 51,169 Adjustments to reconcile net income to net cash used in operating activities: Amortization and depreciation 2,790 199 Deferred tax expense 14,325 5,200 Increase in policy reserves 12,587 6,106 Increase in payable to affiliates 137,723 115,248 Change in income tax payable/recoverable (26,243) (8,911) Increase in other assets (53,684) (3,596) Decrease/(increase) in accrued investment income 91 (77) Decrease/(increase) in reinsurance receivable 1,390 (1,393) Net increase in deferred acquisition costs (289,126) (246,261) (Decrease)/increase in accounts payable and accrued expenses (19,887) 26,777 Increase in drafts outstanding 981 8,200 Change in foreign currency translation, net (78) 771 Unrealized loss on derivative instruments - 178 Net realized capital (gain)/loss 1,565 (526) ------------- ------------- Net cash used in operating activities (167,887) (46,916) ------------- ------------- Cash flow from investing activites: Purchase of fixed maturity investments (283,490) (36,517) Proceeds from sale and maturity of fixed maturity investments 283,586 33,561 Purchase of derivatives (3,277) (4,974) Purchase of shares in mutual funds (12,615) (15,564) Proceeds from sale of shares in mutual funds 4,063 14,229 Purchase of fixed assets (2,851) - Purchase of short term investments - (30,697) Increase in policy loans (1,478) (472) ------------- ------------- Net cash used in investing activities (16,062) (40,434) ------------- ------------- Cash flow from financing activities: Capital contribution from parent 2,450 11,690 Increase in future fees payable to parent, net 195,495 79,704 Net deposits to/(withdrawals from) contractowner accounts 8,049 (13,254) ------------- ------------- Net cash provided by financing activities 205,994 78,140 ------------- ------------- Net increase/(decrease) in cash and cash equivalents 22,045 (9,210) Cash and cash equivalents at beginning of period 89,212 77,525 ------------- ------------- Cash and cash equivalents at end of period $ 111,257 $ 68,315 ============= ============= Income taxes paid $ 30,349 $ 16,867 ============= ============= Interest paid $ 85,902 $ 45,434 ============= =============
See notes to unaudited consolidated financial statements. 7 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 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 nine month period ended September 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 No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities." The FASB has amended FAS 133 with the issuance of Statement No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" and Statement No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities." FAS 133 is effective for fiscal years beginning after June 15, 2000. The Company is currently evaluating the potential impact of this statement on its financial position and results of operations. 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 yet been significant enough to warrant full segment disclosures as required by FAS 131, "Disclosures about Segments of an Enterprise and Related Information." 8 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2000 4. COMPREHENSIVE INCOME The components of comprehensive income, net of tax, for the nine months ended September 30, 2000 and 1999 were as follows: (in thousands) 2000 1999 ------- ------- Net income $49,679 $51,169 Other comprehensive income (loss): Net Unrealized investment gain/(loss) on available for sale securities 2,493 (5,054) Foreign currency translation (50) 501 ------- ------- Other comprehensive income (loss) 2,443 (4,553) ------- ------- Comprehensive income $52,122 $46,616 ======= ======= The components of accumulated other comprehensive income, net of tax, as of September 30, 2000 and December 31, 1999 were as follows: (in thousands) 2000 1999 -------- --------- Unrealized investment gains/(losses) $ 2,238 ($ 255) Foreign currency translation 98 148 -------- --------- Accumulated other comprehensive income (loss) $ 2,336 ($ 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 $5,554,000 as of September 30, 2000 and $4,592,000 as of December 31, 1999 and has generated losses of $1,410,000 and $1,747,000 for the nine months ended September 30, 2000 and 1999, respectively. 9 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued) September 30, 2000 6. FUTURE FEES PAYABLE TO PARENT The Company regularly transfers certain rights to receive future fees and charges expected to be realized on the variable portion of designated blocks of deferred annuity contracts to its Parent, American Skandia, Inc. ("ASI"). In connection with these transactions, ASI, through a trust, issues 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 Agreements, the rights transferred 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 does not transfer the rights to receive future fees and charges after the expiration of the surrender charge period. The proceeds for each transfer are determined by calculating the present value of future fees and charges expected to be realized on the designated contracts. The proceeds are recorded as a liability and amortized over the remaining surrender charge period of the designated contracts using the interest method. The following transactions were recorded in 2000:
Effective Contract Issue Present Value(1) Discount Date Date (in thousands) Rate -------------- ---------------- ---------------- -------------- March 22, 2000 8/1/99 - 1/31/00 $169,459 7.50% July 18, 2000 2/1/00 - 4/30/00 92,399 7.25 ======== $261,858 (1) Calculated as of the effective date.
As of September 30, 2000, the expected payments of future fees payable to ASI under these transactions are as follows: (in thousands) Period Ending December 31, Amount 2000 $ 6,563 2001 28,207 2002 31,535 2003 35,143 2004 39,053 2005 43,287 2006 44,794 2007 26,836 2008 2,091 ======== Total $257,509 10 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 Nine months ended September 30, 2000 Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the September 30, 2000 financial statements and the notes included herein. Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition. 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 is primarily in the business of issuing long-term savings and retirement products to individuals, groups and qualified pension plans. The Company is the third largest provider of variable annuity contracts for the individual market in the United States 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, variable and adjustable immediate annuities. 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. 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'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. 11 Results of Operations - --------------------- Annuity and life insurance sales volume for the nine months ended September 30, 2000 and 1999 was $6,864,044,000 and $4,987,926,000 respectively, an increase of 38%. This increase was the result of favorable market conditions and strong performance of the underlying mutual funds, particularly in the fourth quarter of 1999 and first quarter of 2000. Sales have declined since the first quarter of 2000 due to the volatility in the financial markets. Contractowner fees and charges and charges generated from transfer agency-type and investment support activities increased $157,895,000 or 60% for the first nine months of 2000 compared to the year ago period as a result of the growth in assets under management. The increase in premium income of $6,568,000 from the nine months ended September 30, 1999 was due to growth in the issuance of variable immediate annuities and supplementary contracts with life contingencies. Supplementary contracts sales growth was consistent with the increase in annuitization of business sold in previous years. 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 related market risk utilizing equity put options. The Company is currently continuing this program while evaluating alternative hedging strategies. Annuity policy reserves increased $9,505,000 over the nine months ended September 30, 1999 as a result of an increase in the required GMDB reserve due to the decreased performance in the underlying funds in the past two quarters. Because the hedge program is designed to insure against significant declines in asset values that result from declines in certain equity markets, there was no offsetting income recorded against the GMDB liability during 2000. 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 $2,946,000 for the nine 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 nine months of 2000, the Separate Account investment returns on the market value adjusted annuities were less than the expected returns as calculated in the reserves, contributing to the significant increase in the return credited to contractholders benefit. In addition, this benefit increased as a result of the amortization of unearned target value credits. 12 Underwriting, acquisition and other insurance expenses for the nine months ended September 30, 2000 and 1999 were as follows:
(in thousands) 2000 1999 Change ---- ---- ------ Commissions and purchase credits $386,840 $277,357 $109,483 General operating expenses 161,838 126,294 35,544 Net capitalization of deferred acquisition costs (286,052) (251,387) (34,665) -------- -------- -------- Underwriting, acquisition and other insurance expenses $262,626 $152,264 $110,362 ======== ======== ========
Higher sales and asset levels for the nine months ended September 30, 2000, compared with the same period in 1999, led to a 40% increase in commissions and purchase credits. General operating expenses increased 28% from a year ago as a result of costs associated with the Company's record sales over the past two years as well as significant investments made in new product development and technology. In addition, the company incurred cost overruns in certain existing product lines during the third quarter of 2000, due to the drop in sales. Interest expense increased $37,839,000 or 81% over the nine months ended September 30, 2000 primarily as a result of additional financing transactions, which consisted of the transfer of future fees to ASI, through a trust ("securitization transactions") initiated throughout 1999 and 2000. The effective income tax rate for the nine months ended September 30, 2000, and 1999 was 27%. 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 nine 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 $49,679,000 and $51,169,000 for the nine months ended September 30, 2000 and 1999, respectively. The decrease from 1999 was primarily due to the impact of the recent decline in the financial markets as well as increased expenses related to new product development, technology and cost overruns, as discussed above. The Company expects technological and new product initiatives, the expansion of the producer sales base and an increase in Separate Account investment options to generate increased levels of sales, which should result in higher levels of profit. 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 $1,410,000 and $1,747,000 for the nine months ended September 30, 2000 and 1999, respectively. Financial Condition Total assets grew $4,008,898,000 or 13% since December 31, 1999 as a result of the substantial sales volume, partially offset by the decline in the financial markets. 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 $3,954,326,000 or 13%, since December 31, 1999 as a result of the reserve increases required based on sales activity along with the transfer of future fees and charges during these periods. These transfers of future fees and charges to ASI are needed to fund the acquisition costs of the Company's variable annuity business. 13 Liquidity and Capital Resources - ------------------------------- The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from ASI and the transfer 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 transfer of certain rights to future fees and charges as well as modified coinsurance reinsurance arrangements: o During the first nine months of 2000 and 1999, the Company received $2,450,000 and $1,690,000, respectively, from ASI to support its investment in Skandia Vida. o Funds received from new securitization transactions amounted to $261,858,000 and $120,632,000 for the first nine 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. 14 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 nine months 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 15 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 November 14, 2000 16 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 November 14, 2000 17 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
18 EX-27 2 0002.txt FDS -- ASLAC 09/30/2000
7 0000881453 American Skandia Life Assurance Corporation 1,000 U.S. Dollars 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 205,495 205,495 205,495 23,215 0 0 232,027 111,257 2,672 1,376,831 34,890,477 93,928 0 0 0 189,000 0 0 2,500 411,506 34,890,477 7,804 10,690 (1,565) 421,792 23,642 160,380 186,590 68,109 18,430 0 0 0 0 49,679 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $33,024,812. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $33,024,812. Other income includes annuity charges and fees of $325,052 and fee income of $95,130.
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