10-Q 1 b40323ase10-q.txt AMERICAN SKANKIA 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2001 Commission file numbers: 33-62953, 33-88360, 33-89676, 33-91400, 333-00995, 333-02867, 333-24989, 333-25761, 333-53596, 333-26695, 333-51896 and 333-55608 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION Incorporated in the State of Connecticut 06-1241288 (Federal Employer Identification No.) One Corporate Drive Shelton, Connecticut 06484 Telephone Number (203) 926-1888 Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of August 13, 2001, there were 25,000 shares of outstanding common stock, par value $100 per share, of the registrant, consisting of 100 shares of voting and 24,900 shares of non-voting common stock, all of which were owned by American Skandia, Inc., a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation. 2 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Statements of Financial Condition - June 30, 2001 (unaudited) and December 31, 2000 3 Consolidated Statements of Income (unaudited) - Six months ended June 30, 2001 and June 30, 2000 4 Consolidated Statements of Income (unaudited) - Three months ended June 30, 2001 and June 30, 2000 5 Consolidated Statements of Shareholder's Equity Six months ended June 30, 2001 (unaudited) and year ended December 31, 2000 6 Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2001 and June 30, 2000 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Six months ended June 30, 2001 11 Item 3. Quantitative and Qualitative Disclosures of Market Risk 15 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 18 2 3 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS)
June 30, December 31, 2001 2000 ----------- ----------- (unaudited) ASSETS Investments: Fixed maturities - at fair value $ 295,902 $ 285,708 Equity securities - at fair value 46,767 20,402 Derivative instruments 10,565 3,015 Policy loans 5,265 3,746 ----------- ----------- Total investments 358,499 312,871 Cash and cash equivalents 41,425 76,499 Accrued investment income 5,495 5,209 Deferred acquisition costs 1,399,495 1,398,192 Reinsurance receivable 21,617 3,642 Receivable from affiliates -- 3,327 Income tax receivable 2,142 34,620 State insurance licenses 4,038 4,113 Fixed assets 12,363 10,737 Other assets 104,840 96,403 Separate account assets 27,691,604 29,757,092 ----------- ----------- Total assets $29,641,518 $31,702,705 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Reserves for future insurance policy and contract benefits $ 110,898 $ 135,545 Drafts outstanding 48,429 63,758 Accounts payable and accrued expenses 156,575 137,040 Income tax payable - deferred 32,749 8,949 Payable to affiliates 45,291 -- Future fees payable to parent 859,787 934,410 Short-term borrowing 10,000 10,000 Surplus notes 159,000 159,000 Separate account liabilities 27,691,604 29,757,092 ----------- ----------- Total Liabilities 29,114,333 31,205,794 ----------- ----------- Shareholder's equity: Common stock, $100 par value, 25,000 shares authorized, issued and outstanding 2,500 2,500 Additional paid-in capital 289,329 287,329 Retained earnings 233,324 205,979 Accumulated other comprehensive (loss) income 2,032 1,103 ----------- ----------- Total Shareholder's equity 527,185 496,911 ----------- ----------- Total liabilities and shareholder's equity $29,641,518 $31,702,705 =========== ===========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 3 4 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ------------------------- 2001 2000 --------- --------- REVENUES Annuity and life insurance charges and fees $ 200,146 $ 211,208 Fee income 57,976 62,056 Net investment income 11,361 6,504 Premium income 1,012 2,259 Net realized capital gains 2,275 (707) Other 627 1,118 --------- --------- Total revenues 273,397 282,438 --------- --------- EXPENSES Benefits: Annuity and life insurance benefits 759 278 Change in annuity and life insurance policy reserves (29,817) 9,505 Return credited to contractowners 10,173 (2,362) --------- --------- (18,885) 7,421 Expenses: Underwriting, acquisition and other insurance expenses 219,348 164,425 Interest expense 34,104 56,220 --------- --------- 253,452 220,645 --------- --------- Total benefits and expenses 234,567 228,066 --------- --------- Income from operations before income tax 38,830 54,372 Income tax expense 11,485 15,263 --------- --------- Net income $ 27,345 $ 39,109 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 4 5 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS) (UNAUDITED)
Three Months Ended June 30, --------------------------- 2001 2000 --------- --------- REVENUES Annuity and life insurance charges and fees $ 99,646 $ 106,375 Fee income 28,464 30,913 Net investment income 4,665 3,628 Premium income 171 1,656 Net realized capital gains 373 (1,436) Other 442 384 --------- --------- Total revenues 133,703 141,578 --------- --------- EXPENSES Benefits: Annuity and life insurance benefits 428 145 Change in annuity and life insurance policy reserves (33,013) 6,881 Return credited to contractowners (5,421) 314 --------- --------- (38,006) 7,340 Expenses: Underwriting, acquisition and other insurance expenses 133,668 88,133 Interest expense 14,650 25,952 --------- --------- 148,318 114,085 --------- --------- Total benefits and expenses 110,312 121,425 --------- --------- Income from operations before income tax 23,391 20,153 Income tax expense 7,451 5,225 --------- --------- Net income $ 15,940 $ 14,928 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 5 6 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (IN THOUSANDS) June 30, December 31, 2001 2000 ---------- --------- (unaudited) Common stock: Beginning and ending balance $ 2,500 $ 2,500 Additional paid in capital: Beginning balance 287,329 215,879 Additional contributions 2,000 71,450 -------- -------- Ending balance 289,329 287,329 -------- -------- Retained earnings: Beginning balance 205,979 141,162 Net income 27,345 64,817 -------- -------- Ending balance 233,324 205,979 -------- -------- Accumulated other comprehensive (loss) income: Beginning balance 1,103 (107) Other comprehensive income 929 1,210 -------- -------- Ending balance 2,032 1,103 -------- -------- Total shareholder's equity $527,185 $496,911 ======== ======== SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 6 7 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, -------------------------- 2001 2000 --------- --------- Cash flow from operating activities: Net income $ 27,345 $ 39,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization and depreciation 771 2,514 Deferred tax expense 23,301 9,389 Change in unrealized losses on derivatives (813) -- (Decrease)/increase in policy reserves (24,140) 9,381 Increase in payable to affiliates, net 48,618 128,083 Change in income tax payable/receivable 32,478 (24,468) Increase in other assets (8,842) (69,523) (Increase)/decrease in accrued investment income (286) 356 (Increase)/decrease in reinsurance receivable (17,975) 2,609 Net increase in deferred acquisition costs (1,303) (234,485) Increase/(decrease) in accounts payable and accrued expenses 19,535 (2,620) (Decrease)/Increase in drafts outstanding (15,329) 3,172 Change in foreign currency translation, net 261 (248) Net realized capital gains on derivatives (5,231) -- Net realized capital gains on investments (2,275) 707 --------- --------- Net cash provided by (used in) operating activities 76,115 (136,024) --------- --------- Cash flow from investing activities: Purchase of fixed maturity investments (220,174) (102,374) Proceeds from sale and maturity of fixed maturity investments 216,224 100,268 Purchase of derivatives (11,383) (2,274) Proceeds from exercise of derivative instruments 9,877 -- Purchase of shares in mutual funds (47,673) (10,600) Proceeds from sale of shares in mutual funds 18,273 3,274 Purchase of fixed assets (1,684) (2,059) Increase in policy loans (1,519) (662) --------- --------- Net cash used in investing activities (38,059) (14,427) --------- --------- Cash flow from financing activities: Capital contribution from parent 2,000 1,600 (Decrease)/increase in future fees payable to parent, net (74,623) 130,532 Net deposits to contractowner accounts (507) 36,106 --------- --------- Net cash (used in) provided by financing activities (73,130) 168,238 --------- --------- Net (decrease)/increase in cash and cash equivalents (35,074) 17,787 Cash and cash equivalents at beginning of period 76,499 89,212 --------- --------- Cash and cash equivalents at end of period $ 41,425 $ 106,999 ========= ========= Income taxes (received) paid $ (44,294) $ 30,342 ========= ========= Interest paid $ 27,315 $ 50,284 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 7 8 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of American Skandia Life Assurance Corporation (the Company) have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto in the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2000. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. 2. NEW ACCOUNTING STANDARD Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS 138 (collectively "SFAS 133"). Derivative instruments held by the Company consist of equity option contracts utilized to manage the market risk and reserve fluctuations associated with the guaranteed minimum death benefits ("GMDB"). These derivative instruments are carried at fair market value. Unrealized gains and losses are reported in investment income. The adoption of SFAS No. 133 did not have a material effect on the Company's financial statements. 3. RESERVES FOR FUTURE INSURANCE POLICY AND CONTRACT BENEFITS Included in reserves for future insurance policy and contract benefits are reserves related to annuity contracts with mortality risks as well as the Company's GMDB liability. Certain reserve assumptions were updated during the first six months of 2001 to reflect more realistic expectations as to risks inherent in the GMDB liability. These changes reduced the GMDB liability significantly. Previous assumptions had been based on statutory valuation principles as an approximation for accounting principles generally accepted in the United States. In addition, future mortality rates have been lowered to reflect favorable past experience. However, offsetting the reduction in the GMDB liability certain assumptions were also updated in the calculation of the deferred acquisition cost asset. The amortization of such costs are determined in large part by changes in the expectations of future gross profits of the GMDB business. In 2001, the decline in equity markets resulted in a significantly lower estimate of future gross profits, thereby decreasing the deferred acquisition cost asset. 8 9 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 4. SEGMENT REPORTING In recent years, in order to broaden the array of products offered by the Company and its affiliates to meet a wide variety of financial planning needs, the Company developed the variable life insurance and qualified retirement plan annuity products. Assets under management and sales for the products other than variable annuities have not yet been significant enough to warrant full segment disclosures as required by SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." 5. COMPREHENSIVE INCOME The components of comprehensive (loss) income, net of tax, for the six months ended June 30, 2001 and 2000 were as follows: (in thousands) 2001 2000 ---- ---- Net income $27,345 $39,109 Other comprehensive income (loss): Net unrealized investment loss on available for sale securities 759 785 Foreign currency translation 170 (161) -------- -------- Other comprehensive income 929 624 -------- ------- Comprehensive income $ 28,274 $39,733 ======== ======= The components of accumulated other comprehensive income, net of tax, as of June 30, 2001 and December 31, 2000 were as follows: (in thousands) 2001 2000 ---- ---- Unrealized investment (losses)/gains $ 1,780 $ 1,021 Foreign currency translation 252 82 -------- ------- Accumulated other comprehensive (loss) income $ 2,032 $ 1,103 ======== ======= 6. FOREIGN ENTITY The Company has a 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico, selling long-term savings products within Mexico. Skandia Vida, which is fully consolidated in the accompanying financial statements, had total shareholders' equity of $5,196,000 as of June 30, 2001 and $4,402,000 as of December 31, 2000 and has generated losses of $1,467,000 and $552,000 for the six months ended June 30, 2001 and 2000, respectively. 9 10 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 7. RESTRUCTURING CHARGES In March 2001, the Company recorded a pre-tax restructuring charge of $3,500,000 to better align its operating infrastructure with anticipated sales volumes under the current equity market environment. These charges related primarily to a reduction in the workforce of approximately 140 employees. 10 11 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the June 30, 2001 financial statements and the notes included herein. Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition. American Skandia Life Assurance Corporation ("the Company"), with its principal offices in Shelton, Connecticut, is a wholly-owned subsidiary of American Skandia, Inc. ("ASI"), whose ultimate parent is Skandia Insurance Company Ltd. ("SICL"), a Swedish corporation. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. The Company is primarily in the business of issuing long-term savings and retirement products to individuals, groups and qualified pension plans. The Company is one of the largest providers of variable annuity contracts for the individual market in the United States according to Info-One's Variable Annuity Research & Data Service ("VARDS"). Since its business inception in 1988, the Company has offered an increasingly wide array of annuities, including: a) certain deferred and immediate annuities that are registered with the Securities and Exchange Commission, including variable annuities and fixed interest rate annuities that include a market value adjustment feature; b) certain other fixed deferred annuities that are not registered with the Securities and Exchange Commission; c) non-registered group variable annuities designed as funding vehicles for various types of qualified retirement plans; and d) fixed, adjustable and variable immediate annuities. The Company also offers modified single premium and flexible premium variable life insurance products and a term life insurance product offered to shareholders of an affiliate's mutual fund products. Certain variable annuity products contain a benefit feature (referred to as "Performance Advantage") which provides certain benefits if the policyowner's account value has not reached a "target value" on its tenth anniversary. At the option of the policyowner, the benefit will be distributed in the form of an annual or, if annuitization is selected, a lump-sum credit to the contractowner's account. The Company's products are sold to individuals, businesses and pension plans to provide for long-term savings and retirement purposes and to address the economic impact of premature death, estate and business planning concerns and supplemental retirement needs. The Company markets its products to independent financial planners and broker-dealers through an internal field marketing staff. In addition, the Company markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities and life insurance. 11 12 RESULTS OF OPERATIONS Annuity and life insurance sales volume for the six months ended June 30, 2001 totaled $2,160,319,000, compared to $5,080,947,000 for the first six months of 2000. The decrease in sales was consistent with the general decline in sales throughout the variable annuity industry, attributed in large part to the decline in the equity markets. Favorable market conditions and strong performance of the underlying mutual funds drove the sales to a record level in the first six months of 2000. Contractowner fees and charges and charges generated from transfer agency-type and investment support activities decreased $15,142,000 or 6% for the first six months of 2001 compared to the same period in 2000. Management attributes this decline to a 17% drop in average assets under management partially offset by increases in fee rates earned on the assets from certain fund managers. Net investment income increased $4,857,000 for the first six months of 2001 compared to the same period in 2000. The increase was primarily attributable to an unrealized gain on derivative instruments held to mitigate the market risk embedded in the guaranteed minimum death benefit reserve ("GMDB") on variable annuity contracts. Investment income earned on a higher level of fixed maturity securities also contributed to the increase. Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life contingencies, supplementary contracts with life contingencies and certain life insurance products. Although sales of these products were lower in the first six months of 2001 compared to the first six months of 2000, management expects premium income from supplementary contracts and immediate annuities to grow over time with the maturing of core business lines. Net realized investment gains totaled $2,275,000 for the first six months of 2001, compared to losses of $707,000 for the first six months of 2000. The increase is primarily attributable to gains recognized on sales of fixed maturity securities. Annuity and life insurance benefits increased $481,000 over the first six months of 2000 as an increase in supplementary contract and variable immediate annuity payments, which has increased as this relatively young segment of the Company's annuity business ages. The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality risks as well as the Company's GMDB liability. Certain reserve assumptions were updated during the first six months of 2001 to reflect more realistic expectations as to risks inherent in the GMDB liability. These changes reduced the GMDB liability significantly. Previous assumptions had been based on statutory valuation principles as an approximation for accounting principles generally accepted in the United States. In addition, future mortality rates have been lowered to reflect favorable past experience. As a result of these changes, the GMDB reserve decreased $32,902,000 in 2001. The GMDB reserve increased $5,367,000 for the same six month period in 2000. However, offsetting the resulting increase in earnings and equity as a result of changes in the GMDB liability, certain assumptions were also updated in the calculation of the deferred acquisition cost asset. The amortization of such costs are determined in large part by changes in the expectations of future gross profits of the GMDB business. In 2001, the decline in equity markets resulted in a significantly lower estimate of future gross profits, thereby increasing the expenses recognized through amortization. Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and variable life insurance, offset by the benefit payments and changes in reserves required on this business. Market value adjusted annuity activity has the largest impact on this benefit. Through the first six months of 2001 and in particular during the first three months of 2001, the Separate Account investment returns on the assets supporting the market value adjusted annuities were less than the expected returns as calculated in the reserves, leading to a significant increase in the return credited to contractholders' benefit. 12 13 Further contributing to the increase in return credited to contractowners were increases in the amortization of unearned Performance Advantage target value credits. Additionally, guaranteed minimum death benefit payments on variable annuities were driven higher due to equity market declines. Offsetting this charge, the Company booked experience rating refunds due from a reinsurer during the first half of 2001. Through the first six months of 2000, the Company had not recognized such refunds due. Underwriting, acquisition and other insurance expenses for the six months ended June 30, 2001 and 2000 were as follows:
(in thousands) 2001 2000 Change ---- ---- ------ Commissions and purchase credits $131,599 $268,571 ($136,972) General operating expenses 89,052 128,289 (39,237) Acquisition costs deferred (120,652) (313,522) 192,870 Acquisition costs amortized 119,349 81,087 38,262 -------- -------- --------- Net capitalization of deferred acquisition costs (1,303) (232,435) 231,132 -------- -------- --------- Underwriting, acquisition and other insurance expenses $219,348 $164,425 $ 54,923 ======== ======== ========
Lower sales and asset levels for the six months ended June 30, 2001, compared with the same period in 2000, led to a 51% decrease in commissions and purchase credits. However, as a percentage of sales, commissions grew from 5.3% in 2000 to 6.1% primarily as a result of a shift in business to contracts with asset-based commissions and from recent commission promotion programs. General operating expenses decreased 31% from a year ago as a result of lower sales-based compensation and certain cost savings measures implemented in 2001 (see Note 6 of the Notes to Unaudited Consolidated Financial Statements). In addition, variable compensation and long-term incentive plan expenses have decreased due to the slowdown in sales and decline in equity markets. The decline in capitalized deferred acquisition costs is attributable to lower sales and shifts in sales trends to asset based commission agreements. As mentioned in the Company's discussion of changes in annuity policy reserves, the Company updated certain assumptions in the calculation of expected gross profits used to develop deferred acquisition cost amortization rates to reflect more recent experience and current equity market conditions, specifically with regard to future GMDB profitability. As a result of this and the decline in equity markets, the amortization of such costs increased significantly over the six months ended June 30, 2000. Interest expense decreased $22,116,000, or 39%, over the six months ended June 30, 2000 primarily due to lower interest expense related to the future fees payable to parent liability. The effective income tax rate for the six months ended June 30, 2001, and 2000 was 30% and 28%, respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the most significant item being the dividend received deduction. Management believes that based on the taxable income produced in 2000 and the first six months of 2001, the Company will produce sufficient taxable income in the future to realize its deferred tax assets. 13 14 The Company considers Mexico an emerging market and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings products in future years. As such, Skandia Vida has generated net losses of $1,467,000,000 and $552,000 for the six months ended June 30, 2001 and 2000, respectively. The Company expects to transfer ownership of Skandia Vida to an upstream affiliate during 2002, pending approval of the transaction by the Mexican insurance regulators. Total assets declined $2,061,187,000 or 6.5% since December 31, 2000 as a result of market declines combined with slowing sales volume. Liabilities declined $2,091,461,000 or 6.7%, since December 31, 2000 as a result of the lower required separate account reserves. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings from ASI and the transfer of rights to future fees and charges to ASI. During the first six months of 2001 and 2000, the Company received capital contributions of $2,000,000 and $1,600,000, respectively, from ASI to support its investment in Skandia Vida. As an additional means of obtaining funding, the Company periodically transfers rights to receive future fees and contract charges expected to be realized on variable portions of designated blocks of deferred annuity contracts to ASI ("securitization transactions"). The Company did not enter into any new securitization transactions in the first half of 2001. Funds received from new securitization transactions for the first half of 2000 amounted to $169,459,000. The Company continues to extend its reinsurance agreements for new blocks of business. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business. During 2001, the company amended certain reinsurance agreements and recorded amounts due from reinsurers based on favorable experience. The amendments resulted in a receivable of $2,213,000 and the experience rating refund resulted in an additional receivable of $8,341,000. The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain anticipated from acquisition costs on the coming years' sales volume. The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI. The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula includes components for asset risk, insurance risk, interest risk and business risk. The Company has complied with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital. 14 15 AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF SKANDIA INSURANCE COMPANY LTD.) ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company's market risk during the first six months of 2001. The Company has provided a discussion of its market risks in Item 7A of Part II of the December 31, 2000 Form 10-K. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index (b) None 15 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 August 13, 2001 16 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 17