-----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, JQ7haCcXJZfqSgmuO+LH5tZUdKfTSFmKMurCi6ySQtCj2DafP4dtJqR9zoXR04I3 a7jzhvNR5SdYvOOw9AAjvw== 0000881453-98-000123.txt : 19980518 0000881453-98-000123.hdr.sgml : 19980518 ACCESSION NUMBER: 0000881453-98-000123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 033-44202 FILM NUMBER: 98625537 BUSINESS ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039261888 MAIL ADDRESS: STREET 1: ONE CORPORATE DRIVE CITY: SHELTON STATE: CT ZIP: 06484 10-Q 1 ASLAC 10-Q FOR 1ST QUARTER 1998 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 March 31, 1998 Commission file numbers: 33-62791, 33-62953, 33-88360, 33-89676, 33-89678, 33-91400, 333-00995, 333-02867, 333-24989, 333-25733, 333-25761 and 333-26695. American Skandia Life Assurance Corporation Incorporated in the State of Connecticut 06-1241288 (Federal Employer Identification No.) One Corporate Drive Shelton, Connecticut 06484 Telephone Number (203) 926-1888 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No __ As of May 14, 1998, 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: Consolidated Statements of Financial Condition - March 31, 1998 (unaudited) and December 31, 1997 3 Consolidated Statements of Operations (unaudited) - Three months ended March 31, 1998 and March 31, 1997 4 Consolidated Statements of Cash Flows (unaudited) Three months ended March 31, 1998 and March 31, 1997 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Three months ended March 31, 1998 12 PART II. OTHER INFORMATION: Item 4. Action Taken by Shareholder 16 Item 6. Exhibits and Reports on Form 8-K 16 Signature 17 Exhibit Index 19 (2) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31, 1998 1997 ------------------- --------------------- (unaudited) ASSETS Investments: Fixed maturities - at amortized cost $ 9,311,341 $ 9,366,671 Fixed maturities - at fair value 125,987,348 108,323,668 Investment in mutual funds - at fair value 6,622,432 6,710,851 Policy Loans 855,652 687,267 ------------------- --------------------- Total investments 142,776,773 125,088,457 Cash and cash equivalents 62,069,379 81,974,204 Accrued investment income 2,530,177 2,441,671 Fixed assets 380,164 356,153 Deferred acquisition costs 670,726,371 628,051,995 Reinsurance receivable 1,320,774 3,120,221 Receivable from affiliates 1,126,289 1,910,895 Income tax receivable - current - 1,047,493 Income tax receivable - deferred 26,525,213 26,174,369 State insurance licenses 4,525,000 4,562,500 Other assets 4,200,679 2,524,581 Separate account assets 13,958,429,039 12,095,163,569 ------------------- --------------------- Total Assets $ 14,874,609,858 $ 12,972,416,108 =================== ===================== LIABILITIES AND SHAREHOLDER'S EQUITY LIABILITIES: Reserve for future contractowner benefits $ 42,744,881 $ 43,204,443 Policy reserves 21,116,000 24,414,999 Income tax payable 532,172 - Drafts outstanding 31,242,537 19,277,706 Accounts payable and accrued expenses 96,171,826 71,190,019 Payable to affiliates 3,81l,466 584,283 Future fees payable to parent 225,814,585 233,033,818 Payable to reinsurer 79,880,260 78,126,227 Short-term borrowing 10,000,000 10,000,000 Surplus notes 213,000,000 213,000,000 Separate account liabilities 13,958,429,039 12,095,163,569 ------------------- --------------------- Total Liabilities 14,682,742,766 12,787,995,064 ------------------- --------------------- SHAREHOLDER'S EQUITY: Common stock, $80 par, 25,000 shares authorized, issued and outstanding 2,000,000 2,000,000 Additional paid-in capital 152,589,729 151,527,229 Retained earnings 36,298,148 30,225,784 Accumulated other comprehensive income 979,215 668,031 ------------------- --------------------- Total Shareholder's Equity 191,867,092 184,421,044 ------------------- --------------------- Total Liabilities and Shareholder's Equity $ 14,874,609,858 $ 12,972,416,108 =================== =====================
See notes to unaudited consolidated financial statements. (3) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1997 -------------------- ----------------------- REVENUES: Annuity charges and fees $ 39,785,695 $ 24,368,624 Fee income 10,687,660 5,524,257 Net investment income 3,261,541 1,368,683 Annuity premium income 50,000 275,000 Net realized capital gains 156,332 20,604 Other 69,867 17,939 -------------------- ----------------------- Total Revenues 54,011,095 31,575,107 -------------------- ----------------------- BENEFITS AND EXPENSES: Benefits: Annuity benefits 366,431 144,687 Increase in annuity policy reserves 238,191 783,550 Cost of minimum death benefit reinsurance 1,369,079 876,078 Return credited to contractowners 1,666,993 (6,745,574) -------------------- ----------------------- 3,640,694 (4,941,259) -------------------- ----------------------- Expenses: Underwriting, acquisition and other insurance expenses 34,254,872 17,683,466 Amortization of state insurance licenses 37,500 37,500 Interest expense 8,831,244 5,539,574 -------------------- ----------------------- 43,123,616 23,260,540 -------------------- ----------------------- Total Benefits and Expenses 46,764,310 18,319,281 -------------------- ----------------------- Income from operations before income taxes 7,246,785 13,255,826 Income tax expense 1,174,421 4,259,851 -------------------- ----------------------- Net income $ 6,072,364 $ 8,995,975 ==================== =======================
See notes to unaudited consolidated financial statements. (4) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1997 -------------------- ---------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 6,072,364 $ 8,995,975 Adjustments to reconcile net income to net cash provided by operating activities: Increase/(decrease) in policy reserves (3,298,999) 2,469,190 Amortization of bond discount 20,212 18,153 Amortization of insurance licenses 37,500 37,500 Change in receivable from/payable to affiliates 4,011,789 52,055,515 Change in income tax receivable/payable 1,579,665 3,514,385 Increase in other assets (1,700,109) (323,105) (Increase)/decrease in accrued investment income (88,506) 275,787 (Increase)/decrease in reinsurance receivable 1,799,447 (1,469,249) Increase in deferred acquisition costs, net (42,674,376) (49,515,067) Increase in income tax receivable - deferred (518,403) (228,711) Increase/(decrease) in accounts payable and accrued expenses 24,294,733 (9,233,922) Increase in drafts outstanding 11,964,831 - Change in foreign currency translation, net 8,831 26,822 Realized gain on sale of investments (156,332) (20,604) ---------------------- -------------------- Net cash provided by operating activities 1,352,647 6,602,669 -------------------- ---------------------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed maturity investments (17,736,089) (4,886,075) Proceeds from sale and maturity of fixed maturity investments 50,000 200,000 Purchase of shares in mutual funds (3,833,340) (1,434,810) Proceeds from sale of shares in mutual funds 4,605,530 178,104 Increase in policy loans (168,385) - Change in investments of separate account assets (849,287,100) (867,715,012) -------------------- ---------------------- Net cash used in investing activities (866,369,384) (873,657,793) -------------------- ---------------------- CASH FLOW FROM FINANCING ACTIVITIES: Capital contributions from parent 1,062,500 130,000 Decrease in future fees payable to parent (6,532,159) (2,269,749) Increase in payable to reinsurer 1,754,033 3,340,628 Proceeds from annuity sales 848,827,538 866,040,450 -------------------- ---------------------- Net cash provided by financing activities 845,111,912 867,241,329 -------------------- ---------------------- Net (decrease)/increase in cash and cash equivalents (19,904,825) 186,205 -------------------- ---------------------- Cash and cash equivalents at beginning of period 81,974,204 14,199,412 -------------------- ---------------------- Cash and cash equivalents at end of period $ 62,069,379 $ 14,385,617 ==================== ====================== SUPPLEMENTAL CASH FLOW DISCLOSURE: Income taxes paid $ - $ 43,000 ==================== ====================== Interest paid $ 3,903,716 $ 3,180,309 ==================== ======================
See notes to unaudited consolidated financial statements. (5) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation The accompanying unaudited consolidated financial statements of American Skandia Life Assurance Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto in the Company's audited consolidated financial statements for the year ended December 31, 1997. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. B. New Accounting Pronouncement As of January 1, 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS") 130, "Reporting Comprehensive Income". SFAS 130 sets standards for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's financial position or net income. SFAS 130 requires unrealized gains and losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholder's equity to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. (6) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 The components of comprehensive income, net of tax, for the three months ended March 31, 1998 and 1997 were as follows: 1998 1997 ---- ---- Net income $6,072,364 $8,995,975 Other comprehensive income: Unrealized investment gains and losses 305,444 (1,448,082) Foreign currency translation 5,740 (24,961) ---------- ----------- Other comprehensive income 311,184 (1,473,043) ---------- ----------- Comprehensive income $6,383,548 $7,522,932 ========== ========== The components of accumulated other comprehensive income, net of tax, as of March 31, 1998 and December 31, 1997 were as follows: 1998 1997 ---- ---- Unrealized investment gains and losses $1,259,513 $ 954,069 Foreign currency translation (280,298) (286,038) ----------- ----------- Accumulated other comprehensive income $ 979,215 $ 668,031 ========== =========== 2. FOREIGN ENTITY The Company has a 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. Total shareholder's equity of Skandia Vida, S.A. de C.V. is $1,931,784 as of March 31, 1998. (7) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 3. SURPLUS NOTES The Company has issued surplus notes to American Skandia Investment Holding Corporation (the "Parent") in exchange for cash. Surplus notes outstanding as of March 31, 1998 were as follows. Issue Date Amount Interest 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 accrued at March 31, 1998 amounted to $12,085,593, of which $2,405,472 has been approved for payment. (8) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 4. 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 from January 1, 1994 through June 30, 1996 (Transaction 1996-1). In addition, the Company entered into the following similar transactions during 1997: Closing Effective Contract Issue Transaction Date Date Period 1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 In connection with these transactions, the Parent, through a trust, issued collateralized notes in private placements which are secured by the rights to receive future fees and charges purchased from the Company. Under the terms of the Purchase Agreements, the rights sold provide for the Parent to receive 80% (100% for Transaction 1997-3) 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 (6 to 8 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 sales have been recorded as liabilities and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The present value of the transactions (discounted at 7.5%) as of the Effective Date was as follows: Present Transaction Value 1996-1 $50,221,438 1997-1 58,766,633 1997-2 77,551,736 1997-3 58,193,264 (9) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 Payments representing fees and charges realized during the period January 1, 1998 through March 31, 1998 in the aggregate amount of $13,722,438, were made by the Company to the Parent. Interest expense of $4,377,388 has been included in the statement of operations. Expected payments of future fees payable to Parent are as follows: Year Ending December 31, Amount 1998 $ 32,418,377 1999 41,845,736 2000 43,500,530 2001 40,738,800 2002 34,533,624 2003 22,835,020 2004 9,490,399 2005 452,099 ------------- Total $ 225,814,585 ============= 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. 5. REINSURANCE The Company cedes reinsurance under modified co-insurance arrangements. The reinsurance arrangements provide 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. (10) AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) Notes to Unaudited Consolidated Financial Statements March 31, 1998 In addition, the Company reinsures certain mortality risks pertaining to the Guaranteed Minimum Death Benefit feature in the variable annuity products. The effect of the reinsurance agreements on the Company's operations was to reduce annuity charges and fee income, death benefit expense, and reserve exposure. The effect of reinsurance is summarized as follows: Three Months Ended March 31, 1998
Increase Annuity in Annuity Return Credited Charges & Fees Policy Reserves to Contractowners Gross $46,477,922 ($ 1,527,260) $1,666,993 Ceded 6,692,227 (1,765,451) - ------------- ------------ ----------------- Net $39,785,695 $ 238,191 $1,666,993 =========== ============ ==========
Three Months Ended March 31, 1997
Annuity Increase in Annuity Return Credited Charges & Fees Policy Reserves to Contractowners Gross $29,586,298 $2,252,799 ($6,724,793) Ceded 5,217,674 1,469,249 20,781 ------------- ----------- ------------ Net $24,368,624 $ 783,550 ($6,745,574) =========== =========== ===========
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. (11) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 1998 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; c) certain group variable annuities that are not registered with the Securities and Exchange Commission that serve as funding vehicles for various types of qualified pension and profit sharing plans and d) fixed and adjustable immediate annuities. In addition, in April 1998, the Company began offering a term life insurance product. 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 three months ended March 31, 1998 and 1997 was $848.8 million and $866.0 million, respectively, a decrease of 2%. This decrease, driven by below expectation sales levels in January and February, partially offset by a strong March, is attributed to concern in the marketplace early in 1998 over the Clinton administration's proposed budget package and certain negative press regarding variable annuity products overall. Assets grew $1,902.2 million or 15% since December 31, 1997. This increase is a direct result of the strong performance of the stock markets over the first quarter of 1998, which has contributed to the growth in separate account assets, combined with increases in separate account assets and deferred acquisition costs over the same period due to sales volume. Liabilities grew $1,894.7 million or 15% since December 31, 1997 as a result of the additional reserves required for the market and sales-related growth of separate account assets, an increase in drafts outstanding, and an increase in the amounts payable to affiliates and reinsurers in support of the acquisition costs of the Company's variable annuity business. (12) The Company experienced a net gain of $6.1 million after tax for the current period compared with $9.0 million for the same period last year, a result which is below expectation. This gain is a result of the strong, but below expectation, sales activity for the three months ended March 31, 1998, and an increased asset base, which generates additional fee revenue, partially offset by expense levels above those expected for the level of sales activity. Revenues: Strong market performance and strong annuity sales volume results in greater assets under management. Growth in assets under management has resulted in a 63% increase in annuity charges and fees for the three month period ended March 31, 1998. This is compared to an increase of 81% for the three month period ended March 31, 1997. Fee income includes income earned for transfer agency type activities. This income increased 93% for the three month period ended March 31, 1998 compared to an increase of 75% for the three month period ended March 31, 1997. These increases are driven by the continued growth in assets under management. Net investment income increased 138% for the three month period ended March 31, 1998, compared to an increase of 201% for the three month period ended March 31, 1997. These increases are the result of increased general account investment holdings for the periods. Annuity premium income represents sales of immediate annuities with life contingencies. Benefits: Annuity benefits represent payments on annuity contracts with mortality risks, immediate annuities with life contingencies and supplementary contracts with life contingencies. The increase (decrease) in annuity policy reserves represents the change in reserves for immediate annuities with life contingencies, supplementary contracts with life contingencies and the guaranteed minimum death benefit on variable annuities. In September 1995, the Company entered into an agreement to reinsure the guaranteed minimum death benefit exposure on most of its variable annuity contracts. In September 1997, this reinsurance was extended to cover certain new variable annuity products introduced over the last twelve months. For the periods ended March 31, 1998 and 1997, the change in the guaranteed minimum death benefit reserve exceeded the costs associated with reinsuring the guaranteed minimum death benefit reserve by approximately $0.4 million and $0.6 million, respectively. (13) Return credited to contractowners represents revenues on variable and market value adjusted annuities offset by benefit payments and change in reserves required on this business. Also included are benefit payments and change in reserves on immediate annuities and supplemental contracts without significant mortality risks. The $1.7 million expense for the current period reflects a lower than expected separate account investment return on the market value adjusted contracts in support of the benefits and required reserves, along with a $1.9 million timing difference (loss) related to March 31, 1998 bond market fluctuations which will reverse in the second quarter. While the assets relating to the market value adjusted contracts reflect the market interest rate fluctuations which occurred on March 31, 1998, the related liabilities are based on the interest rates set for new contracts which are generally set based on prior day interest rates. During the first week of April 1998, interest rates were established for the new contracts, thereby bringing the liabilities relating to the market value adjusted contracts in line with the related assets. The result for the same period in 1997, a $6.7 million gain, reflects higher than expected separate account investment return along with the reversal of the effect of December 31, 1996 bond market fluctuations which had adversely impacted 1996 results by $1.8 million. Expenses: Underwriting, acquisition and other insurance expenses consists of $44.7 million of commissions and $30.4 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $40.8 million. This compares to $42.9 million of commissions and $21.2 million of general expenses offset by the net capitalization of deferred acquisition costs totaling $46.4 million for the same period last year. Interest expense increased 59% over the same period last year as a result of the July and December 1997 sales of future fee revenue, which collectively raised $194.5 million in addition to the $50.2 million raised in 1996. Interest expense on these transactions totalled $4.4 million and $1.1 million for the periods ended March 31, 1998 and 1997, respectively. Income tax expense was $1.2 million for the period ended March 31, 1998, compared with $4.3 million for the same period last year. The effective Federal income tax rates for the periods were 16% and 32% respectively. The effective rates are lower than the Federal statutory income tax rate due to permanent differences. Management believes that based on the taxable income produced in 1997 and the first three months of 1998 as well as the continued growth in annuity products, the Company will produce sufficient taxable income in the future to realize its deferred tax assets. (14) Liquidity and Capital Resources The first quarter 1998 liquidity requirement of the Company was met by cash from insurance operations, investment activities, cash flow from the December 30, 1997 sale of future fee revenue and reinsurance. The Company's first quarter 1998 sales volume of $848.8 million was made up of approximately 97% variable annuities, most of 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. To this end, the Company extended its reinsurance agreements, 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, since December 1996, the Company has entered into a series of transactions in which the rights to receive future fees and charges expected to be realized on the variable portion of a designated block of deferred annuity contracts through their surrender charge period have been sold to the Parent. These transactions, designed as another means of financing growth, are discussed in more detail at Note 4 of the Notes to Unaudited Consolidated Financial Statements. While the tremendous growth of this young organization has depended on capital support from its parent, 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 expected future sales volume. As of March 31, 1998 and December 31, 1997, shareholder's equity was $191.9 million and $184.4 million, respectively, which includes the carrying value of the state insurance licenses in the amount of $4.5 million and $4.6 million respectively. The Company has long term surplus notes and short term borrowing with its parent. No dividends have been paid to its parent company. (15) 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) A report on Form 8-K was filed on September 10, 1997, setting out information required under Item 4 of such form, "Reporting a Change in External Auditors." (16) SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Skandia Life Assurance Corporation (Registrant) by: /s/Thomas M. Mazzaferro --------------------------- Thomas M. Mazzaferro Executive Vice President and Chief Financial Officer May 14, 1998 (17) EXHIBIT INDEX Exhibit Number Description Location (2) Plan of acquisition, reorganization, arrangement, liquidation or succession None (4) Instruments defining the rights of security holders, including indentures None (10) Material Contracts None (11) Statement Re: Computation of per share earnings None (15) Letter Re: Unaudited interim financial information None (18) Letter Re: Change in accounting principles None (19) Report furnished to security holders None (22) Published report regarding matters submitted to vote of security holders None (23) Consents of experts and counsel None (24) Power of attorney None (99) Additional exhibits None (18) EX-27 2 ASLAC FDS FOR 10-Q
7 881453 ASLAC 0398 1 U.S Dollars 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 1 125,987,348 135,298,689 135,342,982 6,622,432 0 0 142,776,773 62,069,379 1,320,774 628,051,995 14,874,609,858 63,860,881 0 0 0 213,000,000 0 0 2,000,000 189,867,092 14,874,609,858 50,000 3,261,541 156,332 69,867 3,640,694 16,676,057 17,616,315 7,246,785 1,174,421 0 0 0 0 6,072,364 0 0 0 0 0 0 0 0 0 Included in Total Assets are Assets Held in Separate Accounts of $13,958,429,039. Included in Total Liabilities and Equity are Liabilities Related to Separate Accounts of $13,958,429,039. Other income includes annuity charges and fees of $39,785,695 and fee income of $10,687,660.
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