-----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, RX81s8h2xhg7rlGvQGpUHfWupEYwKHuAQrih/mI6L+X97jNN88IAqC72vCuXcbS8 OaGq7/cK0u4wsF2uKJFC4w== 0000881453-97-000036.txt : 19970326 0000881453-97-000036.hdr.sgml : 19970326 ACCESSION NUMBER: 0000881453-97-000036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-44202 FILM NUMBER: 97562188 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-K 1 ASLAC 10-K DECEMBER 31, 1996 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended 12/31/96 Commission file numbers 33-62791, 33-62953, 33-89676, 33-89678, 33-88360, 333-00941, 333-00995, 333-01021, 33-91400 and 333-02867 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (Exact name of registrant as specified in its charter) Connecticut 06-1241288 (State or other jurisdiction of IRS Employer incorporation or organization) Identification No.) One Corporate Drive, Shelton, Connecticut 06484 (Address of Principal Executive Offices, Zip Code) Registrant's telephone number, including area code: (203) 926-1888 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ As of March 15, 1997, 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 all of which were owned by American Skandia Investment Holding Corporation, a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. PART I Item 1. Business American Skandia Life Assurance Corporation ("ASLAC" or "the Company") is a Connecticut corporation with its principal offices in Shelton, Connecticut. American Skandia Investment Holding Corporation (the "Parent") owns all of the issued and outstanding shares of the Company's common stock. The Parent is a wholly-owned ultimate subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. The Company currently develops and offers annuity products. All annuity products requiring registration as securities are offered through its affiliated broker-dealer company, American Skandia Marketing, Incorporated. ASLAC currently offers single or flexible premium variable and guaranteed maturity deferred annuities and immediate annuities. The Company may, in the future, offer other forms of life and health insurance. Annuity contracts represent a contractual obligation to make payments over a given period of time (often measured by the life of the recipient), undertaken by the insurer in return for the payment of either a single premium or a series of scheduled or flexible premiums. The insurer's obligation to pay may commence immediately or be deferred. The amount to be paid may be either fixed or variable. The product is sold to pension plans and individuals, primarily for the management of financial assets and for retirement. Income earned by or credited to a deferred annuity contract generally is not taxed until distributed. For immediate annuities, or annuitized deferred annuities, a portion of each annuity distribution received is taxed as ordinary income to the policyholder, based on the ratio of the investment in the contract to the total distribution expected to be received. The Company is obligated to carry in its statutory financial statements, as liabilities, actuarial reserves to meet its obligations on outstanding annuity or life insurance contracts. This is required by the life insurance laws and regulations in the jurisdictions in which ASLAC does business. Such reserves are based on mortality and/or morbidity tables in general use in the United States. In general, reserves are computed amounts that, with additions from premiums to be received, and with interest on such reserves compounded at certain assumed rates, are expected to be sufficient to meet our contractual obligations at their maturities if death occurs in accordance with the mortality tables employed. In the accompanying financial statements these reserves for contractual obligations are determined in accordance with generally accepted accounting principles and are included in the separate account liabilities, reserve for future contractowner benefits and annuity policy reserves. ASLAC is engaged in a business that is highly competitive due to the large number of insurance companies and other entities competing in the marketing and sale of insurance products. There are approximately 2,300 stock, mutual, and other types of insurance companies in the life insurance business in the United States. As of December 31, 1996, the Company had 310 direct salaried employees. Item 2. Properties The Company occupies office space leased from an affiliate, American Skandia Information Services and Technology Corporation, and believes that the current facilities are satisfactory for its near term needs. Item 3. Legal Proceedings As of the date of this filing, the Company is not involved in any litigation outside of the ordinary course of business, and knows of no such material claims. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters All of ASLAC's outstanding shares are owned by American Skandia Investment Holding Corporation, a wholly-owned subsidiary of Skandia Insurance Company Ltd. The Company did not pay any dividends to its Parent in 1996, 1995 and 1994. Item 6. Selected Financial Data The following table summarizes information with respect to the operation of the Company. The selected financial data should be read in conjunction with the financial statements and the notes thereto and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation.
FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ---------- Income Statement Data: Revenues: Annuity charges and fees* $69,779,522 $38,837,358 $24,779,785 $11,752,984 $4,846,134 Fee income 16,419,690 6,205,719 2,111,801 938,336 125,179 Net investment income 1,585,819 1,600,674 1,300,217 692,758 892,053 Annuity premium income 125,000 0 70,000 101,643 1,304,629 Net realized capital gains/(losses) 134,463 36,774 (1,942) 330,024 195,848 Other income 34,154 64,882 24,550 1,269 15,119 ----------- ----------- ----------- ----------- ---------- Total revenues $88,078,648 $46,745,407 $28,284,411 $13,817,014 $7,378,962 =========== =========== =========== =========== ========== Benefits and Expenses: Annuity benefits 613,594 555,421 369,652 383,515 276,997 Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003 1,208,454 1,331,278 Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0 0 0 Return credited to contractowners 672,635 10,612,858 (516,730) 252,132 560,243 Underwriting, acquisition and other insurance expenses 49,915,661 35,970,524 18,942,720 9,547,951 11,338,765 Interest expense 10,790,716 6,499,414 3,615,845 187,156 0 ----------- ----------- ----------- ----------- ----------- Total benefits and expenses $65,493,981 $48,916,067 $28,177,490 $11,579,208 $13,507,283 =========== =========== =========== =========== =========== Income tax (benefit) expense $(4,038,357) $ 397,360 $ 247,429 $ 182,965 $ 0 =========== =========== =========== =========== =========== Net income (loss) $26,623,024 $(2,568,020) $ (140,508) $ 2,054,841 $(6,128,321) =========== =========== =========== =========== =========== Balance Sheet Data: Total Assets $8,334,662,876 $5,021,012,890 $2,864,416,329 $1,558,548,537 $552,345,206 ============== ============== ============== ============== ============ Future fees payable to parent $ 47,111,936 $ 0 $ 0 $ 0 $ 0 ============= ============== ============== ============== =========== Surplus Notes $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 $ 0 ============= ============== ============== ============== =========== Shareholder's Equity $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 $46,332,846 ============= ============== ============== ============== ===========
* On annuity sales of $2,795,114,000, $1,628,486,000, $1,372,874,000, $890,640,000 and $287,596,000 during the years ended December 31, 1996, 1995, 1994, 1993, and 1992, respectively, with contractowner assets under management of $7,764,891,000, $4,704,044,000, $2,661,161,000, $1,437,554,000 and $495,176,000 as of December 31, 1996, 1995, 1994, 1993 and 1992, respectively. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation American Skandia Life Assurance Corporation (ASLAC) 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 (ASIHC), 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. During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent Skandia Insurance Company Ltd. The Company owns 99.9% ownership in Skandia Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This Mexican life insurer is a start up company with expectations of selling long term savings products within Mexico. The Company's investment in Skandia Vida, S.A. de C.V. is $1,398,285 at December 31,1996. RESULTS OF OPERATIONS The Company's long term business plan was developed reflecting the current sales and marketing approach. Annuity sales increased 72%, 19% and 54% in 1996, 1995 and 1994, respectively. The Company continues to show significant growth in sales volume and increased market share within the variable annuity industry. This growth is a result of innovative product development activities, expansion of distribution channels and a focused effort on customer orientation. The Company primarily offers and sells a wide range of deferred annuities through three focused marketing, sales and service teams, each of which specializes in addressing one of the Company's primary distribution channels: (a) financial planning firms; (b) broker-dealers that generally are members of the New York Stock Exchange, including "wirehouse" and regional broker-dealer firms; and (c) broker-dealers affiliated with banks or which specialize in marketing to customers of banks. Starting in 1994, the Company expanded these teams, adding more field marketing and internal sales support personnel. The Company also offers a number of specialized products distributed by select, large distributors. In 1995 and 1996 the Company restructured its internal support operations to support the specialized marketing, sales and service needs of the primary distribution channels and of the select distributors of specialized products. There has been continued growth and success in expanding the number of selling agreements in the primary distribution channels. There has also been increased success in enhancing the relationships with the registered representative/insurance agents of all the selling firms. Total assets grew 66%, 75% and 84% in 1996, 1995 and 1994, respectively. These increases were a direct result of the substantial sales volume increasing separate account assets and deferred acquisition costs. Liabilities grew 65%, 76%, and 87% in 1996, 1995 and 1994, respectively, as a result of the reserves required for the increased sales activity along with borrowing during 1996, 1995 and 1994. The borrowing is needed to fund the acquisition costs of the Company's variable annuity business. The Company experienced a net gain after tax in 1996 and a net loss after tax in 1995 and 1994. The 1996 result was related to the strong sales volume, favorable market climate, expense savings relative to sales volume and recognition of certain tax benefits. The 1995 result was related to higher than anticipated expense levels and additional reserving requirements on our market value adjusted annuities. The increase in expenses was primarily attributable to improving our service infrastructure and marketing related costs, which was in part responsible for this strong sales and financial performance in 1996. The 1994 loss is a result of additional reserving of approximately $4.6 million to cover the minimum death benefit exposure in the Company's annuity contracts along with higher than expected general expenses relative to sales volume. The additional reserve may be required from time to time, within the variable annuity market place, and is a result of volatility in the financial markets as it relates to the underlying separate account investments. REVENUES Increasing volume of annuity sales results in higher assets under management. The fees realized on assets under management have resulted in annuity charges and fees increasing 80%, 57% and 111% in 1996, 1995 and 1994, respectively. Net investment income decreased 1% in 1996 and increased 23% and 88% in 1995 and 1994 respectively. The level net investment income in 1996 is a result of the consistent investment holdings throughout most of the year. The increase in 1995 and 1994 was a result of a higher average level of Company bonds and short-term investments. Fee income has increased 165%, 194% and 125% in 1996, 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/(decrease) in annuity policy reserves represents change in reserves for the immediate annuity with life contingencies, supplementary contracts with life contingencies and minimum death benefit. During 1995 the Company entered into an agreement to reinsure the guaranteed minimum death benefit exposure on most of the variable annuity contracts. The costs associated with reinsuring the minimum death benefit reserve approximates the change in the minimum death benefit reserve during 1996 and 1995, thereby having no significant effect on the statement of operations. The significant increase in 1994 reflects the required increase in the minimum death benefit reserve on variable annuity contracts. This increase covers the escalating death benefit in one of the Company's products which was further enhanced as a result of poor market conditions which resulted in lower returns in 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 1996 return credited to contractowners in the amount of $0.7 million represents a favorable investment return on the market value adjusted contracts relating to the benefits and required reserves, offset by the effect of bond market fluctuations on December 31, 1996 in the amount of $1.8 million. While the assets relating to the market value adjusted contracts relfect the market interest rate fluctuations which occurred on December 31, 1996, the liabilities are based on the interest rates set for new contracts which are generally based on the prior day's interest rates. During the first week of January 1997 interest rates were established for new contracts, thereby bringing the liaiblities relating to the market value adjusted contracts in line with the related assets. In 1995, the Company earned a lower than anticipated separate account investment return on the market value adjusted contracts in support of the benefits and required reserves. In addition, the 1995 result includes an increase in the required reserves associated with this product. The result for 1994 was better than anticipated due to separate account investment return on the market value adjusted contracts being in excess of the benefits and required reserves. EXPENSES Underwriting, acquisition and other insurance expenses for 1996 is made up of $133.9 million of commissions and $19.8 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $153.9 million. This compares to the same period last year of $62.8 million of commissions and $42.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $69.2 million. Underwriting, acquisition and other insurance expenses in 1994 were made up of $46.2 million of commissions and $26.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $53.7 million. Interest expense increased $4.3 million, $2.9 million and $3.4 million in 1996, 1995 and 1994, respectively, as a result of Surplus Notes totaling $213 million, $103 million and $69 million, at December 31, 1996, 1995 and 1994, respectively. Income tax reflected a benefit of $4,038,357 for the year ended December 31, 1996, compared with expense of $397,360 and $247,429 for the years ended December 31, 1995 and 1994, respectively. The 1996 benefit is related to management's release of the deferred tax valuation allowance of $9,324,853 established at December 31, 1995. Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax assets. Income tax expense in 1995 and 1994 relates principally to increases in the deferred tax valuation allowance of $1,680,339 and $365,288 for the years ended December 31, 1995 and 1994, respectively, as well as the Company being in an Alternative Minimum Tax position for both years. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirement of ASLAC was met by cash from insurance operations, investment activities and borrowings from its parent. As previously stated, the Company had significant growth during 1996. The sales volume of $2.795 billion was primarily (approximately 96%) 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 cost for the new business. This cash strain required the Company to look beyond the insurance operations and investments of the Company. During 1996, the Company borrowed an additional $110 million from its parent in the form of Surplus Notes and extended its reinsurance agreements (which were initiated in 1993, 1994 and 1995). 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. In addition, on December 17, 1996 the company sold to its Parent, effective September 1, 1996, 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 January 1, 1994 through June 30, 1996. In connection with this transaction the Parent issued collateralized notes through a trust 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 the Parent to receive 80% of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (generally, 6.5 years). The company did not sell the right 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 at September 1, 1996 (discounted at 7.5%) of future fees and charges expected to be realized on the designated contracts was $50,221,438. The Company expects to use borrowing, reinsurance and the sale of future fee revenues to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume. The tremendous growth of this young organization has depended on capital support from its parent. On December 19, 1996, the company received $39 million from its parent to support the capital needs of its anticipated 1997 growth in business. As of December 31, 1996 and December 31, 1995, shareholder's equity was $126,345,031 and $59,713,000 respectively, which includes the carrying value of state insurance licenses in the amount of $4,712,500 and $4,862,500, respectively. ASLAC has long term surplus notes with its parent and a short term borrowing with an affiliate. No dividends have been paid to its parent company. Item 8. Financial Statements and Supplementary Data FINANCIAL STATEMENTS INDEX Page(s) Independent Auditors' Report 8 Consolidated Statements of Financial Condition as of December 31, 1996 and 1995 9 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 10 Consolidated Statements of Shareholder's Equity for the Years Ended December 31, 1996, 1995 and 1994 11 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 12 Notes to Consolidated Financial Statements 13-26 Schedules are omitted because they are either not applicable or because the information required therein is included in the Notes to Consolidated Financial Statements. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of American Skandia Life Assurance Corporation Shelton, Connecticut We have audited the accompanying consolidated statements of financial condition of American Skandia Life Assurance Corporation and subsidiary (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of American Skandia Life Assurance Corporation and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. March 10, 1997 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1996 1995 ASSETS Investments: Fixed maturities - at amortized cost $ 10,090,369 $ 10,112,705 Fixed maturities - at market value 87,369,724 0 Investment in mutual funds - at market value 2,637,731 1,728,875 Short-term investments - at amortized cost 18,100,000 15,700,000 Total investments 118,197,824 27,541,580 Cash and cash equivalents 14,199,412 13,146,384 Accrued investment income 1,958,546 194,074 Fixed assets 229,780 82,434 Deferred acquisition costs 438,640,918 270,222,383 Reinsurance receivable 2,167,818 1,988,042 Receivable from affiliates 691,532 860,991 Income tax receivable - current 0 563,850 Income tax receivable - deferred 17,217,582 0 State insurance licenses 4,712,500 4,862,500 Other assets 2,207,171 1,589,006 Separate account assets 7,734,439,793 4,699,961,646 Total Assets $ 8,334,662,876 $ 5,021,012,890 LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Reserve for future contractowner benefits $ 36,245,936 $ 30,493,018 Annuity policy reserves 21,238,749 19,386,490 Income tax payable 1,124,151 0 Accounts payable and accrued expenses 65,198,965 32,816,517 Payable to affiliates 685,724 314,699 Future fees payable to parent 47,111,936 0 Payable to reinsurer 79,000,262 64,995,470 Short-term borrowing-affiliate 10,000,000 10,000,000 Surplus notes 213,000,000 103,000,000 Deferred contract charges 272,329 332,050 Separate account liabilities 7,734,439,793 4,699,961,646 Total Liabilities 8,208,317,845 4,961,299,890 SHAREHOLDER'S EQUITY: Common stock, $80 par, 25,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Additional paid-in capital 122,250,117 81,874,666 Unrealized investment gains and losses, net (319,631) 111,359 Foreign currency translation, net (263,706) (328,252) Retained earnings (deficit) 2,678,251 (23,944,773) Total Shareholder's Equity 126,345,031 59,713,000 Total Liabilities and Shareholder's Equity $ 8,334,662,876 $ 5,021,012,890
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 ------------ ------------ ------------ REVENUES: Annuity charges and fees $ 69,779,522 $ 38,837,358 $ 24,779,785 Fee income 16,419,690 6,205,719 2,111,801 Net investment income 1,585,819 1,600,674 1,300,217 Annuity premium income 125,000 0 70,000 Net realized capital gains/(losses) 134,463 36,774 (1,942) Other 34,154 64,882 24,550 ------------ ------------ ------------ Total Revenues 88,078,648 46,745,407 28,284,411 ------------ ------------ ------------ BENEFITS AND EXPENSES: Benefits: Annuity benefits 613,594 555,421 369,652 Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003 Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0 Return credited to contractowners 672,635 10,612,858 (516,730) ------------ ------------ ------------ 4,787,604 6,446,129 5,618,925 ------------ ------------ ------------ Expenses: Underwriting, acquisition and other insurance expenses 49,765,661 35,820,524 18,792,720 Amortization of state insurance licenses 150,000 150,000 150,000 Interest expense 10,790,716 6,499,414 3,615,845 ------------ ------------ ------------ 60,706,377 42,469,938 22,558,565 ------------ ------------ ------------ Total Benefits and Expenses 65,493,981 48,916,067 28,177,490 ------------ ------------ ------------ Income (loss) from operations before federal income taxes 22,584,667 (2,170,660) 106,921 Income tax (benefit) expense (4,038,357) 397,360 247,429 ------------ ------------ ------------ Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508) ============ =========== ===========
See notes to consolidated financial statements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000 ----------- ----------- ----------- Additional paid-in capital: Balance at beginning of year 81,874,666 71,623,932 71,623,932 Additional contributions 40,375,451 10,250,734 0 ----------- ----------- ----------- Balance at end of year 122,250,117 81,874,666 71,623,932 ----------- ----------- ----------- Unrealized investment gains and losses: Balance at beginning of year 111,359 (41,655) 0 Change in unrealized investment gains and losses, net (430,990) 153,014 (41,655) ----------- ----------- ----------- Balance at end of year (319,631) 111,359 (41,655) Foreign currency translation: Balance at beginning of year (328,252) 0 0 Change in foreign currency translation, net 64,546 (328,252) 0 ----------- ----------- ----------- Balance at end of year (263,706) (328,252) 0 ----------- ----------- ----------- Retained earnings (deficit): Balance at beginning of year (23,944,773) (21,376,753) (21,236,245) Net income (loss) 26,623,024 (2,568,020) (140,508) ----------- ----------- ----------- Balance at end of year 2,678,251 (23,944,773) (21,376,753) ----------- ----------- ----------- TOTAL SHAREHOLDER'S EQUITY $ 126,345,031 $ 59,713,000 $ 52,205,524 ============ ============ ============
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 1995 1994 --------------- --------------- --------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508) Adjustments to reconcile net income (loss) to net cash used in operating activities: Increase/decrease) in annuity policy reserves 1,852,259 (4,667,765) 6,004,603 Increase/(decrease) in policy contract claims Amortization of bond discount 27,340 23,449 21,964 Amortization of state insurance licenses 150,000 150,000 150,000 Change in due to/from affiliates 540,484 (347,884) 256,779 Change in income tax payable/receivable 1,688,001 (600,849) 36,999 Increase in other assets (765,511) (409,927) (742,041) Increase in accrued investment income (1,764,472) (20,420) (44,847) Increase in reinsurance receivable (179,776) (1,988,042) 0 Increase in accounts payables and accrued expenses 32,382,448 1,063,137 13,396,502 Increase in deferred acquisition costs (168,418,535) (96,212,774) (83,986,073) Decrease in deferred contract charges (59,721) (117,654) (71,117) Increase in foreign currency translation, net (77,450) (328,252) 0 Deferred income taxes (16,903,477) 0 0 Realized (gain)/loss on sale of investments (134,463) (36,774) 1,942 ------------- -------------- ------------- Net cash used in operating activities (125,039,849) (106,061,775) (65,115,797) ------------- ------------- ------------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed maturities (96,812,903) (614,289) (1,989,120) Proceeds from sales and maturities of available-for-sale fixed maturities 8,732,390 0 0 Proceeds from maturities of held-to-maturity fixed maturities 215,000 100,000 2,010,000 Purchase of shares in mutual funds (2,160,347) (1,566,194) (922,822) Proceeds from sale of shares in mutual funds 1,273,640 867,744 38,588 Net sale (purchase) of short-term investments (2,400,000) 8,300,000 (4,600,000) Investments in separate accounts (2,789,361,685) (1,609,415,439) (1,365,775,177) ------------- ------------- ------------- Net cash used in investing activities (2,880,513,905) (1,602,328,178) (1,371,238,531) ------------- ------------- ------------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 40,375,451 10,250,734 0 Surplus notes 110,000,000 34,000,000 49,000,000 Increase in future fees payable to parent 47,111,936 0 0 Short-term borrowing Increase in payable to reinsurer 14,004,792 24,890,064 28,555,190 Proceeds from annuity sales 2,795,114,603 1,628,486,076 1,372,873,747 ------------- ------------- ------------- Net cash provided by financing activities 3,006,606,782 1,697,626,874 1,450,428,937 ------------- ------------- ------------- Net increase/(decrease) in cash and cash equivalents 1,053,028 (10,763,079) 14,074,609 Cash and cash equivalents at beginning of year 13,146,384 23,909,463 9,834,854 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 14,199,412 $ 13,146,384 $ 23,909,463 ============= ============= ============= SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ 11,177,120 $ 995,496 $ 161,398 ============= ============= ============= Interest paid $ 7,094,767 $ 540,319 $ 557,639 ============= ============= ============= See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements 1. BUSINESS OPERATIONS American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American Skandia Investment Holding Corporation (the "Parent"), which in turn is a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. The Company develops annuity products and issues its products through its affiliated broker/dealer company, American Skandia Marketing, Incorporated. The Company currently issues variable, fixed, market value adjusted and immediate annuities. The Company's consolidated financial statements include the accounts of Skandia Vida, S.A. de C.V. ("Skandia Vida"), a life insurance company domiciled in Mexico, which was formed in 1995 by the ultimate parent Skandia Insurance Company Ltd. The Company has a 99.9% ownership interest in Skandia Vida, which is a start up company with expectations of selling long term savings products within Mexico. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Reporting The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions and balances have been eliminated in consolidation. B. Investments The Company has classified its fixed maturity investments as either held-to-maturity or available-for-sale. Investments classified as held-to-maturity are investments that the Company has the ability and intent to hold to maturity. Such investments are carried at amortized cost. Those investments which are classified as available-for-sale are carried at market value and changes in unrealized gains and losses are reported as a component of shareholder's equity. The Company has classified its mutual fund investments as available-for-sale. Such investments are carried at market value and changes in unrealized gains and losses are reported as a component of shareholder's equity. Short-term investments are reported at cost which approximates market value. Realized gains and losses on disposal of investments are determined by the specific identification method and are included in revenues. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) C. Cash Equivalents The Company considers all highly liquid time deposits purchased with a maturity of three months or less to be cash equivalents. D. State Insurance Licenses Licenses to do business in all states have been capitalized and reflected at the purchase price of $6 million less accumulated amortization. The cost of the licenses is being amortized over 40 years. E. Fixed Assets Fixed Assets consisting of furniture, equipment and leasehold improvements are carried at cost and depreciated on a straight line basis over a period of three to five years. Accumulated depreciation amounted to $32,641 and $3,749 at December 31, 1996 and 1995, respectively. Depreciation expense for the years ended December 31, 1996 and 1995 was $28,892 and $3,749 respectively. F. Recognition of Revenue and Contract Benefits Annuity contracts without significant mortality risk, as defined by Financial Accounting Standard No. 97, are classified as investment contracts (variable, market value adjusted and certain immediate annuities) and those with mortality risk (immediate annuities) as insurance products. The policy of revenue and contract benefit recognition is described below. Revenues for variable annuity contracts consist of charges against contractowner account values for mortality and expense risks and administration fees and an annual maintenance fee per contract. Benefit reserves for variable annuity contracts represent the account value of the contracts and are included in the separate account liabilities. Revenues for market value adjusted annuity contracts consist of separate account investment income reduced by benefit payments and change in reserves in support of contractowner obligations, all of which is included in return credited to contractowners. Benefit reserves for these contracts represent the account value of the contracts, and are included in the general account liability for future contractowner benefits to the extent in excess of the separate account liabilities. Revenues for immediate annuity contracts without life contingencies consist of net investment income. Revenues for immediate annuity contracts with life contingencies consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that vary by issue year. Assumed interest rates ranged from 6.5% to 8.25% at both December 31, 1996 and 1995. Annuity sales were $2,795,114,000, $1,628,486,000 and $1,372,874,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Annuity contract assets under management were $7,764,891,000, $4,704,044,000 and $2,661,161,000 at December 31, 1996, 1995 and 1994, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) G. Deferred Acquisition Costs The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being deferred and amortized in relation to the present value of estimated gross profits. These costs include commissions, cost of contract issuance, and certain selling expenses that vary with production. Details of the deferred acquisition costs for the years ended December 31 follow:
1996 1995 1994 ---- ---- ---- Balance at beginning of year $270,222,383 $174,009,609 $ 90,023,536 Acquisition costs deferred during the year 190,995,588 106,063,698 85,801,180 Acquisition costs amortized during the year 22,577,053 9,850,924 1,815,107 ------------ ------------ ------------ Balance at end of year $438,640,918 $270,222,383 $174,009,609 ============ ============ ============
H. Deferred Contract Charges Certain contracts are assessed a front-end fee at the time of issue. These fees are deferred and recognized in income in relation to the present value of estimated gross profits of the related contracts. Details of the deferred contract charges for the years ended December 31 follow:
1996 1995 1994 ---- ---- ---- Balance at beginning of year $332,050 $449,704 $520,821 Contract charges deferred during the year 42,740 21,513 87,114 Contract charges amortized during the year 102,461 139,167 158,231 -------- -------- -------- Balance at end of year $272,329 $332,050 $449,704 ======== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) I. Separate Accounts Assets and liabilities in Separate Account are shown as separate captions in the consolidated statement of financial condition. Separate Account assets consist of long-term bonds, investments in mutual funds and short-term securities, all of which are carried at market value. Included in Separate Account liabilities is $644,233,883 and $586,233,752 at December 31, 1996 and 1995, respectively, relating to annuity contracts for which the contractholder is guaranteed a fixed rate of return. Separate Account assets of $644,233,883 and $588,835,051 at December 31, 1996 and 1995, respectively, consisting of long term bonds, short term securities, transfers due from general account and cash are in support of these annuity contracts, as pursuant to state regulation. J. Income taxes The Company is included in the consolidated federal income tax return with all Skandia Insurance Company Ltd. subsidiaries in the U.S. The federal and state income tax provision is computed on a separate return basis as adjusted for consolidated items such as net operating losses which are utilized in the consolidated federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended. Prior to 1995, the Company filed a separate income tax return. K. Translation of Foreign Currency The financial position and results of operations of the Company's foreign operations are measured using local currency as the functional currency. Assets and liabilities of the operations are translated at the exchange rate in effect at each year-end. Statements of operations and shareholder's equity accounts are translated at the average rate prevailing during the year. Translation adjustments arising from the use of differing exchange rates from period to period are included in shareholder's equity. L. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions are related to deferred acquisition costs and involve policy lapses, investment return and maintenance expenses. Actual results could differ from those estimates. M. Reinsurance The Company cedes reinsurance under modified co-insurance arrangements. The reinsurance arrangements 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 Company reinsures certain mortality risks. These risks result from the guaranteed minimum death benefit feature in the variable annuity products. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS The amortized cost, gross unrealized gains (losses) and estimated market value of available-for-sale and held-to-maturity fixed maturities and equity securities by category as of December 31, 1996 and 1995 are shown below. All securities held at December 31, 1996 are publicly traded. Investments in fixed maturities as of December 31, 1996 consist of the following: Held-to-Maturity
Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Government Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134 Obligations of State and Political Subdivisions 250,119 229 0 250,348 Corporate Securities 5,540,447 0 62,660 5,477,787 ----------- ------- ------- ----------- Totals $10,090,369 $88,497 $85,597 $10,093,269 =========== ======= ======= ===========
Available-for-Sale Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Government Obligations $14,508,780 0 $ 79,745 $14,429,035 Obligations of State and Political Subdivisions 202,516 26 0 202,542 Other Government Obligations 5,047,790 0 7,440 5,040,350 Corporate Securities 68,101,413 83,312 486,928 67,697,797 ----------- ------- -------- ----------- Totals $87,860,499 $83,338 $574,113 $87,369,724 =========== ======= ======== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The amortized cost and market value of fixed maturities, by contractual maturity, at December 31, 1996 are shown below.
Held-to-Maturity Available-for-Sale Amortized Market Amortized Market Cost Value Cost Value Due in one year or less $ 697,626 $ 699,861 $ 5,047,790 $ 5,040,350 Due after one through five years 9,138,036 9,143,290 29,864,609 29,756,002 Due after five through ten years 254,707 250,118 52,948,100 52,573,372 ----------- ----------- ----------- ----------- Total $10,090,369 $10,093,269 $87,857,499 $87,369,724 =========== =========== =========== ===========
Investments in fixed maturities as of December 31, 1995 consist of the following:
Held-to-Maturity Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value U.S. Government Obligations $ 4,304,731 $183,201 $1,778 $ 4,486,154 Obligations of State and Political Subdivisions 256,095 0 3,165 252,930 Corporate Securities 5,551,879 13,252 346 5,564,785 ----------- -------- ------ ----------- Totals $10,112,705 $196,453 $5,289 $10,303,869 =========== ======== ====== ===========
Proceeds from sales and maturities of fixed maturity investments during 1996, 1995 and 1994, were $8,947,390, $100,000 and $2,010,000, respectively. There were no gross gains and losses realized during the years ended December 31, 1996, 1995 and 1994. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The cost, gross unrealized gains (losses) and market value of investments in mutual funds at December 31, 1996 and 1995 are shown below:
Gross Gross Unrealized Unrealized Market Cost Gains Losses Value 1996 $2,638,695 $ 59,278 $60,242 $2,637,731 ========== ======== ======= ========== 1995 $1,617,516 $111,686 $ 327 $1,728,875 ========== ======== ======= ==========
Proceeds from sales of investments in mutual funds during 1996, 1995 and 1994 were $1,273,640, $867,744 and $38,588, respectively. Mutual fund gross realized gains and losses were as follows: Gross Gross Gains Losses 1996 $139,814 $ 5,351 ======== ======= 1995 $ 65,236 $28,462 ======== ======= 1994 $ 510 $ 2,452 ======== ======= 4. NET INVESTMENT INCOME Additional information with respect to net investment income for the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 ---- ---- ---- Fixed maturities $ 836,591 $ 629,743 $ 616,987 Mutual funds 143,737 59,895 12,049 Short-term investments 92,987 256,351 142,421 Cash and cash equivalents 591,666 730,581 633,298 Interest on policy loans 5,274 4,025 1,275 ---------- ---------- ---------- Total investment income 1,670,255 1,680,595 1,406,030 Investment expenses 84,436 79,921 105,813 ---------- ---------- ---------- Net investment income $1,585,819 $1,600,674 $1,300,217 ========== ========== ==========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 5. INCOME TAXES The significant components of income tax expense are as follows:
1996 1995 1994 ---- ---- ---- Current tax expense $12,865,120 $397,360 $247,429 Deferred tax (benefit) expense (16,903,477) 0 0 ------------- -------- -------- Total income tax (benefit) expense ($ 4,038,357) $397,360 $247,429 ============= ======== ========
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 1996 and 1995, are as follows: 1996 1995 ---- ---- Deferred Tax (Liabilities): Deferred acquisition costs ($103,072,477) ($57,399,960) Payable to reinsurer (23,025,326) (19,802,861) Policy Fees (491,640) (308,304) Unrealized investment gains 0 (38,976) ------------ ----------- Total (126,589,443) (77,550,101) ------------ ----------- Deferred Tax Assets: Net separate account liabilities 121,092,798 72,024,094 Reserve for future contractowner benefits 12,686,078 10,672,556 Other reserve differences 4,527,886 1,492,044 Deferred compensation 4,392,526 2,169,060 Surplus notes blocked interest 548,730 0 Unrealized investment losses 172,109 0 Foreign exchange translation 141,996 114,888 Deferred contract charge 95,315 116,218 AMT credit carryforward 0 286,094 Other 149,587 0 ------------ ----------- Total 143,807,025 86,874,954 ------------ ----------- Net before valuation allowance 17,217,582 9,324,853 Valuation allowance 0 (9,324,853) ------------ ----------- Net deferred tax balance $ 17,217,582 $ 0 ============ ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) Management believes that based on the taxable income produced in the current year and the continued growth in annuity products, the Company will produce sufficient taxable income in the furture to realize its deferred tax assets. As such, the Company released the deferred tax valuation allowance of $9,324,853 established as of December 31, 1995. The income tax expense was different from the amount computed by applying the federal statutory tax rate of 35% to pre-tax income from continuing operations as follows: 1996 1995 1994 ---- ---- ---- Income (loss) before taxes $22,584,667 ($2,170,660) $106,921 Income tax rate 35% 35% 35% ----------- ----------- --------- Tax expense at federal statutory income tax rate 7,904,633 (759,731) 37,422 Tax effect of: Change in valuation allowance (9,324,853) 1,680,339 365,288 Dividend received deduction (2,266,051) (477,139) 0 Other (352,086) (46,109) (155,281) ----------- ---------- -------- Income tax (benefit) expense ($ 4,038,357) $ 397,360 $247,429 ============ ========== ========
6. RELATED PARTY TRANSACTIONS Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been charged to the Company at cost by American Skandia Information Services and Technology Corporation, an affiliated company; and likewise, the Company has charged operating costs to American Skandia Investment Services, Incorporated, an affiliated company. Operating costs for these items was $11,581,114, $12,687,337 and $8,524,840 for the years ended December 31, 1996, 1995 and 1994, respectively. Income received for these items was $1,148,364, $396,573 and $248,799 for the years ended December 31, 1996, 1995 and 1994, respectively. Amounts receivable from affiliates under this arrangement were $548,792 and $857,156 as of December 31, 1996 and 1995, respectively. Amounts payable to affiliates under this arrangement were $619,089 and $304,525 as of December 31, 1996 and 1995, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 7. FUTURE FEES PAYABLE TO PARENT On December 17, 1996 the Company sold to its Parent, effective September 1, 1996, 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 January 1, 1994 through June 30, 1996. In connection with this transaction, the Parent 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 the Parent to receive 80% of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (generally, 6.5 years). The Company did not sell the right 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 at September 1, 1996 (discounted at 7.5%), of future fees and charges expected to be realized on the designated contracts was $50,221,438. Payments representing fees and charges realized during the period September 1, 1996 through December 31, 1996 in the aggregate amount of $3,109,502, were made by the Company to the Parent. Interest expense of $42,260 has been included in the statement of operations. Expected payments of future fees payable to Parent are as follows: Year Ending December 31, Amount 1997 $ 9,308,527 1998 9,782,558 1999 10,002,274 2000 10,061,058 2001 6,412,114 2002 1,392,003 2003 153,402 ----------- Total $47,111,936 The Commissioner of the State of Connecticut has approved the sale of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to stop the payments due to the Parent under the Purchase Agreement, subject to certain terms and conditions. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 8. LEASES The Company leases office space under a lease agreement established in 1989 with American Skandia Information Services and Technology Corporation. The lease expense for 1996, 1995 and 1994 was $1,583,391, $1,218,806 and $961,080, respectively. Future minimum lease payments per year and in aggregate as of December 31, 1996 are as follows: 1997 1,413,180 1998 1,571,400 1999 1,571,400 2000 1,740,750 2001 and thereafter 6,527,813 ----------- Total $12,824,543 9. RESTRICTED ASSETS In order to comply with certain state insurance departments' requirements, the Company maintains cash, bonds and notes on deposit with various states. The carrying value of these deposits amounted to $3,766,564 and $3,267,357 as of December 31, 1996, and 1995, respectively. These deposits are required to be maintained for the protection of contractowners within the individual states. 10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS Statutory basis shareholder's equity was $275,835,076, $132,493,899 and $95,001,971 at December 31, 1996, 1995 and 1994, respectively. The statutory basis net loss was $5,405,179, $7,183,003 and $9,789,297 for the years ended December 31, 1996, 1995 and 1994, respectively. Under state insurance laws, the maximum amount of dividends that can be paid shareholders without prior approval of the state insurance departments is subject to restrictions relating to statutory surplus and net gain from operations. At December 31, 1996, no amounts may be distributed without prior approval. 11. EMPLOYEE BENEFITS In 1989, the Company established a 401(k) plan for which substantially all employees are eligible. Company contributions to this plan on behalf of the participants were $850,111, $627,161 and $431,559 for the years ended December 31, 1996, 1995 and 1994, respectively. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) The Company and it's affiliate cooperatively have a long-term incentive plan where units are awarded to executive officers and other personnel. The program consists of multiple plans. A new plan is instituted each year. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the plan. The accrued liability representing the value of these units is $9,212,369 and $4,600,831 as of December 31, 1996 and 1995, respectively. Payments under this plan were $601,603 for the year ended December 31, 1996. In 1994, the Company established a deferred compensation plan which is available to the internal field marketing staff and certain officers. Company contributions to this plan on behalf of the participants were $244,601 in 1996 and $139,209 in 1995. 12. REINSURANCE The effect of the reinsurance agreements on the Company's operations was to reduce annuity charges and fee income, death benefit expense and policy reserves. The effect of reinsurance for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 ------------------------------------------------------------------ Annuity Change in Annuity Return Credited Charges and Fees Policy Reserves to Contractowners Gross $87,369,693 $814,306 $779,070 Ceded 17,590,171 179,766 106,435 ----------- -------- -------- Net $69,779,522 $634,540 $672,635 =========== ======== ========
1995 1994 ------------------------------------------------------------------ ---------------- Annuity Change in Annuity Return Credited Annuity Charges and Fees Policy Reserves to Contractowners Charges and Fees Gross $50,334,280 ($4,790,714) $10,945,831 $30,116,166 Ceded 11,496,922 1,988,042 332,973 5,336,381 ----------- ---------- ----------- ----------- Net $38,837,358 ($6,778,756) $10,612,858 $24,779,785 =========== =========== =========== ===========
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 agreements. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 13. SURPLUS NOTES The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31, 1996 were as follows: Issue Interest Date Amount Rate December 29, 1993 $ 20,000,000 6.84% February 18, 1994 10,000,000 7.28% March 28, 1994 10,000,000 7.90% September 30, 1994 15,000,000 9.13% December 28, 1994 14,000,000 9.78% December 19, 1995 10,000,000 7.52% December 20, 1995 15,000,000 7.49% December 22, 1995 9,000,000 7.47% June 28, 1996 40,000,000 8.41% December 30, 1996 70,000,000 8.03% ------------ Total $213,000,000 Payment of interest and repayment of principal for these notes is subject to certain conditions and requires approval by the Insurance Commissioner of the State of Connecticut. Interest expense on surplus notes was $10,087,347, $5,789,893 and $3,016,905 for the years ended December 31, 1996, 1995 and 1994, respectively. Interest approved and paid during 1996 was $6,438,867. Interest accrued at December 31, 1996 amounted to $3,648,480, of which $2,080,680 has been approved and paid in 1997. The remaining $1,567,800 was not approved for payment. The 1995 and 1994 amounts were approved at December 31, 1995 with stipulation that they be funded through a capital contribution from the parent. 14. SHORT-TERM BORROWING During 1993, the Company received a $10 million loan from Skandia AB, a Swedish affiliate. Upon renewal during 1995 the loan became payable to the Parent rather than Skandia AB. The loan matures on March 10, 1997 and bears interest at 6.46%. The total interest expense to the Company was $642,886, $709,521 and $569,618 and for the years ended December 31, 1996, 1995 and 1994, respectively, of which $206,361 and $219,375 was payable as of December 31, 1996 and 1995, respectively. 15. CONTRACT WITHDRAWAL PROVISIONS Approximately 98% of the Company's separate account liabilities are subject to discretionary withdrawal with market value adjustment by contractholders. Separate account assets which are carried at market value are adequate to pay such withdrawals which are generally subject to surrender charges ranging from 8.5% to 1% for contracts held less than 8 years. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Consolidated Financial Statements (continued) 16. QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes information with respect to the operations of the Company on a quarterly basis:
Three Months Ended 1996 March 31 June 30 September 30 December 31 ---- ----------- ----------- ------------ ----------- Premiums and other insurance revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702 Net investment income 455,022 282,926 270,092 577,779 Net realized capital gains 92,072 13,106 5,606 23,679 ----------- ----------- ----------- ----------- Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160 =========== =========== =========== =========== Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857 =========== =========== =========== =========== Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976 =========== =========== ============ ===========
Three Months Ended 1995 March 31 June 30 September 30 December 31 ---- ----------- ----------- ------------ ----------- Premiums and other insurance revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048 Net investment income 551,690 434,273 293,335 321,376 Net realized capital gains (losses) (16,082) (370) 44,644 8,582 ----------- ----------- ----------- ----------- Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006 =========== =========== =========== =========== Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087 =========== =========== =========== =========== Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($ 1,751,130) =========== =========== =========== ===========
Three Months Ended 1994 March 31 June 30 September 30 December 31 ---- ----------- ----------- ------------ ----------- Premiums and other insurance revenues $ 5,594,065 $ 6,348,777 $ 7,411,686 $ 7,631,608 Net investment income 252,914 336,149 264,605 446,549 Net realized capital gains (losses) 0 (30,829) 25,914 2,973 ----------- ----------- ----------- ----------- Total revenues $ 5,846,979 $ 6,654,097 $ 7,702,205 $ 8,081,130 =========== =========== =========== =========== Benefits and expenses $ 5,701,460 $ 7,883,829 $ 8,157,535 $ 6,434,666 =========== =========== =========== =========== Net income (loss) $ 104,636 ($ 1,257,768) ($ 503,793) $ 1,516,417 =========== =========== =========== ===========
As described in Note 5, the valuation allowance relating to deferred income taxes was released during the three months ended December 31, 1996. PART III Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 10. Directors and Executive Officers of the Registrant Information contained in "Executive Officers and Directors" of the prospectus of the Company's registration statement on Form S-1, (Reg. #333-00941) is incorporated herein by reference. Item 11. Executive Compensation Summary Compensation Table: The summary table below summarizes the compensation payable to the Chief Executive Officer and to the most highly compensated of our executive officers whose compensation exceeded $100,000 in 1996.
Name and Principal Annual Other Annual LTIP Position Year Salary Compensation Payouts Jan R. Carendi 1996 $505,694 $114,993 Chief Executive Officer 1995 200,315 1994 170,569 Gordon C. Boronow 1996 $179,426 $ 54,000 President & Chief 1995 157,620 Operating Officer 1994 129,121 Nancy Brunetti 1996 $155,123 $ 2,547 Senior Vice President, 1995 110,725 Customer Service 1994 89,267 Lincoln R. Collins 1996 $208,346 $ 19,099 Senior Vice President 1995 156,550 Product Management 1994 92,700 Jeffrey Ulness 1996 $174,333 Vice President 1995 136,372 Product Management 1994 60,453
Long-Term Incentive Plans (LTIP) - Awards in the last fiscal year: The following table provides information regarding our long-term incentive plan. Units are awarded to executive officers and other personnel. The table shows units awarded to our Chief Executive Officer and the most highly compensated of our executive officers whose compensation exceeded $100,000 in the fiscal year immediately preceding the date of this submission. This program is designed to induce participants to remain with the Company over long periods of time and to tie a portion of their compensation to the fortunes of the Company. Currently, the program consists of multiple plans. A new plan may be instituted each year. Participants are awarded units at the beginning of a plan. Generally, participants must remain employed by the Company or its affiliates at the time such units are payable in order to receive any payments under the plan. There are certain exceptions, such as in cases of retirement or death. Changes in the value of units reflect changes in the "embedded value" of the Company. "Embedded value" is the net asset value of the Company (valued at market value and not including the present value of future profits), plus the present value of the anticipated future profits (valued pursuant to state insurance law) on its existing contracts. Units will not have any value for participants if the embedded value does not increase by certain target percentages during the first four years of a plan. The target percentages may differ between each plan. Any amounts available under a plan are paid out in the fifth through eighth years of a plan. Payments will be postponed if the payment would exceed 20% of any profit (as determined under state insurance law) earned by the company in the prior fiscal year before tax or 30% of the individual's current year salary. The amount to be received by a participant at the time any payment is due will be the then current number of units payable multiplied by the then current value of such units.
Number Period until Estimated Future Payouts Name of Units Payout Threshold Target Maximum Jan R. Carendi 135,000 Various $1,203,604 Gordon C. Boronow 135,000 Various $1,176,838 Nancy F. Brunetti 40,000 Various $ 227,290 Lincoln R. Collins 49,250 Various $ 424,182 Jeffrey M. Ulness 25,000 Various $ 113,088
The following directors compensation is shown below in 1996: Jan R. Carendi 0 Gordon C. Boronow 0 *Nancy F. Brunetti 0 Malcolm M. Campbell 0 *Lincoln R. Collins 0 C. Henrik G. Danckwardt 0 Wade A. Dokken 0 Thomas M. Mazzaferro 0 Gunnar J. Moberg 0 Anders O. Soderstrom 0 Amanda C. Sutyak 0 C. Ake Svensson 0 Bayard F. Tracy 0 Item 12. Security Ownership of Certain Beneficial Owners and Management None Item 13. Certain Relationships and Related Transactions None PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (1) Financial Statements See Index to Financial Statements of Page 6 (2) Financial Statement Schedules None (3) Exhibits (3) Articles of Incorporation and By-Laws Incorporated by reference to the Company's Form N-4 (Reg. #33-19363) (4) Instruments defining the right of Incorporated by reference to security holders including indentures the Company's Forms N-4 (Reg. #33-19363, #33-44436, #33-56770, #33-47753, #33-71118 and #33-47976) (9) Voting Trust Agreement None (10) Material Contracts Incorporated by reference to the Company's Forms S-1 (Reg. #33-26122 and #33-86918) (11) Statement of Computation of per share earnings Not required to be filed (12) Statements of Computation of Ratios Not required to be filed (13) Annual Report to security holders None (18) Letter re change in accounting principles None (19) Previously unfiled documents None (22) Subsidiaries of the registrant None (23) Published report regarding matters submitted to vote of security holders None (25) Powers of Attorney Incorporated by reference to the Company's Forms N-4 (Reg. #33-19363), S-1 (Reg. #33-86918) and S-1 (Reg. #33-88360) (28) Additional exhibits None
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued) (29) Information from reports furnished to state insurance regulatory authorities None (b) Reports on Form 8-K None
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 15, 1997. AMERICAN SKANDIA LIFE ASSURANCE CORPORATION By: /s/Thomas M. Mazzaferro ----------------------- Thomas M. Mazzaferro Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1997. *Jan R. Carendi Jan R. Carendi Chief Executive Officer, Chairman of the Board and Director Board of Directors *Gordon C. Boronow *Nancy F. Brunetti *Jan R. Carendi *Malcolm M. Campbell *Lincoln R. Collins *C. Henrik G. Danckwardt *Wade A. Dokken *Thomas M. Mazzaferro *Gunnar J. Moberg *Anders O. Soderstrom *Amanda C. Sutyak *C. Ake Svensson *Bayard F. Tracy By: /s/M. Patricia Paez ------------------- M. Patricia Paez Corporate Secretary *Pursuant to Powers of Attorney filed with the Registration Statement. EX-27 2 ASLAC FINANCIALS 12/96
7 881453 ASLAC1996 1 U.S Dollars 12-MOS Dec-31-1996 Jan-01-1996 Dec-31-1996 1 87,369,724 97,950,868 97,462,993 2,637,731 0 0 118,197,824 14,199,412 2,167,818 438,640,918 8,334,662,876 57,484,685 0 0 0 213,000,000 0 0 2,000,000 124,345,031 8,334,662,876 125,000 1,585,819 134,463 86,233,366 4,787,604 22,577,053 27,188,608 22,584,667 (4,038,357) 0 0 0 0 26,623,024 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $7,734,439,793. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $7,734,439,793. Other income includes annuity charges and fees of $69,779,522 and fee income of $16,419,690.
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