0000881453-95-000043.txt : 19950815 0000881453-95-000043.hdr.sgml : 19950815 ACCESSION NUMBER: 0000881453-95-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SKANDIA LIFE ASSURANCE CORP/CT CENTRAL INDEX KEY: 0000881453 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE CARRIERS, NEC [6399] IRS NUMBER: 061241288 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-44202 FILM NUMBER: 95562251 BUSINESS ADDRESS: STREET 1: ONE CORP DR 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 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, 1995 Commission file numbers 33-72968, 33-67614, 33-47754, 33-84306, 33-71110 and 33-58536 American Skandia Life Assurance Corporation Incorporated in the State of Connecticut 06-1241288 (IRS 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 July 31, 1995, there were 25,000 shares of outstanding common stock, par value $80 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 Investment Holding Corporation, a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. American Skandia Life Assurance Corporation
Table of Contents Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Statements of Financial Condition - June 30, 1995 (unaudited) and December 31, 1994 4 Statements of Operations (unaudited) - Six Months Ended June 30, 1995 and June 30, 1994 5 Statements of Operations (unaudited) - Three Months Ended June 30, 1995 and June 30, 1994 6 Statements of Cash Flows (unaudited) - Six Months Ended June 30, 1995 and June 30, 1994 7 Notes to Unaudited Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Six Months Ended June 30, 1995 10 PART II. OTHER INFORMATION: Item 4. Action Taken by Shareholder 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 14 Exhibit Index 15
(2) PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS (3) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF FINANCIAL CONDITION JUNE 30, DECEMBER 31, 1995 1994 ------------- ------------- (unaudited) ASSETS Investments: Fixed maturities - at amortized cost $ 10,126,990 $ 9,621,865 Investment in mutual funds - at market value 1,390,742 840,637 Short-term investments - at amortized cost 6,000,000 24,000,000 ------------- ------------- Total investments 17,517,732 34,462,502 Cash and cash equivalents 7,065,919 23,909,463 Accrued investment income 170,500 173,654 Deferred acquisition costs 210,950,241 174,009,609 Receivable from affiliates 734,966 459,960 State insurance licenses 4,937,500 5,012,500 Other assets 1,592,534 1,261,513 Separate account assets 3,554,639,735 2,625,127,128 ------------- ------------- Total Assets $3,797,609,127 $2,864,416,329 ============= ============= LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Reserve for future contractowner benefits $ 21,218,031 $ 11,422,381 Annuity policy reserves 19,792,520 24,054,255 Income tax payable 0 36,999 Accounts payable and accrued expenses 21,421,545 31,753,380 Payable to affiliates 390,109 261,552 Payable to reinsurer 49,910,354 40,105,406 Short-term borrowing-parent 10,000,000 10,000,000 Surplus notes 69,000,000 69,000,000 Deferred contract charges 383,606 449,704 Separate account liabilities 3,554,639,735 2,625,127,128 ------------- ------------- Total Liabilities 3,746,755,900 2,812,210,805 ------------- ------------- SHAREHOLDER'S EQUITY: Common stock, $80 par, 25,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Additional paid-in capital 71,623,932 71,623,932 Unrealized investment gains and losses 101,250 (41,655) Accumulated deficit (22,871,955) (21,376,753) ------------- ------------- Total Shareholder's Equity 50,853,227 52,205,524 ------------- ------------- Total Liabilities and Shareholder's Equity $3,797,609,127 $2,864,416,329 ============= =============
See notes to unaudited financial statements (4) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF OPERATIONS (unaudited) SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1995 JUNE 30, 1994 ------------- ------------- REVENUES: Net investment income $ 985,963 $ 589,063 Annuity premium income 27,480 145,000 Annuity charges & fees 16,874,312 10,895,384 Net realized/unrealized capital losses (16,452) (30,829) Fee income 2,031,411 899,609 Other 25,178 2,849 ----------- ----------- Total Revenues 19,927,892 12,501,076 ----------- ----------- BENEFITS AND EXPENSES: Benefits: Annuity benefits 252,581 182,611 Increase/(decrease) in annuity policy reserves (3,601,298) 4,740,639 Return credited to contractowners (net) 4,422,882 86,003 ----------- ----------- 1,074,165 5,009,253 ----------- ----------- Expenses: Underwriting, acquisition and other insurance expenses 17,049,153 7,059,280 Amortization of insurance license 75,000 75,000 Interest expense 3,209,075 1,441,756 ----------- ----------- 20,333,228 8,576,036 ----------- ----------- Total Benefits and Expenses 21,407,393 13,585,289 ----------- ----------- Loss from operations before federal income taxes (1,479,501) (1,084,213) Income taxes 15,701 68,919 ----------- ----------- Net loss $ (1,495,202) $ (1,153,132) =========== ===========
See notes to unaudited financial statements. (5) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENTS OF OPERATIONS (unaudited) THREE MONTHS THREE MONTHS ENDED ENDED JUNE 30, 1995 JUNE 30, 1994 ------------- ------------- REVENUES: Net investment income $ 434,273 $ 336,149 Annuity premium income 27,480 145,000 Annuity charges & fees 9,050,891 5,731,504 Net realized/unrealized capital losses (370) (30,829) Fee income 985,411 470,487 Other 2,696 1,786 ---------- ---------- Total Revenues 10,500,381 6,654,097 ---------- ---------- BENEFITS AND EXPENSES: Benefits: Annuity benefits 136,762 93,044 Increase/(decrease) in annuity policy reserves (3,576,189) 2,777,192 Return credited to contractowners (net) 2,722,057 227,409 ---------- ---------- (717,370) 3,097,645 ---------- ---------- Expenses: Underwriting, acquisition and other insurance expenses 9,043,224 3,886,324 Amortization of insurance license 37,500 37,500 Interest expense 1,605,241 862,360 ---------- ---------- 10,685,965 4,786,184 ---------- ---------- Total Benefits and Expenses 9,968,595 7,883,829 ---------- ---------- Income (loss) from operations before federal income taxes 531,786 (1,229,732) Income taxes 300 28,036 ---------- ---------- Net income (loss) $ 531,486 $(1,257,768) ========== ==========
See notes to unaudited financial statements. (6) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
STATEMENT OF CASH FLOWS (unaudited) SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1995 JUNE 30, 1994 -------------- --------------- CASH FLOW FROM OPERATING ACTIVITIES: Net loss $ (1,495,202) $ (1,153,132) Adjustments to reconcile net income to net cash used in operating activities: Decrease in policy reserves (4,261,735) 5,625,782 Increase in policy and contract claims 0 21,723 Amortization of bond discount 9,164 11,029 Amortization of insurance licenses 75,000 75,000 (Increase)/decrease due to/due from affiliates (146,449) 446,723 Change in other assets (331,021) (435,157) (Increase)/decrease in accrued investment income 3,154 (85,203) (Increase) in accounts payables (10,368,834) (1,081,303) Change in deferred acquisition cost (36,940,632) (44,307,401) Change in deferred contract charges (66,098) 1,541 Realized loss on sale of investments 16,452 0 Unrealized gain on mutual funds 0 30,829 ------------- ------------ Net cash used in operating activities (53,506,201) (40,849,569) ------------- ------------ CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed maturity investments (614,289) 0 Proceeds from maturity of fixed maturity investments 100,000 0 Purchase of shares in mutual funds (992,953) (430,878) Proceeds from sale of mutual funds 569,301 0 Purchase of short-term investments (162,500,000) (479,100,000) Proceeds from sale of short-term investments 180,500,000 498,500,000 Change in investments of separate account assets (647,165,390) (743,546,497) ------------- ------------ Net cash used in investing activities (630,103,331) (724,577,375) ------------- ------------ CASH FLOW FROM FINANCING ACTIVITIES: Capital & surplus contributions from parent 0 0 Short term borrowing 0 0 Surplus notes 0 20,000,000 Payable to reinsurer 9,804,948 13,998,863 Proceeds from annuity sales 656,961,040 745,225,122 ------------- ------------ Net cash provided by financing activities 666,765,988 779,223,985 ------------- ------------ Net increase/(decrease) in cash & cash equivalents (16,843,544) 13,797,041 ------------- ------------ Cash and cash equivalents at beginning of period 23,909,463 9,834,854 ------------- ------------ Cash and cash equivalents at end of period $ 7,065,919 $ 23,631,895 ============= ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ 52,700 $ 64,411 ============= ============ Interest paid $ 363,667 $ 0 ============= ============ See notes to unaudited financial statements.
(7) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Financial Statements June 30, 1995 1. BASIS OF PRESENTATION The accompanying unaudited financial statements 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, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the financial statements and footnotes thereto in the Company's audited financial statements for the year ended December 31, 1994. 2. SURPLUS NOTES During 1994, the Company received $49 million from its parent in exchange for four surplus notes, two in the amount of $10 million, one in the amount of $15 million and one in the amount of $14 million, at interest rates of 7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest payable at June 30, 1995 for these notes is $3,762,469. During 1993, the Company received $20 million from its parent in exchange for a surplus note in the amount of $20 million at a 6.84% interest rate. Interest payable at June 30, 1995 is $2,086,200. Payment of interest and repayment of principal for these notes require approval of the Commissioner of Insurance of the State of Connecticut. (8) 3. REINSURANCE The Company cedes reinsurance under a modified coinsurance arrangement. The reinsurance arrangement provides additional capacity for growth in supporting the cash flow strain from the Company's variable annuity business. The reinsurance is effected under quota share contracts. The effect of the reinsurance agreement on the Company's operations was to reduce annuity charges and fee income. The effect on annuity charges and fees for the period is as follows:
June 30, 1995 1994 Gross $21,629,037 $12,722,044 Ceded 4,754,725 1,826,660 Net $16,874,312 $10,895,384
Such ceded reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement. (9) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months Ended June 30, 1995 American Skandia Life Assurance Corporation (the Company) is a stock insurance company domiciled in Connecticut with licenses in all 50 states. It is a wholly-owned subsidiary of American Skandia Investment Holding Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a Swedish company. The Company is in the business of issuing annuity policies, and has been so since its business inception in 1988. The Company currently offers the following annuity products: 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; and c) fixed and adjustable immediate annuities. The Company markets its products to broker-dealers and financial planners 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. Results of Operations The Company's long term business plan was developed reflecting the current sales and marketing approach. The sales volume for the six month period ended June 30, 1995 and 1994 was $657 million and $745 million, respectively. The first half year represents a decrease of 12% compared to the same period last year which is a direct result of a drop in the overall variable annuity marketplace. Assets grew $933 million or 33% since December 31, 1994. This increase is a direct result of the sales volume increasing separate account assets and deferred acquisition costs. Liabilities grew $935 million or 33% as a result of the reserves required for the increased sales activity and increased reinsurance to support the acquisition costs of the Company's variable annuity business. The Company experienced a net loss of $1.5 million after tax for the current period which was in excess of plan. This loss is a result of the asset performance relative to our liability structure for our market value adjusted annuity as well as a higher than expected general expense relative to sales volume. For the same period last year, the Company experienced a net loss of $1.15 million which was greater than plan as a result of an additional reserving to cover the guaranteed minimum death benefit exposure in the Company's variable annuity contracts. (10) Revenues: Increasing volume of annuity sales results in higher assets under management. The fees realized on assets under management has resulted in annuity charges & fees to increase 55% and 148% over the periods ended June 30, 1995 and 1994 respectively. Net investment income increased 67% and 30% over the periods ended June 30, 1995 and 1994 respectively. This was a result of an increase in the Company's bonds and short term investments throughout the periods. Fee income increased 126% and 167% for the periods ended June 30, 1995 and 1994 respectively, as a result of income from transfer agency type activities. Benefits: Annuity benefits represent payments on annuity contracts with mortality risks, this being the immediate annuity with life contingencies and supplementary contracts with life contingencies. Increase in annuity policy reserves represent change in reserves for the immediate annuity with life contingencies, supplementary contracts with life contingencies and guaranteed minimum death benefit. The significant decrease for the period ended June 30, 1995 reflects a decrease in the guaranteed minimum death benefit reserve on variable annuity contracts. This decrease covers the escalating death benefit, in certain products, which is reduced due to the good performance of the underlying mutual funds within the variable annuity contract. Return credited to contractowners represents revenues on the variable and market value adjusted annuities offset by the benefit payments and change in reserves required on this business. Also included are the benefit payments and change in reserves on immediate annuity contracts without significant mortality risks. The amount for the period June 30, 1995 reflects a lower than expected separate account investment return on the market value adjusted contracts in support of the benefits and required reserves. (11) Expenses: Underwriting, acquisition and other insurance expenses is made up of $25.3 million of commissions and $19.9 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $28.1 million. This compares to the same period last year of $22.8 million of commissions and $11 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $26.7 million. Interest expense increased 123% over the same period last year as a result of the increase in surplus notes. Liquidity and Capital Resources The liquidity requirement of ASLAC was met by cash from insurance operations, investment activities and borrowings from ASLAC's parent. The Company had significant growth during the first half 1995. The sales volume of $657 million was made up of approximately 69% variable annuities 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 costs for the new business. This cash strain required the Company to look beyond the insurance operations and investments of the Company. The Company extended its reinsurance agreements (initiated in 1993 and 1994) with a large reinsurer in support of its cash needs. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. The income and expense items presented above are net of reinsurance. The Company is reviewing various options to fund the cash strain anticipated from the acquisition costs on the expected future volume. The tremendous growth of this young organization has depended on capital support from its parent. In 1992 and 1993 the parent contributed the capital needed to provide a strong capital base for the Company's planned future growth. As of June 30, 1995 and December 31, 1994, shareholder's equity was $50,853,227 and $52,205,524 respectively, which includes the carrying value of the state insurance licenses in the amount of $4,937,500 and $5,012,500 respectively. ASLAC has long term surplus notes and short term borrowing with its parent. No dividends have been paid to its parent company. (12) PART II. OTHER INFORMATION ITEM 4. ACTION TAKEN BY SHAREHOLDER Not applicable for this quarter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index (b) ASLAC did not file any Report Form 8-K during the quarter covered by this report. (13) 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 Senior Vice President and Chief Financial Officer August 4, 1995 (14) 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 Senior Vice President and Chief Financial Officer August 4, 1995 (14) 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
(15) EX-27 2 FINANCIALS FOR 2ND QUARTER 1995
7 0000881453 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION 1 6-MOS 12-MOS JUN-30-1995 DEC-31-1994 JUN-30-1995 JUN-30-1994 0 0 10,126,990 9,621,865 0 0 1,390,742 840,637 0 0 0 0 17,517,732 34,462,502 7,065,919 23,909,463 0 0 210,950,241 174,009,609 3,797,609,127 2,864,416,329 41,010,551 35,476,636 0 0 0 0 0 0 79,000,000 79,000,000 2,000,000 2,000,000 0 0 0 0 48,853,227 50,205,524 3,797,609,127 2,864,416,329 0 0 985,963 589,063 (16,452) (30,829) 18,958,381 11,942,842 1,074,165 5,009,253 17,124,153 7,134,280 0 0 (1,479,501) (1,084,213) 15,701 68,919 (1,495,202) (1,153,132) 0 0 0 0 0 0 (1,495,202) (1,153,132) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Included in Total Assets are assets held in Separate Accounts of $3,554,639,735 and $2,625,127,128 as of June 30, 1995 and December 31, 1994, respectively. Included in Total Liabilities and Equity are liabilities related to Separate Accounts of $3,554,639,739 and $2,625,127,128 as of June 30, 1995 and December 31, 1994, respectively.