<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission file number 1-5704
Aetna Life and Casualty Company
_______________________________
(Exact name of registrant as specified in its charter)
Connecticut 06-0843808
_______________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
151 Farmington Avenue,
Hartford, Connecticut 06156
_______________________________ ______________________
(Address of principal (ZIP Code)
executive offices)
Registrant's telephone number, including area code: (203) 273-0123
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
___________________ ________________________
Common Capital Stock without par value New York Stock Exchange
Pacific Stock Exchange
Various Swiss Exchanges
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
_____ _____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 25, 1994 was
$6,987,637,850.
As of February 25, 1994, 112,496,019 shares of the registrant's
Common Capital Stock without par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1993 annual report to shareholders (the
"Annual Report"). (Parts I, II and IV)
Portions of the registrant's proxy statement filed on or about March 18,
1994 (the "Proxy Statement"). (Parts III and IV)
<PAGE> 2
TABLE OF CONTENTS
Page
____
PART I
Item 1. Business.
A. Organization of Business 3
B. Financial Information about Industry Segments 4
C. Description of Business Segments
1. Health and Life Insurance and Services 4
2. Financial Services 8
3. Commercial Property-Casualty Insurance and Services 11
4. Personal Property-Casualty 15
5. Reserves Related to Property-Casualty Operations 18
6. International 22
7. Investments 22
a. Investments Related to Life, Health, Annuity and
Pension Operations 23
b. Investments Related to Property-Casualty
Operations 25
8. Other Matters
a. Regulation 27
b. NAIC IRIS Ratios 29
c. Ratios of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock
Dividends 30
d. Miscellaneous 31
Item 2. Properties. 31
Item 3. Legal Proceedings. 32
Item 4. Submission of Matters to a Vote of Security Holders. 33
Executive Officers of Aetna Life and Casualty Company 34
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. 37
Item 6. Selected Financial Data. 37
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 37
Item 8. Financial Statements and Supplementary Data. 37
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. 37
PART III
Item 10. Directors and Executive Officers of the Registrant. 38
Item 11. Executive Compensation. 38
Item 12. Security Ownership of Certain Beneficial Owners and Management. 38
Item 13. Certain Relationships and Related Transactions. 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. 38
Index to Financial Statement Schedules 41
Signatures 56
<PAGE> 3
PART I
Item 1. Business.
A. Organization of Business
Aetna Life and Casualty Company was organized in 1967 as a
Connecticut insurance corporation. Aetna Life and Casualty
Company and its subsidiaries (collectively, "Aetna" or the
"company") constitute one of the nation's largest
insurance/financial services organizations in the United
States based on its assets at December 31, 1992. Based on
1992 premium rankings, the company also is one of the
nation's largest stock insurers of property-casualty lines
and one of the largest writers of group health and managed
care products, and group life, annuity and pension products.
Although the company offers insurance and financial services
products in foreign countries, 90% of its total revenue in
1993 was derived from domestic sources.
The company's reportable segments and principal products
included in such segments are:
Health and Life Insurance and Services:
Group life
Group health and disability
Managed health care
Individual life
Financial Services:
Group pensions and related financial services
Individual and group annuities
Investment products
Commercial Property-Casualty Insurance and Services:
Automobile
Fidelity and surety
Fire and allied lines
General liability
Marine
Multiple peril
Professional liability
Workers' compensation
Personal Property-Casualty:
Automobile
Homeowners
International:
Group life, health and disability, and pensions
Individual life, health, accident and disability, and annuities
Property-casualty
Investment products
<PAGE> 4
B. Financial Information about Industry Segments
Revenue, income (loss) from continuing operations before income
taxes, extraordinary item and cumulative effect adjustments, net
income (loss), and assets by industry segment are set forth in
Note 14 to the Financial Statements which is incorporated by
reference from the Annual Report. Revenue and income (loss) from
continuing operations before extraordinary item and cumulative
effect adjustments attributable to each industry segment are
incorporated herein by reference from the Selected Financial Data
in the Annual Report.
Certain reclassifications have been made to 1992 and 1991
financial information to conform to 1993 presentation.
C. Description of Business Segments
1. Health and Life Insurance and Services
Principal Products
__________________
Group health and life insurance products and services, including
managed health care products and services, are marketed through
units of the Health and Life Insurance and Services segment
("Health and Life") primarily to employers and employer-sponsored
groups. These products and services are provided to employees or
other individuals covered under benefit plans sponsored by those
organizations. Individual life insurance products also are
included in Health and Life.
Group life insurance consists chiefly of renewable term coverage,
the amounts of which frequently are linked to individual employee
wage levels. The company also offers group universal life and
sponsored universal and whole life products.
Group health and disability insurance includes coverage for
medical and dental care expenses and for disabled employees'
income replacement benefits. Health coverage is provided under
both traditional indemnity and prepaid arrangements, whereby Aetna
assumes the full insurance risk, and under alternative risk-
sharing plans, whereby employers assume all or a significant
portion of the insurance risk. Health and Life also provides
administrative and claim services and, in many cases, partial
insurance protection, for an appropriate fee or premium charge.
Continuing concern over the rising costs of health care and the
need for quality assurance have resulted in a continuation of a
market shift away from traditional forms of health benefit
coverage to a variety of "managed care" products. Managed care
products, which may be sold on a stand-alone basis or in
combination with traditional indemnity products, vary from
traditional indemnity products primarily through the use of health
care networks (physicians and hospitals) and the implementation of
medical management procedures designed to enhance the quality and
reduce the cost of medical services provided. Such procedures,
including contracted physician reimbursement rates and required
pre-authorization for certain medical procedures, are designed to
enable managed care companies and their customers to control
medical costs more effectively.
<PAGE> 5
The company offers a broad spectrum of traditional indemnity and
managed care group products. The latter include preferred provider
organizations ("PPOs"), which offer enhanced coverage benefits for
services received from participating providers; point-of-service
("POS") plans, which typically combine PPO-style benefit designs with
stronger utilization management; and health maintenance organizations
("HMOs"), which arrange for non-emergency services exclusively
through the HMO's network of providers. The company's HMOs are
primarily Individual Practice Associations in which the HMO generally
shares some financial risk with the physicians based on medical
utilization results.
At year-end 1993, Aetna operated various types of managed care
networks in approximately 211 Standard Metropolitan Statistical Areas
with enrollment of approximately 5 million. The number of members
covered under all arrangements, including traditional health plans,
was 15 million at December 31, 1993. Health and Life units continue
to develop a wide range of products and services tailored to help
employers manage their employee benefit plan costs effectively.
Through its individual life unit, the company markets a variety of
universal life, interest-sensitive whole life and term products.
Aetna's universal life product accounted for approximately 86% of
individual life sales in 1993.
Life insurance agents are typically paid a renewal commission or
service fee to encourage them to retain business. The company's
universal and interest-sensitive whole life insurance contracts
typically impose a surrender penalty on policyholder balances
withdrawn in the first 10 to 15 years of the contract life. The
period of time and level of the penalty vary by product. In
addition, more favorable credited rates and policy loan terms may be
offered after policies have been in force more than 10 years.
Certain of the company's life insurance and annuity products allow
for customers to borrow against their policies. At December 31,
1993, approximately 17% of outstanding policy loans were on
individual annuity policies and had fixed interest rates ranging from
1% to 3%. Approximately 79% of outstanding policy loans at December
31, 1993 were on individual life policies and had fixed interest
rates ranging from 5% to 8%. The remaining 4% of outstanding policy
loans had variable interest rates averaging 8% at December 31, 1993.
Investment income on outstanding policy loans was $24 million for the
year ended December 31, 1993.
The company ceased selling individual health insurance products in
mid-1990 and transferred this business to another company in 1991.
The following table summarizes group life, group health and
disability, and individual life and health premiums for the years
indicated:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Group life (1)............. $ 894.8 $ 971.1 $ 995.2 $1,020.2 $ 902.7
Group health and
disability (2)............ 3,714.0 3,535.2 3,389.3 3,084.7 2,787.9
Individual life............ 157.8 144.9 155.4 165.9 131.5
Individual health and
disability................ 27.7 28.7 88.7 183.0 208.6
________ ________ ________ ________ ________
Total.................. $4,794.3 $4,679.9 $4,628.6 $4,453.8 $4,030.7
________ ________ ________ ________ ________
________ ________ ________ ________ ________
<FN>
(1) Decrease in 1993 premiums reflects increased refunds on retrospectively rated
policies due to favorable experience.
(2) Includes managed health care.
</TABLE>
<PAGE> 6
Competition
___________
The markets for Health and Life products are highly competitive.
In addition to competition among insurance companies, competition
in the health field arises from organizations such as Blue Cross
and Blue Shield, from various specialty service providers, from
local and regional HMOs and other types of medical and dental
provider organizations, from integrated health care delivery
organizations and, in certain coverages, from the federal and
state governments. Additionally, in recent years, many large
employers have moved to totally self-insured and self-administered
benefit plans. Competition largely is based upon product features
and prices and, in the case of managed health care products, upon
the quality of services provided, the geographic scope of the
provider networks and the medical specialties available in such
networks. Based on 1992 written premiums, Aetna is one of the
largest insurance company providers of group health and life
benefits in the United States.
Method of Distribution
______________________
Group products are sold principally through salaried field
representatives and home office marketing personnel who often work
with independent consultants and brokers who assist in the
production and servicing of business.
Individual life insurance products are marketed primarily by
independent agents and brokers who also may sell insurance
products for other companies. Certain life insurance products are
sold by agents and brokers who are registered representatives of
selected broker-dealers.
Reserves
________
For group life products, policy reserve liabilities are
established as premiums are received to reflect the present value
of expected future obligations net of the present value of
expected future premiums. Reserves for most of these products
reflect retrospective experience rating except for the smaller
group insurance cases which currently are not retrospectively
experience rated. Policy reserves for group paid-up life
insurance generally reflect long-term fixed obligations and are
computed on the basis of assumed or guaranteed yield and benefit
payments. Assumptions are based on Aetna's experience, which is
periodically reviewed against published industry data. For group
health products, reserves reflect estimates of the ultimate cost
of claims including (i) claims that have been reported but not
settled, and (ii) claims that have been incurred but have not yet
been reported. Group health and life claim reserves are based on
factors derived from past experience.
<PAGE> 7
Reserves for universal life products are equal to cumulative
premiums less charges plus credited interest thereon. Reserves
for all other fixed individual life and health contracts are
computed on the basis of assumed investment yield, mortality,
morbidity and expenses (including a margin for adverse deviation),
which generally vary by plan, year of issue and policy duration.
Reserve interest rates as of December 31, 1993 ranged from 2.25%
to 11.25%. Investment yield is based on the company's experience.
Mortality, morbidity and withdrawal rate assumptions also are
based on the experience of the company, and in addition, are
periodically reviewed against both industry standards and
experience.
Reinsurance
___________
Aetna utilizes a variety of reinsurance agreements with non-
affiliated insurers to share insurance risks on group health and
life business as directed by the insured and to control its
exposure to large losses. Generally, these agreements are
established on a case-by-case basis to reflect the circumstances
of specific group insurance risks.
The company retains no more than $10.0 million of risk per
individual life policy. Amounts in excess of the retention limit
are reinsured with unaffiliated companies.
For additional information on reinsurance, see Note 15 of Notes to
Financial Statements in the Annual Report.
Group Life Insurance In Force and Other Statistical Data
________________________________________________________
The following table summarizes changes in group life insurance in
force before deductions for reinsurance ceded to other companies
for the years indicated:
<TABLE>
<CAPTION>
(amounts in millions except number of policies and contracts in force)
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Sales and additions......... $ 22,781 $ 30,131 $ 37,876 $ 51,900 $ 46,655
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Terminations (1):
Lapses ................... $ 22,991 $ 26,087 $ 17,522 $ 15,707 $ 13,057
All other terminations.... 6,864 2,235 3,036 23,476 1,577
________ ________ ________ ________ ________
Total................... $ 29,855 $ 28,322 $ 20,558 $ 39,183 $ 14,634
________ ________ ________ ________ ________
________ ________ ________ ________ ________
In force, end of year....... $299,996 $307,070 $305,261 $287,943 $275,226
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Number of policies and
contracts in force, end of
year (2):
Group life contracts...... 24,440 24,496 25,737 26,061 27,167
Group conversion
policies (3)............. 38,431 39,567 40,370 41,207 41,716
<FN>
(1) The increases in 1993, 1992 and 1990 terminations resulted primarily from
the non-renewal and termination of certain large contracts in each year.
(2) Due to the wide range of coverages and size of groups covered,
statistics are not provided for average size of policies in force.
(3) Reflects conversion privileges exercised by insureds under group life
policies to replace those policies with individual life policies.
</TABLE>
<PAGE> 8
Individual Life Insurance In Force and Other Statistical Data
_____________________________________________________________
The following table summarizes changes in individual life
insurance in force before deductions for reinsurance ceded to
other companies for the years indicated(1):
<TABLE>
<CAPTION>
(amounts in millions, except number of policies and average size of policies in force)
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Sales and additions:
Permanent:
Non-participating....... $ 6,540 $ 5,980 $ 4,885 $ 4,913 $ 5,113
Participating........... - - - 1 1
Term:
Non-participating....... 974 775 685 495 420
Participating........... 1,852 762 1,221 1,921 2,354
________ ________ ________ ________ ________
Total.................. $ 9,366 $ 7,517 $ 6,791 $ 7,330 $ 7,888
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Terminations:
Surrenders and conversions $ 1,763 $ 2,000 $ 1,969 $ 1,922 $ 1,523
Lapses.................... 2,622 2,841 3,056 3,082 3,190
Other .................... 1,183 624 556 543 417
________ ________ ________ ________ ________
Total.................. $ 5,568 $ 5,465 $ 5,581 $ 5,547 $ 5,130
________ ________ ________ ________ ________
________ ________ ________ ________ ________
In force, end of year:
Permanent................. $ 38,096 $ 35,943 $ 33,499 $ 31,609 $ 30,401
Term...................... 11,901 10,256 10,648 11,328 10,753
________ ________ ________ ________ ________
Total.................. $ 49,997 $ 46,199 $ 44,147 $ 42,937 $ 41,154
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Number of policies in force,
end of year:
Non-participating......... 802,295 748,486 708,229 684,301 661,947
Participating............. 127,319 135,440 146,308 157,309 165,000
________ ________ ________ ________ ________
Total.................. 929,614 883,926 854,537 841,610 826,947
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Average size of policies in
force, end of year:
Non-participating......... $ 51,703 $ 50,953 $ 49,779 $ 48,925 $ 47,926
Participating............. 66,887 59,528 60,775 60,124 57,151
<FN>
(1) The amounts presented above include business written by Aetna Life Insurance Company
of America, the results of which are included in the International segment.
</TABLE>
2. Financial Services
Principal Products
__________________
Business units in the Financial Services segment ("Financial
Services") market a variety of retirement and other savings and
investment products (including pension and annuity products) and
services to businesses, government units, associations,
collectively bargained welfare trusts, hospitals, educational
institutions and individuals.
Financial Services units offer pension, annuity and other
investment products to employers and individuals for retirement
and savings plan funding and disbursement. Some of these products
provide a variety of investment guarantees, funding and benefit
payment distribution options and other services. (For additional
information regarding the products offered by Financial Services,
see Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") - Financial Services in the
Annual Report).
<PAGE> 9
In January 1994, the company announced its decision to discontinue
the sale of its fully guaranteed large case pension products and
recorded an $825 million after-tax charge in 1993 for the
anticipated future losses on such products. The company will
honor all obligations under existing fully guaranteed, large case
pension contracts. Such obligations are expected to run off over
approximately 30 years. (For additional information, see MD&A -
Financial Services in the Annual Report.)
Individual annuity contracts typically impose a surrender penalty
on policyholder balances withdrawn in the first 10 years of the
contract life. The period of time and level of the penalty vary
by product. Existing tax penalties on annuity distributions prior
to age 59-1/2 provide an additional disincentive to premature
surrenders of annuity balances.
The majority of those products which utilize Separate Accounts
provide contractholders with a vehicle for investments under which
the contractholders assume the investment risks as well as the
benefit of favorable performance. Separate Accounts offered
include accounts that invest in real estate, mortgages,
international investments, mutual funds, and a variety of other
equity and fixed income investments. Aetna earns a management fee
on these Separate Accounts or on the mutual funds in which certain
of the Separate Accounts invest. Various investment advisory
services also are offered through a number of wholly owned
subsidiaries that are registered investment advisors.
At December 31, assets under management, including Separate
Accounts, were $67.1 billion in 1993, $61.8 billion in 1992, $60.7
billion in 1991, $57.7 billion in 1990, and $53.7 billion in 1989.
The following table summarizes pension and annuity premiums for
the years indicated:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Pensions ............... $ 186.0 $ 204.3 $ 294.3 $ 597.0 $ 1,303.8
Annuities............... 31.9 18.6 11.3 9.2 2.0
_________ _________ _________ _________ _________
Total................. $ 217.9 $ 222.9 $ 305.6 $ 606.2 $ 1,305.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
</TABLE>
<PAGE> 10
Deposits, which are not included in premiums or revenue under
Financial Accounting Standard No. 97 ("FAS 97"), are shown in the
following table for the years indicated:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Pensions................ $ 3,207 $ 3,553 $ 4,358 $ 5,716 $ 4,281
Annuities............... 2,540 1,862 1,653 1,422 1,105
_______ _______ _______ _______ _______
Total................. $ 5,747 $ 5,415 $ 6,011 $ 7,138 $ 5,386
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
</TABLE>
Competition
___________
In the pension and annuity markets, competition arises from other
insurance companies, banks, bank trust departments, mutual funds
and other investment managers. Principal competitive factors are
cost, service, level of investment performance and the perceived
financial strength of the investment manager. (For additional
information, see MD&A - Liquidity and Capital Resources in the
1993 Annual Report.) Measured by assets under management at
December 31, 1992, Aetna is the 19th largest manager of pension
assets in the United States.
Method of Distribution
______________________
Group pension products are sold principally through salaried field
representatives and home office marketing personnel, who often
work with independent consultants and brokers who assist in the
production and servicing of business. Annuity products are
distributed primarily through dedicated annuity agents selling
only Aetna annuity products.
Reserves
________
The loss on discontinuance of fully guaranteed large case pension
products ($825 million as of the December 31, 1993 measurement
date) represents the present value of anticipated net cash flow
shortfalls as the liabilities are run off. Such net cash flow
shortfalls include anticipated losses from negative interest
margins (i.e., the amount by which interest credited to holders
of such contracts exceeds interest earned on investment assets
supporting the contracts), future capital losses, and operating
expenses and other costs expected to be incurred as the
liabilities are run off.
In addition to the reserve described above, the company maintains
reserves for guaranteed investment contracts equal to the amount
on deposit for such contracts plus credited interest thereon.
Reserves for annuity contracts reflect the present value of
benefits based on actuarial assumptions established at the time of
contract purchase. Such assumptions are based on Aetna's
experience, which is periodically reviewed against published
industry data. Reserves for experience rated contracts reflect
cumulative deposits, less withdrawals and charges, plus credited
interest thereon, less net realized capital gains/losses (which
the company seeks to recover through credited rates).
<PAGE> 11
3. Commercial Property-Casualty Insurance and Services
Principal Products
__________________
The business units in the Commercial Property-Casualty Insurance
and Services segment ("Commercial Property-Casualty") provide most
types of property-casualty insurance, bonds, and insurance-related
services for businesses, government units and associations.
Commercial coverages accounted for 67% of Aetna's 1993 property-
casualty net written premiums. These coverages are sold for risks
of all sizes and include fire and allied lines, multiple peril,
marine, workers' compensation, general liability (including
product liability), commercial automobile, certain professional
liability, and fidelity and surety bonds. In addition, Aetna
offers various services to businesses that choose to self-insure
certain exposures. Aetna also reinsures various property and
liability risks, primarily through agreements with non-affiliated
insurers, on both a treaty and facultative basis.
Approximately 82% of Aetna's 1993 commercial business was
voluntary. The remainder was written by various assigned risk
plans, facilities and pools of which Aetna is a member. These
organizations are formed to meet statutory requirements relating
to the writing of certain types of commercial risk or to spread
particularly large loss exposures among insurers pursuant to a
prearranged allocation formula. Participation is mandatory, and
underwriting decisions are made by such facilities independent of
their membership.
For a significant portion of the commercial property-casualty
business, Aetna uses advisory or compulsory rate structures and,
in some instances, forms that were developed by agencies and
bureaus in which insurance companies are authorized to participate
through state regulation. However, in recent years, Aetna has
emphasized the development of independent coverages designed for
sale to specific market segments.
<PAGE> 12
The following table sets forth the premium revenue, underwriting
results and net investment income, fees and other income and net
realized capital gains of Commercial Property-Casualty for the
years indicated:
<TABLE>
<CAPTION>
(dollar amounts in millions)
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Statutory:
Net written premiums..... $ 3,026.3 $ 3,339.3 $ 3,569.3 $ 3,745.9 $ 3,789.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Premiums earned.......... $ 3,114.6 $ 3,258.2 $ 3,628.1 $ 3,777.8 $ 3,991.6
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Loss ratios.............. 96.3% 98.2% 84.9% 84.2% 83.4%
Expense ratios........... 33.7 31.7 30.2 28.5 26.8
_________ _________ _________ _________ _________
Combined ratios:
(before policyholder
dividends)............. 130.0% 129.9% 115.1% 112.7% 110.2%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
(after policyholder
dividends)............. 130.9% 131.0% 116.7% 114.3% 112.3%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
(after policyholder
dividends, adjusted
for discounting) (1)... 117.9% 131.0% 116.7% 114.3% 112.3%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
GAAP(2):
Net written premiums..... $ 3,026.3 $ 3,339.3 $ 3,569.3 $ 3,745.9 $ 3,789.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Premiums earned.......... $ 3,121.2 $ 3,204.1 $ 3,616.1 $ 3,782.2 $ 3,999.3
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Adjusted underwriting
loss (pretax)........... $ (914.4) $(1,072.2) $ (590.2) $ (530.6) $ (467.0)
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Net investment income,
fees and other income
and net realized
capital gains........... $ 1,017.1 $ 1,067.4 $ 984.6 $ 982.1 $ 959.7
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Loss ratios.............. 96.1% 99.9% 85.2% 84.1% 83.2%
Expense ratios........... 33.3 31.2 29.9 28.6 27.8
_________ _________ _________ _________ _________
Combined Ratios:
(before policyholder
dividends)............. 129.4% 131.1% 115.1% 112.7% 111.0%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
(after policyholder
dividends)............. 130.3% 132.1% 116.7% 114.3% 113.1%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
(after policyholder
dividends, adjusted for
discounting) (1)....... 117.3% 132.1% 116.7% 114.3% 113.1%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) The 1993 combined ratios, after policyholder dividends, have been adjusted for the
cumulative effect benefit of discounting of workers' compensation life table indemnity
reserves ($250.0 million, after-tax).
(2) Generally Accepted Accounting Principles.
</TABLE>
<PAGE> 13
Property-casualty underwriting profitability generally is
expressed in terms of combined ratios. When the combined ratio is
under 100%, underwriting results are considered profitable; when
the ratio is over 100%, underwriting results are considered
unprofitable. The combined ratio is the sum of (i) the percentage
of earned premiums that is paid or reserved for losses and related
loss adjustment expenses (the "loss ratio"), (ii) the percentage
of earned premiums that is paid or reserved for dividends to
policyholders, and (iii) the percentage of written premiums that
is paid or reserved for sales commissions, premium taxes,
administrative and other underwriting expenses (the "expense
ratio"). The combined ratio does not reflect net investment
income, fees and other income, net realized capital gains/losses
or federal income taxes. The statutory combined ratio does not
reflect adjustments to underwriting results in accordance with
GAAP.
Adjusted underwriting income/loss reflects GAAP adjustments
(primarily deferred policy acquisition costs and pre-1992 salvage and
subrogation) to underwriting results.
The following table sets forth for major domestic Commercial
Property-Casualty coverages for the years indicated (a) the
percentage of Commercial Property-Casualty statutory net written
premiums (NWP) and (b) statutory combined ratios before
policyholders' dividends:
PERCENTAGE DISTRIBUTION OF STATUTORY NET WRITTEN PREMIUMS
AND COMBINED RATIOS
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
COMBINED COMBINED COMBINED COMBINED COMBINED
NWP RATIO NWP RATIO NWP RATIO NWP RATIO NWP RATIO
___ _____ ___ _____ ___ _____ ___ _____ ___ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Auto liability:
Bodily injury....... 10.1% 98.2 9.2% 112.7 8.5% 127.1 8.4% 123.4 7.0% 133.0
Property damage..... 4.4 66.7 4.2 76.5 4.0 91.6 4.0 86.7 3.5 80.9
Auto physical damage.. 4.1 87.4 4.0 87.8 4.1 84.7 4.0 87.7 3.9 76.2
Fidelity and surety... 5.5 93.2 4.4 92.2 4.9 99.4 4.9 100.2 5.4 87.2
Fire and allied lines. 5.2 125.1 3.7 131.0 4.0 135.2 3.7 91.4 3.4 122.8
General liability..... 17.5 152.9 18.4 169.4 17.0 119.0 18.0 108.0 21.1 123.3
Marine................ 2.5 99.5 2.0 93.4 1.9 104.7 1.8 98.6 1.7 95.7
Multiple peril........ 25.6 115.8 22.1 115.4 19.8 110.0 19.2 108.1 18.8 97.9
Workers' compensation. 26.7 171.3 30.6 137.9 34.5 119.9 34.6 125.7 33.0 116.7
Other (1)............. (1.6) (45.9) 1.4 265.1 1.3 103.2 1.4 122.3 2.2 93.2
_____ _____ _____ _____ _____
Total before
policyholders'
dividends.......... 100.0% 130.0 100.0% 129.9 100.0% 115.1 100.0% 112.7 100.0% 110.2
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total after
policyholders'
dividends.......... 130.9 131.0 116.7 114.3 112.3
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
Total after
policyholders'
dividends, adjusted
for discounting (2) 117.9 131.0 116.7 114.3 112.3
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
<FN>
(1) Net written premiums in 1993 reflect a refund of $115 million related to a
Texas Catastrophe Insurance Association reinsurance contract.
(2) The 1993 combined ratios, after policyholder dividends, have been adjusted for the
cumulative effect benefit of discounting of workers' compensation life table indemnity
reserves ($250.0 million, after-tax).
</TABLE>
<PAGE> 14
The following table summarizes Commercial Property-Casualty
statutory net written premiums for the years indicated:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Auto liability:
Bodily injury............... $ 306.4 $ 306.2 $ 303.5 $ 314.0 $ 265.2
Property damage............. 132.3 138.6 141.4 151.0 131.5
Auto physical damage......... 124.2 132.4 146.0 149.9 147.6
Fidelity and surety.......... 166.8 146.9 174.4 184.9 206.0
Fire and allied lines........ 156.3 122.9 141.9 139.3 129.0
General liability............ 529.8 616.1 607.0 673.8 799.4
Marine....................... 75.7 68.3 66.7 67.0 63.4
Multiple peril............... 776.1 738.0 707.4 717.4 714.7
Workers' compensation........ 807.5 1,020.4 1,230.3 1,297.1 1,251.5
Other (1).................... (48.8) 49.5 50.7 51.5 81.5
________ ________ ________ ________ ________
Total..................... $3,026.3 $3,339.3 $3,569.3 $3,745.9 $3,789.8
________ ________ ________ ________ ________
________ ________ ________ ________ ________
<FN>
(1) Net written premiums in 1993 reflect a refund of $115 million related to a
Texas Catastrophe Insurance Association reinsurance contract.
</TABLE>
The following table sets forth Aetna's percentage distributions of
Commercial Property-Casualty direct written premiums in various
jurisdictions for the years indicated:
GEOGRAPHIC DISTRIBUTION OF DIRECT WRITTEN PREMIUMS
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
California.............. 10.9% 11.4% 11.3% 11.3% 10.5%
Connecticut............. 4.6 4.9 4.8 4.9 5.8
Florida................. 4.0 3.7 4.1 4.7 5.1
Georgia................. 2.1 2.1 2.7 2.7 2.6
Illinois................ 3.4 3.3 3.3 3.2 3.1
Louisiana............... 1.4 2.7 3.0 2.5 2.4
Massachusetts........... 7.6 6.7 6.8 6.6 6.0
Michigan................ 1.9 2.2 2.0 2.0 2.2
Missouri................ 1.9 2.1 2.0 1.6 1.6
New Jersey.............. 4.5 4.2 4.2 3.8 3.5
New York................ 13.1 12.7 12.2 12.0 12.0
North Carolina.......... 3.6 3.2 3.3 3.2 3.2
Ohio.................... 2.1 1.8 1.7 2.0 1.7
Pennsylvania............ 5.4 5.5 5.3 5.0 4.9
Rhode Island............ 1.6 2.1 1.8 1.9 1.9
Tennessee............... 2.5 2.2 2.3 1.8 1.8
Texas................... 3.2 3.4 4.6 5.2 6.9
Virginia................ 2.9 2.9 2.7 3.7 3.8
All other(1)............ 23.3 22.9 21.9 21.9 21.0
_____ _____ _____ _____ _____
Total................ 100.0% 100.0% 100.0% 100.0% 100.0%
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
<FN>
(1) All other jurisdictions, none of which accounted for more than
2% in any year.
</TABLE>
Competition
___________
Commercial property-casualty insurance is highly competitive in
the areas of price, service and agent relationships. There are
approximately 3,900 property-casualty insurance companies in the
United States. Approximately 900 of these operate in all or most
states and write the vast majority of the business. In addition,
an increasing amount of commercial risks are covered by purchaser
self-insurance, risk-purchasing groups, risk-retention groups and
captive companies. Based on 1992 written premiums, Aetna is one
of the largest underwriters of commercial property-casualty
coverages in the United States.
<PAGE> 15
Method of Distribution
______________________
Aetna's commercial property-casualty coverages are sold through
approximately 4,400 independent agents and brokers supervised and
serviced by 41 field offices.
Reserves
________
See Reserves Related to Property-Casualty Operations on pages 18
through 21.
Reinsurance
___________
Approximately one-half of the property-casualty reinsurance ceded
by Aetna arises in connection with its servicing relationships
with various pools (frequently involuntary pools). Aetna services
or writes a portion of the pool's individual policies, handling
all premium and loss transactions. These "service" premiums and
losses are then 100% ceded (net of an expense reimbursement) to
the pools, whose members are jointly liable to Aetna as a
servicer.
In addition to the above, Aetna utilizes a variety of reinsurance
agreements, primarily with non-affiliated insurers, to control its
exposure to large property-casualty losses. These agreements,
most of which are renegotiated annually as to coverage, limits and
price, are structured either on a treaty basis (where all risks
meeting prescribed criteria are automatically covered) or on a
facultative basis (where the circumstances of specific individual
insurance risks are reflected). The amount of risk retained by
Aetna depends on the underwriter's evaluation of the specific
account, subject to maximum limits based on risk characteristics
and the type of coverage. The principal catastrophe reinsurance
agreement currently in force covers approximately 81% of specified
property losses between $150 million and $325 million.
For additional information on reinsurance, see MD&A - Property-
Casualty Reserves and Note 15 of Notes to Financial Statements in
the Annual Report.
Aetna has internal property-casualty reinsurance arrangements
under which the risks and premiums of virtually all coverages
written by the company's property-casualty subsidiaries are
redistributed among those subsidiaries on a percentage basis. The
percentages are adjusted from time to time to reflect the relative
underwriting capacities and other capital needs of participants in
the reinsurance agreement.
4. Personal Property-Casualty
Principal Products
__________________
The business units in the Personal Property-Casualty segment
("Personal Property-Casualty") provide primarily personal
automobile insurance and homeowners insurance. Personal coverages
accounted for 33% of Aetna's 1993 property-casualty net written
premiums.
<PAGE> 16
The following table sets forth the premium revenue, underwriting
results and net investment income, other income and net realized
capital gains/losses of the personal property-casualty operations
for the years indicated:
<TABLE>
<CAPTION> 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C>
Statutory:
Net written premiums.. $1,490.1 $1,577.0 $2,241.3 $2,544.9 $2,759.5
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Premiums earned....... $1,541.0 $1,788.7 $2,344.9 $2,625.4 $2,752.9
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Loss ratios........... 76.6 82.0 81.9 82.0 87.6
Expense ratios........ 36.3 35.9 31.5 30.2 30.8
________ ________ ________ ________ ________
Combined ratios(1).... 112.9 117.9 113.4 112.2 118.4
________ ________ ________ ________ ________
________ ________ ________ ________ ________
GAAP:
Net written premiums.. $1,438.4 $1,577.0 $2,241.3 $2,544.9 $2,759.5
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Premiums earned....... $1,489.3 $1,788.7 $2,344.9 $2,625.4 $2,752.9
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Adjusted underwriting
loss (pretax) (1,2).. $ (154.7) $ (270.4) $ (376.5) $ (314.5) $ (505.6)
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Net investment income,
other income and net
realized capital
gains/losses......... $ 184.7 $ 292.2 $ 323.8 $ 357.7 $ 345.8
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Loss ratios........... 76.8 82.0 85.4 82.0 87.5
Expense ratios........ 34.7 37.6 32.1 31.0 30.8
________ ________ ________ ________ ________
Combined ratios....... 111.5 119.6 117.5 113.0 118.3
________ ________ ________ ________ ________
________ ________ ________ ________ ________
<FN>
(1) See discussion related to combined ratios and adjusted underwriting loss on page 13.
(2) Includes a charge of $83.6 million in 1991 related to the company's withdrawal from
the Massachusetts personal automobile insurance market pursuant to an agreement with
the Massachusetts Division of Insurance.
</TABLE>
Approximately 86% of Aetna's 1993 personal property-casualty
business was voluntary. The remainder was written by various
assigned risk plans, facilities and pools of which Aetna is a
member. These organizations are formed to meet statutory
requirements relating to certain types of property-casualty risk
or to spread particularly large loss exposures among insurers
pursuant to prearranged allocation formulas. Participation is
mandatory, and underwriting decisions are made by such facilities
independent of their membership.
The following table sets forth for major personal property-
casualty coverages for the years indicated (a) the percentage of
total personal property-casualty statutory net written premiums
(NWP) and (b) the statutory combined ratios:
<TABLE>
<CAPTION>
PERCENTAGE DISTRIBUTION OF STATUTORY NET WRITTEN PREMIUMS AND COMBINED RATIOS
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
COMBINED COMBINED COMBINED COMBINED COMBINED
NWP RATIO NWP RATIO NWP RATIO NWP RATIO NWP RATIO
___ _____ ___ _____ ___ _____ ___ _____ ___ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Auto liability:
Bodily injury...... 33.1% 131.7 34.0% 135.1 33.8% 135.2 31.9% 134.2 30.5% 135.4
Property damage.... 10.9 72.7 11.6 84.5 12.4 106.9 11.7 109.6 11.7 122.4
Auto physical damage 19.5 93.8 21.5 97.3 24.1 91.7 25.6 94.9 26.8 98.1
Homeowners.......... 27.6 124.1 24.6 132.7 22.7 112.3 23.7 107.9 23.9 120.6
Other............... 8.9 99.5 8.3 104.3 7.0 105.3 7.1 97.8 7.1 111.6
_____ _____ _____ _____ _____
Total............ 100.0% 112.9 100.0% 117.9 100.0% 113.4 100.0% 112.2 100.0% 118.4
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
</TABLE>
<PAGE> 17
The following table summarizes personal property-casualty
statutory net written premiums for the years indicated:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Auto liability:
Bodily injury..... $ 492.5 $ 535.4 $ 757.5 $ 812.0 $ 840.6
Property damage... 162.9 183.4 278.7 297.0 323.5
Auto physical damage 290.1 339.6 540.2 650.3 739.9
Homeowners.......... 411.7 388.5 508.4 603.6 659.4
Other............... 132.9 130.1 156.5 182.0 196.1
________ ________ ________ ________ ________
Total............ $1,490.1 $1,577.0 $2,241.3 $2,544.9 $2,759.5
________ ________ ________ ________ ________
________ ________ ________ ________ ________
</TABLE>
The following table sets forth Aetna's percentage distributions of
Personal Property-Casualty direct written premiums in various
jurisdictions for the years indicated:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF DIRECT WRITTEN PREMIUMS
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
California(1)............. 4.6% 5.4% 5.2% 6.0% 6.4%
Connecticut............... 8.9 8.8 8.2 7.8 7.7
Florida................... 6.6 5.0 4.2 4.0 4.1
Massachusetts(2).......... 2.4 9.4 11.4 10.7 9.9
New Jersey................ 6.5 4.9 3.5 2.9 2.4
New York.................. 30.2 28.6 25.8 23.3 21.2
North Carolina............ 2.8 2.4 2.6 3.2 3.5
Pennsylvania.............. 13.8 11.8 10.4 9.5 9.5
Texas..................... 9.4 8.5 8.7 8.1 8.6
Virginia.................. 2.2 2.3 2.4 2.8 2.7
All other(3).............. 12.6 12.9 17.6 21.7 24.0
_____ _____ _____ _____ _____
Total.................. 100.0% 100.0% 100.0% 100.0% 100.0%
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
<FN>
(1) In 1993, the company withdrew from the California personal automobile insurance market.
(2) In early 1992, the company reached an agreement with the Massachusetts Division of
Insurance and the Commonwealth Automobile Reinsurers ("CAR") under which Aetna
withdrew from the Massachusetts personal automobile insurance market. Beginning in
1992, all Massachusetts premium revenue is ceded to CAR.
(3) All other jurisdictions, none of which accounted for more than 2% in any year.
</TABLE>
Reserves
________
See Reserves Related to Property-Casualty Operations on pages 18
through 21.
Competition
___________
Personal property-casualty insurance is highly competitive in the
areas of price, service, agent relationships and method of
distribution (i.e., use of independent agents, captive agents
and/or employees). Currently, there are over 2,400 property-
casualty companies in the United States that offer one or more
individual products similar to those marketed by Aetna. Measured
by 1992 premium volume, Aetna is the 11th largest underwriter of
personal property-casualty products in the United States. State
Farm and Allstate have significant market share in the personal
property-casualty market.
<PAGE> 18
Method of Distribution
______________________
Aetna's personal property-casualty products are marketed by
independent agents and brokers who may sell insurance products for
other companies.
Reinsurance
___________
See Reinsurance on page 15.
5. Reserves Related to Property-Casualty Operations
Aetna establishes reserve liabilities designed to reflect
estimates of the ultimate cost of claims (including claim
adjustment expenses). Such liabilities for workers' compensation
life table indemnity claims are discounted. Estimating the
ultimate cost of claims is a complex and uncertain process that
relies on actuarial and statistical methods of analysis. The
company's reserves include: (i) claims that have been reported
but not settled ("case" reserves), and (ii) claim costs that have
been incurred but have not yet been reported ("IBNR" reserves).
The establishment of case reserves is dependent upon, among other
things, the extent to which coverage was provided, the extent of
injury or damage, and, in the case of a contested claim, an
estimate of the likely outcome of the adjudication process (to the
extent such outcome is estimable). IBNR reserves, established to
reflect events and occurrences that are not known to the company
but, based on actuarial and historical data (adjusted for the
effects of current social, economic and legal developments, trends
and factors), are likely to result in claims, also include
provision for development on case reserves. As claims are
reported and valued by the company, IBNR reserves are reduced by
the amount of the reported claim cost. IBNR reserves also are
adjusted as the estimates of losses for a given accident year
develop. The length of time for which the cost of claims must be
estimated varies depending on the coverage and type of claim
involved. Estimates become more difficult to make (and are
therefore more subject to change) as the length of time increases.
Actual claim costs are dependent upon a number of complex factors
including social and economic trends and changes in doctrines of
legal liability and damage awards.
Reserves for property-casualty coverage are recomputed
periodically using a variety of actuarial and statistical
techniques for producing current estimates of actual claim costs,
claim frequency, and other economic and social factors. A
provision for inflation in the calculation of estimated future
claim costs is implicit since reliance is placed on both actual
historical data that reflect past inflation and on other factors
which are judged to be appropriate modifiers of past experience.
Adjustments to reserves are reflected in the net income of the
period in which such adjustments are made.
Aetna also establishes unearned premium reserves that are
calculated on a pro rata basis and reserves for additional
premiums or refunds on retrospectively rated policies based on
experience. This means that when a loss which will produce an
additional premium payment is incurred on a retrospectively rated
policy, the premium is recorded at the same time. Likewise when
loss experience is favorable, reserves for premium refunds are
established.
<PAGE> 19
During the fourth quarter of 1993, the company added $574 million
(pretax, before discount) to prior accident year loss reserves for
workers' compensation claims. This increase resulted from a
recently completed study of the company's workers' compensation
reserves which indicated that workers' compensation claims have a
longer duration than previously estimated. Concurrent with the
addition to workers' compensation reserves, the company
implemented a change in accounting to discount reserves for
workers' compensation life table indemnity claims consistent with
industry practice. This discounting resulted in a reduction of
$634 million (pretax) to loss reserves for workers' compensation
claims in 1993.
For additional information on property-casualty reserves,
including reserves for asbestos and environmental-related claims,
see MD&A-Property Casualty Reserves in the Annual Report.
The following represents changes in aggregate reserves, net of
reinsurance, for the combined property-casualty experience (1,2):
<TABLE>
<CAPTION>
(millions) 1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Unpaid claims and claim adjustment
expenses at beginning of year........ $11,747 $11,407 $11,064
Incurred claims and claim
adjustment expenses:
Provision for insured events of
the current year................... 3,724 4,407 5,019
Increases in provision for insured
events of prior years.............. 60(3) 466 45
_______ _______ _______
Total incurred claims and claim
adjustment expenses.................. 3,784 4,873 5,064
_______ _______ _______
Payments:
Claims and claim adjustment expenses
attributable to insured events of
the current year................... 1,204 1,560 1,641
Claims and claim adjustment expenses
attributable to insured events of
prior years........................ 2,889 2,973 3,080
_______ _______ _______
Total payments........................ 4,093 4,533 4,721
_______ _______ _______
Total unpaid claims and claim
adjustment expenses at end of
the year............................. $11,438 $11,747 $11,407
_______ _______ _______
_______ _______ _______
<FN>
(1) Accident and health business is excluded.
(2) Includes International.
(3) Includes the cumulative effect adjustment related to the change in accounting
to report workers' compensation life table indemnity claims on a discounted basis.
</TABLE>
<PAGE> 20
The following table reconciles, as of year end, reserves
determined in accordance with accounting principles and practices
prescribed or permitted by insurance regulatory authorities
("statutory basis reserves") to reserves determined in accordance
with generally accepted accounting principles ("GAAP basis
reserves"), net of reinsurance for the combined property-casualty
unpaid claims and claim adjustment expense experience (1):
<TABLE>
<CAPTION>
(millions) 1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Statutory unpaid claims and
claim adjustment expenses............ $11,253 $11,541 $11,391
Adjustments:
Salvage and subrogation.(2)......... - - (147)
Subsidiary operations (3)........... 185 206 163
_______ _______ _______
GAAP unpaid claims and
claim adjustment expenses............ $11,438 $11,747 $11,407
_______ _______ _______
_______ _______ _______
<FN>
(1) Accident and health business is excluded.
(2) In 1992, the NAIC adopted a new accounting principle to allow salvage and
subrogation to be offset against loss reserves, which is consistent with GAAP.
For 1993 and 1992, salvage and subrogation is deducted from statutory unpaid
claims and claim adjustment expenses.
(3) These operations are accounted for on an equity basis for statutory purposes.
</TABLE>
The following reserve runoff table represents Aetna's combined
property-casualty loss and loss expense experience. Each column
shows, for the year indicated:
the reserve held at year end;
cumulative data for payments made in each subsequent year for
that reserve year;
liability reestimates made in each subsequent year for that
reserve year;
the redundancy (deficiency) represented by the difference
between the original reserve held at the end of that year and
the reestimated liability as of the end of 1993; and
the change in redundancy (deficiency) from the end of each
reserve year shown to the end of each subsequent reserve year.
The majority of increases to prior accident year reserves were for
losses and related expenses for asbestos and other product
liability risks attributable to policies written prior to 1978 and
for workers' compensation claims.
The table represents historical data; it would not be appropriate
to use such data to project the company's future reserving
activity or its future performance generally.
<PAGE> 21
<TABLE>
<CAPTION>
Year Ended 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 (1)
____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
(Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid
claims and claim
adjustment expenses......$5,650 $5,948 $6,560 $7,503 $8,708 $9,843 $10,557 $11,064 $11,407 $11,747 $11,438
Paid (cumulative) as of:
End of year.............. 0 0 0 0 0 0 0 0 0 0 0
One year later........... 1,741 1,844 2,067 2,180 2,552 3,134 3,069 3,080 2,973 2,889
Two years later.......... 2,806 3,055 3,372 3,727 4,547 4,955 4,994 5,133 5,116
Three years later........ 3,634 3,936 4,436 5,179 5,797 6,250 6,404 6,735
Four years later......... 4,221 4,669 5,504 6,065 6,682 7,212 7,578
Five years later......... 4,730 5,493 6,118 6,692 7,354 8,048
Six years later.......... 5,386 5,942 6,571 7,197 7,991
Seven years later........ 5,747 6,290 6,955 7,705
Eight years later........ 6,012 6,597 7,375
Nine years later......... 6,264 6,959
Ten years later.......... 6,581
Liability reestimated as of:
End of year.............. 5,650 5,948 6,560 7,503 8,708 9,843 10,557 11,064 11,407 11,747 11,438
One year later........... 5,659 6,013 6,778 7,746 9,022 10,015 10,644 11,109 11,873 11,807
Two years later.......... 5,730 6,272 7,056 8,188 9,312 10,203 10,791 11,737 12,100
Three years later........ 5,943 6,531 7,536 8,539 9,547 10,457 11,376 12,050
Four years later......... 6,130 6,926 7,910 8,813 9,808 10,985 11,617
Five years later......... 6,461 7,291 8,156 9,084 10,319 11,207
Six years later.......... 6,791 7,515 8,422 9,577 10,498
Seven years later........ 6,985 7,778 8,907 9,772
Eight years later........ 7,235 8,250 9,124
Nine years later......... 7,691 8,472
Ten years later.......... 7,918
Redundancy (Deficiency)....(2,268)(2,524)(2,564)(2,269)(1,790)(1,364) (1,060) (986) (693) (60) 0
Change in redundancy
(deficiency)............. N/A (256) (40) 295 479 426 304 74 293 633 60
Gross liability,
end of year (2).......... $15,979 $15,846
Reinsurance recoverable.... 4,232 4,408
_______ _______
Net liability,
end of year.............. $11,747 $11,438
_______ _______
_______ _______
Gross reestimated
liability-latest (2)..... $16,358
Reestimated
recoverable-latest....... 4,551
_______
Net reestimated
liability-latest......... $11,807
_______
_______
Gross cumulative deficiency $ (379)
_______
_______
<FN>
(1) Includes the cumulative effect adjustment related to the change in accounting to report
workers' compensation life table indemnity claims on a discounted basis.
(2) Information presented gross in 1993 and 1992 due to the adoption of FAS No. 113,
Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,
retroactive to December 31, 1992. Adoption of FAS No. 113 had no impact on the 1993 net loss.
</TABLE>
<PAGE> 22
6. International
The International segment ("International"), through subsidiaries
and joint venture operations, sells primarily life insurance and
financial services products in non-U.S. markets including Canada,
Malaysia, Taiwan, Chile, Mexico, the United Kingdom, Hong Kong,
Korea and New Zealand. International operations are subject to
regulation in the various jurisdictions in which they do business.
In most of the geographic areas and markets in which International
has operations, the competition is extensive. Methods of
distribution vary by country and by product, and include direct
sales, sales through agents and brokers, and sales through joint
ventures.
On June 30, 1993, the company completed the sale of its U.K. life
and investment management operations. The company realized an
after-tax capital loss of $12 million on the sale as well as $37
million of tax benefits from cumulative operating losses of the
subsidiary not previously available for tax benefits.
The company completed the sale of its 43% interest in La Estrella
S.A. de Seguros, a Spanish insurance company, to Banco Hispano
Americano in May 1991. The company realized a net capital gain of
$33 million (after-tax) on the sale.
Operations outside the U.S. have added risks such as
nationalization, expropriation, and the potential for restrictive
capital regulations. Given the particular countries in which
International has operations, and the current size and nature of
those operations, management does not believe such risks are
material to the company.
The following table sets forth International's premium revenue,
net investment income, other income and net realized capital
gains/losses and life insurance in force, before deductions for
reinsurance ceded to other companies:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Premiums.......................... $ 952.2 $ 898.3 $ 549.4 $ 455.5 $ 343.9
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Net investment income, other
income and net realized capital
gains/losses..................... $ 383.1 $ 398.2 $ 397.2 $ 265.8 $ 268.9
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Life insurance in force, end
of year......................... $ 44,186 $ 37,172 $ 30,083 $ 21,238 $ 16,771
________ ________ ________ ________ ________
________ ________ ________ ________ ________
</TABLE>
Premium growth in 1992 included $128 million from the second
quarter consolidation of a previously unconsolidated subsidiary as
a result of an increase in the company's ownership percentage.
7. Investments
The investment income and realized capital gains and losses from
the investment portfolios of the company's insurance subsidiaries
contribute to the results of the insurance operations described
above. Investment strategies and portfolios are designed to
reflect the liability profiles, competitive requirements and tax
characteristics of the company's different products. The
distribution of maturities is monitored, and security purchases
and sales are executed with the objective of having adequate funds
available to satisfy the company's maturing liabilities. The
company also utilizes futures and forward contracts and swap
agreements in order to manage investment returns and to align
maturities, interest rates, currency rates and funds availability
with its obligations.
<PAGE> 23
See MD&A - Investments in the Annual Report for a further
discussion of investments.
a. Investments Related to Life, Health, Annuity and Pension Operations
Consistent with the nature of the contract obligations involved in
the company's group and individual life, health and disability,
annuity and pension operations, the majority of the general
account assets attributable to such operations have been invested
in intermediate and long-term, fixed income obligations such as
treasury obligations, mortgage-backed securities, corporate debt
securities and mortgage loans.
For information concerning the valuation of investments, see Notes
1, 5, and 6 of Notes to Financial Statements in the Annual Report.
The following table sets forth the distribution of invested
assets, cash and cash equivalents and accrued investment income as
of the end of the years indicated (1):
<TABLE>
<CAPTION>
(millions) 1993 (2,3) 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Debt securities:
Bonds:
United States Government and
government agencies and
authorities.................. $ 4,800.8 $ 2,318.7 $ 1,443.1 $ 585.7 $ 427.5
States, municipalities and
political subdivisions....... 157.8 171.7 247.6 123.4 557.0
Foreign(4)..................... 2,538.5 846.5 1,410.6 1,526.9 1,655.5
Public utilities............... 2,046.1 1,615.3 2,079.9 2,518.3 2,734.6
Financial...................... 3,643.0 2,188.6 2,477.3 2,985.7 3,352.5
Transportation/Capital goods... 1,950.8 1,728.6 2,285.2 2,650.9 2,623.4
Mortgage-backed securities..... 8,784.6 10,117.4 8,208.3 7,132.1 5,582.2
Food and fiber................. 708.5 652.5 750.4 857.7 635.1
Natural resources and services 842.0 600.4 738.5 800.0 822.4
All other corporate bonds...... 3,033.6 3,037.5 2,816.1 2,765.1 2,443.4
_________ _________ _________ _________ _________
Total bonds.................. 28,505.7 23,277.2 22,457.0 21,945.8 20,833.6
Redeemable preferred stocks...... 1.3 1.8 3.3 1.6 1.9
_________ _________ _________ _________ _________
Total debt securities........ 28,507.0 23,279.0 22,460.3 21,947.4 20,835.5
_________ _________ _________ _________ _________
Equity securities:
Common stocks.................. 210.5 108.8 101.1 73.2 82.3
Non-redeemable preferred stocks 101.0 107.8 158.3 147.4 158.2
_________ _________ _________ _________ _________
Total equity securities...... 311.5 216.6 259.4 220.6 240.5
_________ _________ _________ _________ _________
Short-term investments........... 413.5 838.7 73.3 883.1 201.0
Mortgage loans................... 12,331.2 15,203.0 17,507.0 19,499.2 19,598.7
Real estate...................... 944.1 1,116.3 1,022.2 728.7 655.2
Policy loans..................... 448.3 427.4 414.2 404.1 389.3
Other............................ 242.3 319.9 229.4 593.8 690.8
_________ _________ _________ _________ _________
Total investments............ $43,197.9 $41,400.9 $41,965.8 $44,276.9 $42,611.0
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Cash and cash equivalents.......... $ 1,232.5 $ 1,516.3 $ 2,231.3 $ 1,037.8 $ 1,394.6
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Accrued investment income.......... $ 529.7 $ 523.6 $ 575.8 $ 630.4 $ 646.6
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Excludes International and Separate Accounts.
(2) The majority of debt securities are carried at fair value in 1993 due to the adoption of FAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, at December 31, 1993.
(3) Includes $14.7 billion of assets supporting discontinued products.
(4) "Foreign" includes foreign governments, foreign political subdivisions, foreign public utilities
and all other bonds of foreign issuers.
</TABLE>
<PAGE> 24
Mortgage-backed securities at December 31, 1993, 1992 and 1991
included the following categories of collateralized mortgage
obligations (1):
<TABLE>
<CAPTION>
(millions)
Amortized Cost,
net of valuation
reserves Fair Value Yield (2)
________________ __________ _____
<S> <C> <C> <C>
1993
____
Sequentials.................... $1,788.4 $1,890.9 10.3%
Planned Amortization Class..... 3,347.7 3,562.2 8.8
Interest Only.................. 45.0 45.7 13.1
Principal Only................. 73.8 110.5 19.6
Z-Tranches..................... 276.8 319.6 10.2
Other.......................... 66.1 65.4 6.9
________ ________
Total........................ $5,597.8 $5,994.3 9.5
________ ________
________ ________
1992
____
Sequentials.................... $2,090.5 $2,213.6 10.2%
Planned Amortization Class..... 2,689.6 2,847.2 9.0
Interest Only.................. 287.3 236.3 5.3
Principal Only................. 242.7 273.3 10.4
Z-Tranches..................... 661.6 714.5 10.4
Other.......................... 204.9 205.1 7.9
________ ________
Total........................ $6,176.6 $6,490.0 9.4
________ ________
________ ________
1991
____
Sequentials.................... $1,589.0 $1,747.9 9.9%
Planned Amortization Class..... 2,507.0 2,728.3 9.5
Interest Only.................. 69.1 61.5 10.5
Principal Only................. 312.6 357.4 7.6
Z-Tranches..................... 289.6 326.4 10.1
Other.......................... 125.1 133.7 6.2
________ ________
Total........................ $4,892.4 $5,355.2 9.5
________ ________
________ ________
<FN>
(1) Excludes Separate Accounts.
(2) Based on fair value at year-end.
</TABLE>
The following table summarizes investment results of the company's
life, health, annuity and pension operations (1):
<TABLE>
<CAPTION>
(dollar amounts in millions)
Net Earned Net Net Realized Change in Net
Investment Investment Capital Gains Unrealized Capital
Income (2) Income Rate (3) (Losses) (4) Gains and Losses (5)
__________ _______________ _____________ ____________________
<S> <C> <C> <C> <C>
For the year:
1993............... $3,653.0 8.8% $ (40.8) $ 281.8
1992............... 3,835.9 8.9 (111.7) (26.9)
1991............... 4,202.7 9.7 (373.0) 79.9
1990............... 4,258.9 9.9 (171.8) (29.3)
1989............... 4,114.4 10.0 9.3 42.9
<FN>
(1) Excludes International and Separate Accounts.
(2) Net investment income excludes net realized capital gains and losses
and is after deduction of investment expenses, but before deduction of
federal income taxes.
(3) The Earned Net Investment Income Rate for any given year is equal to (a) net
investment income divided by (b) the average of (i) cash, invested assets and
investment income due and accrued less borrowed money at the beginning of the
year and (ii) cash, invested assets and investment income due and accrued
less borrowed money at the end of the year, less net investment income.
Debt securities are reflected primarily at amortized cost for purposes of
this calculation. Investments in affiliates have been eliminated for purposes
of this calculation.
(4) Net realized capital gains (losses) are before federal income taxes and after
gains and losses allocable to experience rated pension contractholders.
Intercompany transactions between life, health, annuity and pension operations
and property-casualty operations have not been eliminated.
(5) Net unrealized capital gains (losses) are before federal income taxes and
exclude changes in unrealized capital gains (losses) related to experience
rated contractholders and discontinued products. Intercompany transactions
between life, health, annuity and pension operations and property-casualty
operations have not been eliminated.
</TABLE>
<PAGE> 25
b. Investments Related to Property-Casualty Operations
The investment strategies for assets related to personal and
commercial property-casualty operations are designed to maximize
yield with appropriate liquidity and preservation of principal,
and to permit periodic adjustment of the portfolio mix, in order
to reflect changes in underwriting results and thus maximize
after-tax income. Common stocks are held with the primary
objective of achieving portfolio appreciation through capital
gains and income. The size of common stock holdings is controlled
in relation to surplus levels.
For information concerning the valuation of investments, see Notes
1, 5, and 6 of Notes to Financial Statements in the Annual Report.
The following table sets forth the distribution of invested
assets, cash and cash equivalents and accrued investment income as
of the end of the years indicated (1):
<TABLE>
<CAPTION>
(millions) 1993 (2) 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Debt Securities:
Bonds:
United States Government
and government agencies
and authorities............... $ 3,341.9 $ 895.7 $ 828.2 $ 622.9 $ 485.2
States, municipalities and
political subdivisions........ 2,086.9 2,210.0 2,953.1 4,114.4 4,128.3
Foreign(3)...................... 757.2 533.0 597.8 431.4 420.3
Public utilities................ 717.3 676.3 455.9 293.3 300.5
Financial....................... 1,280.0 708.6 946.3 768.1 964.4
Transportation/Capital goods.... 215.9 290.3 256.2 225.1 200.8
Mortgage-backed securities...... 1,453.5 3,029.5 2,561.7 2,009.9 2,043.6
Food and fiber.................. 218.3 213.9 169.8 122.3 116.0
Natural resources and services.. 279.6 334.3 268.6 166.6 188.8
All other corporate bonds....... 636.8 602.9 287.0 217.3 289.5
_________ _________ _________ _________ _________
Total bonds................. 10,987.4 9,494.5 9,324.6 8,971.3 9,137.4
Redeemable preferred stocks..... 92.3 162.8 140.5 166.0 178.9
_________ _________ _________ _________ _________
Total debt securities....... 11,079.7 9,657.3 9,465.1 9,137.3 9,316.3
_________ _________ _________ _________ _________
Equity securities:
Common stocks..................... 1,169.5 1,015.0 645.9 484.2 854.1
Non-redeemable preferred stocks... 7.2 7.8 14.4 21.0 15.9
_________ _________ _________ _________ _________
Total equity securities..... 1,176.7 1,022.8 660.3 505.2 870.0
_________ _________ _________ _________ _________
Short-term investments.............. 235.8 506.8 479.2 720.1 31.9
Mortgage loans...................... 1,834.1 2,126.0 2,303.8 2,629.7 2,512.9
Real estate......................... 314.8 344.6 317.0 240.3 290.1
Other............................... 295.7 258.9 490.0 331.8 381.9
_________ _________ _________ _________ _________
Total investments........... $14,936.8 $13,916.4 $13,715.4 $13,564.4 $13,403.1
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Cash and cash equivalents........... $ (11.0) $ 597.1 $ 382.4 $ 471.3 $ 781.2
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Accrued investment income........... $ 206.8 $ 192.7 $ 201.6 $ 209.2 $ 215.6
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Excludes International and investments in affiliates.
(2) The majority of debt securities are carried at fair value in 1993 due to the adoption of
FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, at December 31, 1993.
(3) "Foreign" includes foreign governments, foreign political subdivisions,
foreign public utilities and all other bonds of foreign issuers.
</TABLE>
<PAGE> 26
Mortgage-backed securities at December 31, 1993, 1992 and 1991
included the following categories of collateralized mortgage
obligations (1):
<TABLE>
<CAPTION>
(millions)
Amortized Cost,
net of valuation
reserves Fair Value Yield (2)
________________ __________ _____
<S> <C> <C> <C>
1993
____
Sequentials.................... $ 102.4 $ 102.4 6.7%
Planned Amortization Class..... 211.6 213.0 6.8
Principal Only................. 53.3 54.7 6.5
Z-Tranches..................... 7.0 7.0 4.8
Other.......................... 10.3 10.2 8.9
________ ________
Total........................ $ 384.6 $ 387.3 6.8
________ ________
________ ________
1992
____
Sequentials.................... $ 468.9 $ 488.4 7.9%
Planned Amortization Class..... 874.7 909.7 7.9
Principal Only................. 40.5 46.4 1.0
Z-Tranches..................... 11.1 11.5 6.8
Other.......................... 80.1 80.9 -
________ ________
Total........................ $1,475.3 $1,536.9 7.7
________ ________
________ ________
1991
____
Sequentials.................... $ 100.6 $ 106.9 8.8%
Planned Amortization Class..... 1,385.2 1,473.8 9.1
Principal Only................. 30.2 34.8 4.2
Other.......................... 24.2 24.8 7.9
________ ________
Total........................ $1,540.2 $1,640.3 9.0
________ ________
________ ________
<FN>
(1) Excludes International.
(2) Based on fair value at year-end.
</TABLE>
The following table summarizes investment results of the company's
property-casualty insurance operations (1):
<TABLE>
<CAPTION>
(dollar amounts in millions)
Net Earned Net Net Realized Change in Net
Investment Investment Capital Gains Unrealized Capital
Income (2) Income Rate (3) (Losses) (4) Gains and Losses (4)
__________ _______________ _____________ ____________________
<S> <C> <C> <C> <C>
For the year:
1993............... $ 959.0 7.3% $ 149.2 $ 207.6
1992............... 946.1 7.2 217.4 200.6
1991............... 1,057.9 8.3 36.2 118.3
1990............... 1,136.0 8.8 53.8 (129.8)
1989............... 1,038.6 8.0 211.6 186.8
<FN>
(1) Excludes International.
(2) Net investment income excludes net realized capital gains and losses and
is after deduction of investment expenses, but before deduction of federal
income taxes.
(3) The Earned Net Investment Income Rate for any given year is equal to (a) net
investment income divided by (b) the average of (i) cash, invested assets and
investment income due and accrued less borrowed money at the beginning of the
year and (ii) cash, invested assets and investment income due and accrued less
borrowed money at the end of the year, less net investment income. Debt
securities are reflected primarily at amortized cost for purposes of this
calculation. Investments in affiliates have been eliminated for purposes of
this calculation.
(4) Net realized and unrealized capital gains (losses) are before federal income
taxes and exclude changes in unrealized capital gains (losses) related to
experience rated contractholders. Intercompany transactions between life,
health, annuity and pension operations and property-casualty operations have
not been eliminated.
</TABLE>
<PAGE> 27
8. Other Matters
a. Regulation
General
Aetna's insurance businesses are subject to comprehensive,
detailed regulation throughout the United States and the foreign
jurisdictions in which they do business. The laws of the various
jurisdictions establish supervisory agencies with broad authority
to regulate, among other things, the granting of licenses to
transact business, premium rates for certain coverages, trade
practices, agent licensing, policy forms, underwriting and claims
practices, reserve adequacy, insurer solvency, the maximum
interest rates that can be charged on life insurance policy loans,
and the minimum rates that must be provided for accumulation of
surrender value. Many also regulate investment activities on the
basis of quality, distribution and other quantitative criteria.
Further, many jurisdictions compel participation in, and regulate
composition of, various residual market mechanisms. Aetna's
operations and accounts are subject to examination at regular
intervals by domestic and other insurance regulators.
Although the federal government does not directly regulate the
business of insurance, many federal laws do affect that business.
Existing or recently proposed federal laws that may significantly
affect or would affect, if passed, the insurance business cover
such matters as employee benefits (including regulation of
federally qualified HMOs), controls on medical care costs, medical
entitlement programs (e.g., Medicare), environmental regulation
and liability, product liability, civil justice procedural reform,
earthquake insurance, removal of barriers preventing banks from
engaging in the insurance and mutual fund businesses, repeal of
some portions of the McCarran-Ferguson exemption of the business
of insurance from federal antitrust laws, the taxation of
insurance companies (see Notes 1 and 10 of Notes to Financial
Statements in the Annual Report), and the tax treatment of
insurance products.
Health Care
In addition to regulations applicable to insurance companies
generally (described above), Aetna's managed health care products
are subject to varying levels of state insurance, health
maintenance organization ("HMO") and/or health department
regulation. Among other things, these regulations address health
care network composition, new product offerings, product and
benefit contracts and the extent to which insurance companies may
provide incentives to insureds to use services from "preferred"
health care service providers or pay contractual and non-
contractual health care providers unequally for equivalent
services. Some jurisdictions also regulate the extent to which
managed health care plans may offer their enrollees the option of
receiving health care services from non-contracting providers.
Additionally, these plans are subject to state, and in some cases
federal, regulation concerning solvency and other operational
requirements.
Both the Clinton Administration and a number of states have
proposed significant health care reform legislation. (For
additional discussion, see MD&A - Health and Life Insurance and
Services in the Annual Report.)
<PAGE> 28
Insurance and Insurance Holding Company Laws
Several states, including Connecticut, regulate affiliated groups
of insurers such as Aetna under insurance holding company
statutes. Under such laws, intercorporate asset transfers and
dividend payments from insurance subsidiaries may require prior
notice to or approval of the insurance regulators, depending on
the size of such transfers and payments relative to the financial
position of the affiliate making the transfer. These laws also
regulate changes in control, as do Connecticut corporate laws
(which also apply to insurance corporations). See Note 8 of Notes
to Financial Statements in the Annual Report.
As a licensed Connecticut-domiciled insurer, the company is
subject to Connecticut insurance laws. These laws, among other
things, enable insurers to redeem their stock from any shareholder
who fails, in the good faith determination of the insurer's board
of directors, to (i) meet the qualifications prescribed under
Connecticut law for licensure or (ii) to secure the regulatory
approvals required under Connecticut law for ownership of such
stock.
Securities Laws
The Securities and Exchange Commission ("SEC") and, to a lesser
extent, the states regulate the sales and investment management
activities of broker-dealer and investment advisory subsidiaries
of the company. The SEC also regulates some of its pension,
annuity, life insurance and other investment and retirement
products. Additionally, certain Separate Accounts and mutual
funds of Aetna Life Insurance and Annuity Company are subject to
SEC regulation under the Investment Company Act of 1940. As a
stock company, Aetna also is subject to extensive reporting
obligations under the Securities Exchange Act of 1934.
Property-Casualty
Over the past several years, the company's insurance businesses,
particularly personal automobile and workers' compensation, have
been the target of various regulatory and legislative initiatives
that management believes have limited the basis upon which the
company conducts its activities. Such initiatives have, among
other things, sought to (1) freeze or reduce rates that may be
charged for certain insurance products, (2) force the company to
issue and renew insurance in markets where the company cannot
achieve an acceptable rate of return, and (3) restructure residual
or involuntary markets. Residual or involuntary markets are
established to provide coverage to insureds unable to obtain
policies in the private marketplace. As state-mandated rates are
frequently inadequate, these markets are in effect often
subsidized by the insurance industry. More recently, attempts
have been made to apply these initiatives to the property
insurance lines as a means of addressing the availability of
property insurance in certain urban and shorefront locations.
<PAGE> 29
Insurance Company Guaranty Fund Assessments
Under insurance guaranty fund laws existing in all states,
insurers doing business in those states can be assessed (up to
prescribed limits) for certain obligations of insolvent insurance
companies to policyholders and claimants. The after-tax charges
to earnings for guaranty fund obligations for the years ended
December 31, 1993, 1992 and 1991 were $17 million, $49 million,
and $23 million, respectively. The increase in the 1992 provision
is principally related to insolvencies of certain large insurance
companies. The amounts ultimately assessed may differ from the
amounts charged to earnings because such assessments may not be
made for several years and will depend upon the final outcome of
regulatory proceedings.
While the company has historically recovered more than half of
guaranty fund assessments through statutorily permitted premium
tax offsets and policy surcharges, significant increases in
assessments could jeopardize future efforts to recover such
assessments.
The company has actively supported improved insurer solvency
regulation, including measures that would facilitate earlier
identification of troubled insurers, and amendments to guaranty
fund laws that would reduce the costs of such insolvencies to
solvent insurers such as Aetna.
Proposition 103
In March 1992, the California Insurance Commissioner
("Commissioner") issued a notice of hearing to the company
requiring that it show cause why it should not be ordered to pay
refunds with interest pursuant to Proposition 103. Proposition
103 is a voter initiative adopted in November 1988 which requires,
among other things, certain premium rollbacks or refunds by
insurance companies. The Commissioner alleged that the company's
refund obligation was $110 million, plus 10% interest from May
1989 (or $51 million as of December 31, 1993).
On January 13, 1994, the company entered into a stipulation with
the California Department of Insurance ("Department") under which
the company agreed to make refunds of $31 million, including
interest, with respect to certain California policies issued or
renewed between November 8, 1988 and November 7, 1989. The
Department has agreed that this refund constitutes the company's
complete and entire rollback and refund obligation. Given
applicable reserves, the agreement with the Department will not
materially affect the company's earned premium revenue or net
income.
See MD&A - Regulatory Environment in the Annual Report for
additional discussion of regulatory matters.
b. NAIC IRIS Ratios
The NAIC "IRIS" ratios cover 12 categories of financial data with
defined acceptable ranges for each category. The ratios are intended
to provide insurance regulators "early warnings" as to when a given
company might warrant special attention. An insurance company may
fall out of the acceptable range for one or more ratios and such
variances may result from specific transactions that are in
themselves immaterial or eliminated at the consolidated level. In
1992, two of Aetna Life and Casualty Company's significant
subsidiaries had more than two IRIS ratios that were outside of NAIC
acceptable ranges, as discussed below.
<PAGE> 30
Aetna Life Insurance Company ("ALIC") fell outside acceptable ranges
in 1992 for: (i) the Net Change in Capital and Surplus Ratio which
is calculated by dividing the change in capital and surplus between
the prior and the current year (net of any capital and surplus paid
in) by the prior year capital and surplus; (ii) the Adequacy of
Investment Income Ratio which compares investment income to credited
interest; (iii) the Change in Product Mix Ratio which measures
changes in the percentage of total premiums by product line; and (iv)
the Change in Reserving Ratio which is designed for an open growing
block of business. During 1992, significant capital was contributed
by Aetna Life and Casualty Company to ALIC. The regulators were
satisfied, after analysis, that ALIC did not warrant special
attention.
In 1992, The Aetna Casualty and Surety Company ("AC&S") fell outside
of acceptable ranges for: (i) the Two-year Overall Operating Ratio,
which is a combination of a two-year combined ratio minus a two-year
investment income ratio; (ii) the Change in Surplus which measures
the improvement or deterioration in a company's financial condition
during the year; and (iii) the Ratio of Liabilities to Liquid Assets
which measures the liquidity of a company. During 1992, AC&S sold
its wholly owned subsidiary, American Re-Insurance Company. Proceeds
from this sale were dividended to Aetna Life and Casualty Company.
This one-time event caused certain of the ratios described above to
fall outside of acceptable ranges. The regulators were satisfied,
after analysis, that AC&S did not warrant special attention.
Management expects that certain of the company's significant
subsidiaries will have more than two IRIS ratios outside of NAIC
acceptable ranges for 1993.
c. Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends
The following table sets forth Aetna's ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and preferred
stock dividends for the years ended December 31:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (a) .42 (b) 2.13 3.03 4.13
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends (a) .42 (b) 2.13 3.03 4.05
<FN>
(a) Aetna reported a pretax loss from continuing operations in 1993 which was
inadequate to cover fixed charges by $1.1 billion.
(b) Earnings were inadequate to cover fixed charges by $112.8 million in 1992.
</TABLE>
For purposes of computing both the ratio of earnings to fixed charges
and the ratio of earnings to combined fixed charges and preferred
stock dividends, "earnings" represent consolidated earnings from
continuing operations before income taxes, cumulative effect
adjustments and extraordinary items plus fixed charges and minority
interest. "Fixed charges" consist of interest (and the portion of
rental expense deemed representative of the interest factor).
Preferred stock dividends, which are not deductible for income tax
purposes, have been increased to a taxable equivalent basis. This
adjustment has been calculated by using the effective tax rate of the
applicable year. All shares of Aetna's preferred stock were redeemed
in 1989 and, as a result, for the years ended December 31, 1993,
1992, 1991 and 1990 the ratios of earnings to combined fixed charges
and preferred stock dividends were the same as the ratios of earnings
to fixed charges.
<PAGE> 31
d. Miscellaneous
Aetna had approximately 42,600 domestic employees at December 31,
1993.
Management believes that the company's computer facilities,
systems and related procedures are adequate to meet its business
needs. The company's data processing systems and backup and
security policies, practices and procedures are regularly
evaluated by the company's management and its internal auditors
and are modified as considered necessary.
Portions of Aetna's insurance business are seasonal in nature.
Reported claims under group health and certain property-casualty
products are generally higher in the first quarter. Sales,
particularly of individual life products, are generally lowest in
the first quarter and highest in the fourth quarter.
No customer accounted for 10% or more of Aetna's consolidated
revenues in 1993. In addition, no segment of Aetna's business is
dependent upon a single customer or a few customers, the loss of
which would have a significant effect on the segment. See Note 14
of Notes to Financial Statements regarding segment information in
the Annual Report.
The loss of business from any one, or a few, independent brokers
or agents would not have a material adverse effect on the company
or any of its segments. In general, the company is not
contractually obligated or committed to accept a fixed portion of
business submitted by any of its property-casualty agents or
brokers. The company generally reviews all of its policy
applications, both new and renewal, for approval and acceptance.
There are cases where the company has delegated limited
underwriting authority to select agents generally for smaller
business for specific classes of risks. The risks accepted by the
company under these conditions are reviewed by company
underwriters. This authority generally can be rescinded at any
time at the discretion of the company and without prior notice to
the agents.
Item 2. Properties.
The home office of Aetna, owned by Aetna Life Insurance Company,
is a building complex located at 151 Farmington Avenue, Hartford,
Connecticut, with approximately 1.6 million square feet. The
company also owns or leases other space in the greater Hartford
area as well as various field locations throughout the country.
The company expects to vacate certain of these facilities in 1994
(please see MD&A - Overview in the Annual Report).
The foregoing does not include numerous investment properties held
by Aetna in its general and separate accounts.
<PAGE> 32
Item 3. Legal Proceedings.
In Re: Stepak v. Aetna Life and Casualty Company et al.
On October 22, 1990, a shareholder filed a lawsuit in United
States District Court for the District of Connecticut ("District
Court"). The suit, which was filed on behalf of a class of
company shareholders, named as defendants Aetna Life and Casualty
Company ("Aetna") and certain present and former Aetna officers
and directors.
The suit alleges that the defendants fraudulently and in violation
of federal securities laws failed, among other things, to
adequately disclose alleged deterioration in the value of mortgage
loan and real estate investment portfolios and that the plaintiff,
acting in reliance upon such allegedly misleading public
statements, purchased Aetna common stock at artificially inflated
prices. The suit seeks certification of the class and unspecified
compensatory and punitive damages.
In November 1990, the plaintiff filed an amended complaint. The
defendants moved to have the amended complaint dismissed. The
plaintiff subsequently filed a second amended complaint, and in
August 1991 the District Court denied the defendants' motion to
dismiss this complaint. In the interim, the plaintiff dropped all
but two of the original individual defendants. Subsequently, a
class was conditionally certified composed of purchasers of Aetna
common stock during the period from February 16, 1989 through
November 13, 1990, with some exceptions.
Aetna has answered the complaint, denying all substantive
averments, and discovery is substantially complete. Aetna
believes that the suit is neither supported as a matter of fact
nor as a matter of law and, with the other defendants, will
continue to contest vigorously the litigation.
In Re: Standard Financial Indemnity Corporation et al.
v. The Aetna Casualty and Surety Company et al.
In 1989, the Standard Financial Indemnity Corporation ("SFIC") filed
an antitrust suit in Texas state court against The Aetna Casualty and
Surety Company ("Aetna Casualty") and all other insurers acting as
servicing carriers for the Texas workers' compensation assigned risk
pool (collectively, "defendants"). The complaint alleged that the
plaintiff's application to become a servicing carrier had been
wrongfully denied pursuant to a conspiracy among the servicing
carriers. In February 1990, Preferred Employers' Insurance Company
("Preferred") joined the suit as a plaintiff and made an additional
claim alleging that the servicing carriers had intentionally overpaid
claims in order to raise prices and to drive workers' compensation
customers into the assigned risk pool.
The defendants' motion to dismiss the original suit brought by SFIC,
which Preferred had later joined as a plaintiff, was granted in March
1990. SFIC appealed this ruling and on May 19, 1993, the Court of
Appeal, Third District of Texas ("Court of Appeal") reversed and
remanded the matter to the trial court. Preferred did not appeal the
initial dismissal of the original suit and, therefore, is no longer a
party to the litigation. On March 12, 1992, the Texas Commissioner
of Insurance placed SFIC into receivership. On August 25, 1993, the
Court of Appeal denied defendant's motion for rehearing. On
September 24, 1993, defendants filed an application for writ of error
with the Supreme Court of Texas. A settlement for an amount not
material to the company has been reached with SFIC's receiver and has
become final.
<PAGE> 33
In Re: Attorneys General Antitrust Litigation
The description of this litigation is contained in Note 16 of Notes
to Financial Statements in the Annual Report and is incorporated
herein by reference.
Other Litigation
Aetna is continuously involved in numerous other lawsuits arising,
for the most part, in the ordinary course of its business operations
either as a liability insurer defending third-party claims brought
against its insureds or as an insurer defending coverage claims
brought against itself, including lawsuits related to issues of
policy coverage and judicial interpretation.
One such area of coverage litigation involves legal liability for
asbestos and environmental-related claims. These lawsuits and other
factors make reserving for asbestos and environmental-related claims
subject to significant uncertainties. See MD&A - Property-Casualty
Reserves in the Annual Report.
While the ultimate outcome of the litigation described herein cannot
be determined at this time, management does not believe it likely
that such litigation, net of reserves established therefor and giving
effect to reinsurance, will result in judgments for amounts material
to the financial condition of the company, although it may affect
results of operations in future periods. Litigation related to
asbestos and environmental claims is subject to significant
uncertainties; therefore management is unable to determine whether
the effects on operations in future periods will be material.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE> 34
EXECUTIVE OFFICERS OF AETNA LIFE AND CASUALTY COMPANY*
The Chairman of Aetna Life and Casualty Company is elected and all
other executive officers listed below are appointed by the Board
of Directors of the company at its Annual Meeting each year to
hold office until the next Annual Meeting of the Board or until
their successors are elected or appointed. None of these officers
have family relationships with any other executive officer or
Director.
<TABLE>
<CAPTION>
Business Experience
Name of Officer Principal Position Age During Past Five Years
_______________ __________________ ___ ______________________
<S> <C> <C> <C>
Ronald E. Compton Chairman and President 61 (1)
Zoe Baird Senior Vice President and
General Counsel 41 (2)
Gary G. Benanav Executive Vice President,
Property/Casualty** 48 (3)
Mary Ann Champlin Senior Vice President,
Human Resources 46 (4)
Daniel P. Kearney Executive Vice President,
Investments/Financial
Services** 54 (5)
Patrick W. Kenny Group Executive, Finance
and Administration 51 (6)
Elizabeth R. Krupnick Senior Vice President,
Corporate Affairs 44 (7)
James W. McLane Executive Vice President,
Health/Group Life** 55 (8)
Vanda B. McMurtry Senior Vice President,
Federal Government Relations 44 (9)
Robert E. Broatch Senior Vice President,
Finance and Corporate
Controller 45 (10)
John D. Loewenberg Senior Vice President,
Aetna Information
Technology 53 (11)
Brian E. Scott Vice President and
Senior Corporate Actuary 57 (12)
<FN>
* As of March 1, 1994
** Executive Vice Presidents, in conjunction with certain other senior
officers, are responsible for assisting the Chairman in setting
policy and overall direction for the company. In addition, each
Executive Vice President is responsible for overseeing key initiatives
and business decisions of the following specified lines of business:
Mr. Benanav -- international, personal and commercial property-casualty
insurance; Mr. Kearney -- investments and large case pensions, individual
life insurance, annuities and mutual funds, and small case pensions;
and Mr. McLane -- group health insurance, including managed care
operations, and group life insurance.
</TABLE>
<PAGE> 35
(1)
Mr. Compton has served as Chairman since March 1, 1992. He is
also President, a position he has held since July 1988.
(2)
Ms. Baird has served in her current position since April 1992.
From July 1990 to April 1992 she served as Vice President and
General Counsel. From 1986 to July 1990 she was with General
Electric Company, Fairfield, Connecticut, most recently as
Counselor and Staff Executive.
(3)
Mr. Benanav has served in his current position since December
1993. From April 1992 to December 1993 he served as Group
Executive responsible for International, individual life
insurance, annuities, mutual funds, and small case pensions. From
April 1990 through April 1992, he served as Senior Vice President,
International Insurance. From August 1989 until April 1990, he
served as Vice President, International Insurance Division. From
June 1986 to August 1989 he served as Vice President - Finance and
Treasurer.
(4)
Ms. Champlin has served in her current position since November
1992. From February 1991 through November 1992 she served as Vice
President, Aetna Human Resources. From June 1989 through January
1991 she served as Assistant Vice President, Corporate Management,
Office of the Chairman. From August 1988 to May 1989 she served
as Director, Corporate Management, Office of the Chairman.
(5)
Mr. Kearney has served in his current position since December
1993. From February 1991 to December 1993 he served as Group
Executive responsible for investments and large case pensions.
From 1990 to February 1991 he served as the principal of Daniel P.
Kearney, Inc. From 1989 to 1990 he served as President and Chief
Executive Officer of the Oversight Board of the Resolution Trust
Corporation. From 1988 to 1989 he served as a principal of
Aldrich, Eastman and Waltch, Inc. (a pension fund advisor).
(6)
Mr. Kenny has served in his current position since March 1992.
From January 1988 through February 1992, he served as Senior Vice
President, Finance.
(7)
Ms. Krupnick has served in her current position since November
1992. From October 1989 through November 1992, she served as Vice
President, Corporate Affairs. From January 1988 to October 1989
she served as Assistant Vice President, Corporate Affairs.
<PAGE> 36
(8)
Mr. McLane has served in his current position since December 1993.
From April 1992 to December 1993, he served as Group Executive
responsible for group health and life insurance including managed
care operations. From February 1991 through April 1992 he served
as Chief Executive Officer, Aetna Health Plans; from 1985 through
1991 he served as Senior Vice President, Global Insurance
Division, Citicorp.
(9)
Mr. McMurtry has served in his current position since November
1992. From February 1989 through November 1992 he served as Staff
Director and Chief Counsel, Committee on Finance, United States
Senate. From January 1986 through February 1989 he served as
Legislative Director for Lloyd M. Bentsen Jr., United States
Senate.
(10)
Mr. Broatch has served in his current position since December
1993. From May 1988 to December 1993, he served as Vice President
and Corporate Controller.
(11)
Mr. Loewenberg has served in his current position since March
1989. From September 1987 to March 1989 he served as Senior Vice
President and Chief Administrative Officer, Agency Group, Capital
Holding Corporation.
(12)
Mr. Scott has served in his current position since November 1991.
From April 1991 until November 1991, he served as Vice President,
Standard Commercial Accounts. From October 1988 through April
1991, he served as Senior Vice President, Standard Markets
Department, Commercial Insurance Division.
<PAGE> 37
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
Aetna Life and Casualty Company's common stock is listed on the
New York and Pacific Stock Exchanges, with unlisted trading
privileges on other regional exchanges. Its symbol is AET. The
common stock also is listed on the Swiss Stock Exchanges at Basel,
Geneva and Zurich. Call and put options on the common stock are
traded on the American Stock Exchange. As of February 25, 1994,
there were 27,452 record holders of the common stock.
The dividends declared and the high and low sales prices with
respect to Aetna Life and Casualty Company's common stock for each
quarterly period for the past two years are incorporated herein by
reference from "Quarterly Data" in the Annual Report.
Information regarding restrictions on the company's present and
future ability to pay dividends is incorporated herein by
reference from Note 8 of Notes to Financial Statements in the
Annual Report.
Item 6. Selected Financial Data.
The information contained in "Selected Financial Data" in the
Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The 1993 Consolidated Financial Statements and the report of the
registrant's independent auditors and the unaudited information
set forth under the caption "Quarterly Data" is incorporated
herein by reference to the Annual Report.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
None.
<PAGE> 38
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning Executive Officers is included in Part I
pursuant to General Instruction G to Form 10-K.
Information concerning Directors and concerning compliance with
Section 16 (a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the Proxy Statement.
Item 11. Executive Compensation.
The information under the caption "Executive Compensation" is
incorporated herein by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information under the caption "Security Ownership of Certain
Beneficial Owners, Directors, Nominees and Executive Officers" is
incorporated herein by reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information under the caption "Certain Transactions and
Relationships" is incorporated herein by reference to the Proxy
Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements:
The Consolidated Financial Statements and the report of the
registrant's independent auditors are incorporated herein
by reference to the Annual Report.
2. Financial statement schedules:
The supporting schedules of the consolidated entity are included
in this Item 14. See Index to Financial Statement Schedules on
page 41.
<PAGE> 39
3. Exhibits: *
(3) Articles of Incorporation and By-Laws.
Certificate of Incorporation of Aetna Life and Casualty Company,
incorporated herein by reference to the registrant's 1992
Form 10-K, filed on March 17, 1993.
By-Laws of Aetna Life and Casualty Company.
(4) Instruments defining the rights of security holders,
including indentures.
Conformed copy of Indenture, dated as of October 15, 1977 between
Aetna Life and Casualty Company and Morgan Guaranty Trust Company
of New York, Trustee, incorporated herein by reference to the
registrant's 1992 Form 10-K, filed on March 17, 1993 (the "1992
Form 10-K").
Conformed copy of Indenture, dated as of October 15, 1986 between
Aetna Life and Casualty Company and The First National Bank of
Boston, Trustee, incorporated herein by reference to the 1992 Form
10-K.
Conformed copy of Indenture, dated as of August 1, 1993, between
Aetna Life and Casualty Company and State Street Bank and Trust
Company of Connecticut, National Association, as Trustee,
incorporated herein by reference to the registrant's Registration
Statement on Form S-3 (File No. 33-50427).
Rights Agreement dated as of October 27, 1989, between Aetna Life
and Casualty Company and First Chicago Trust Company of New York
incorporated herein by reference to the 1992 Form 10-K.
Summary of Rights to Purchase Preferred Stock, incorporated herein
by reference to the 1992 Form 10-K.
(10) Material contracts.
The 1984 and 1979 Stock Option Plans of Aetna Life and Casualty
Company and amendments thereto, incorporated herein by reference
to the 1992 Form 10-K.
Aetna Life and Casualty Company's Supplemental Incentive Savings
Plan, incorporated herein by reference to the 1992 Form 10-K.
Aetna Life and Casualty Company's Supplemental Pension Benefit
Plan, incorporated herein by reference to the 1992 Form 10-K.
Aetna Life and Casualty Company's Performance Unit Plan,
incorporated herein by reference to the 1992 Form 10-K.
Aetna Life and Casualty Company's 1986 Management Incentive Plan,
as amended effective February 25, 1994.
The Aetna Life and Casualty Directors' Deferred Compensation Plan,
incorporated herein by reference to the 1992 Form 10-K.
<PAGE> 40
Letter Agreement, dated December 18, 1993, between Aetna Life and
Casualty Company and David A. Kocher.
Aetna Life and Casualty Company Non-Employee Director Deferred Stock
Plan, incorporated herein by reference to the 1992 Form 10-K.
Description of certain arrangements not embodied in formal
documents, as described with respect to Directors' fees and
benefits, and under the caption "Executive Compensation," are
incorporated herein by reference to the Proxy Statement.
(11) Statement re computation of per share earnings.
Incorporated herein by reference to Note 1 of Notes to Financial
Statements in the company's 1993 Annual Report.
(12) Statement re computation of ratios.
Statement re: computation of ratio of earnings to fixed charges.
Statement re: computation of ratio of earnings to combined fixed
charges and preferred stock dividends.
(13) Annual Report to security holders.
Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Consolidated
Financial Statements and the report of the registrant's
independent auditors, and unaudited Quarterly Data from the Annual
Report.
(18) Letter re change in accounting principles
Letter from Independent Auditors regarding the preferability of
the change in accounting principle for reporting reserves for
workers' compensation life table indemnity claims to a discounted
basis.
(21) Subsidiaries of the registrant.
A listing of subsidiaries of Aetna Life and Casualty Company.
(23) Consents of experts and counsel.
Consent of Independent Auditors to Incorporation by Reference in
the Registration Statements on Form S-3 and Form S-8.
(28) Information from Reports Furnished to State Insurance
Regulatory Authorities.
1993 Consolidated Schedule P of Annual Statements provided to
state regulatory authorities. **
(b) Reports on Form 8-K
None.
* Exhibits other than those listed are omitted because they are
not required or are not applicable. Copies of exhibits are
available without charge by writing to the Office of the
Corporate Secretary, Aetna Life and Casualty Company,
151 Farmington Avenue, Hartford, Connecticut 06156.
** Filed under cover of Form SE.
<PAGE> 41
INDEX TO FINANCIAL STATEMENT SCHEDULES
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
Page
____
Independent Auditors' Report........................ 42
I Summary of Investments - Other than
Investments in Affiliates as
of December 31, 1993.......................... 43
III Condensed Financial Information of the
Registrant as of December 31, 1993 and
1992 and for the years ended December 31,
1993, 1992 and 1991........................... 44
V Supplementary Insurance Information as of
and for the years ended December 31, 1993,
1992 and 1991................................. 50
VIII Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1993, 1992
and 1991...................................... 53
IX Short-term Borrowings for the years ended
December 31, 1993, 1992 and 1991.............. 54
X Supplemental Information Concerning
Property-Casualty Operations for the years
ended December 31, 1993, 1992 and 1991........ 55
Schedules other than those listed above are omitted because
they are not required or are not applicable, or the required
information is shown in the Financial Statements or Notes
thereto in the company's 1993 Annual Report. Columns
omitted from schedules filed have been omitted because the
information is not applicable.
Certain reclassifications have been made to 1992 and 1991
financial information to conform to 1993 presentation.
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
Aetna Life and Casualty Company:
Under date of February 8, 1994, we reported on the
consolidated balance sheets of Aetna Life and Casualty
Company and Subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1993, as
contained in the 1993 annual report to shareholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K
for the year 1993. In connection with our audits of the
aforementioned consolidated financial statements, we also
have audited the related financial statement schedules as
listed in the accompanying index. These financial statement
schedules are the responsibility of the company's
management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial
statements, in 1993 the company changed its methods of
accounting for certain investments in debt and equity
securities, reinsurance of short-duration and long-duration
contracts, postemployment benefits, workers' compensation
life table indemnity reserves and retrospectively rated
reinsurance contracts. In 1992, the company changed its
methods of accounting for income taxes and postretirement
benefits other than pensions.
By KPMG PEAT MARWICK
_____________________
(Signature)
KPMG PEAT MARWICK
Hartford, Connecticut
February 8, 1994
<PAGE> 43
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE I
Summary of Investments - Other than Investments in Affiliates
As of December 31, 1993
<TABLE>
<CAPTION>
Amount
at which
shown in the
Type of Investment Cost Value* balance sheet
__________ __________ _____________
(Millions)
<S> <C> <C> <C>
Debt securities:
Bonds:
United States Government
and government agencies
and authorities............. $ 8,038.9 $ 8,180.4 $ 8,180.4
States, municipalities and
political subdivisions...... 2,439.4 2,517.0 2,516.8
Foreign(1).................... 3,686.1 3,863.3 3,847.2
Public utilities.............. 2,777.4 2,937.4 2,923.0
Financial..................... 4,913.5 5,159.6 5,125.9
Transportation/Capital goods.. 1,975.9 2,225.2 2,203.7
Mortgage-backed securities.... 9,656.1 10,325.7 10,325.7
Food and fiber................ 873.7 937.2 926.8
Natural resources and services 1,118.0 1,195.9 1,176.8
All other corporate bonds..... 4,012.7 4,230.3 4,199.3
_________ _________ _________
Total bonds................. 39,491.7 41,572.0 41,425.6
Redeemable preferred stocks..... 118.7 118.9 118.9
_________ _________ _________
Total debt securities....... 39,610.4 $41,690.9 41,544.5
_________ _________ _________
_________
Equity securities:
Common stocks:
Public utilities.............. 119.1 $ 123.9 123.9
Banks, trust and insurance
companies................... 83.3 167.3 167.3
Industrial, miscellaneous
and all other............... 936.5 1,255.3 1,255.3
_________ _________ _________
Total common stocks......... 1,138.9 1,546.5 1,546.5
Non-redeemable preferred
stocks........................ 99.2 112.4 112.4
_________ _________ _________
Total equity securities..... 1,238.1 $ 1,658.9 1,658.9
_________ _________ _________
_________
Short-term investments............. 669.9 669.9
Mortgage loans..................... 14,839.2 14,839.2
Real estate........................ 1,315.8 1,315.8
Policy loans....................... 490.7 490.7
Other.............................. 703.4(2) 936.8(3)
_________ _________
Total investments........... $58,867.5 $61,455.8
_________ _________
_________ _________
<FN>
* See Notes 1 and 5 of Notes to Financial Statements in the
company's 1993 Annual Report.
(1) The term "foreign" includes foreign governments,
foreign political subdivisions, foreign public utilities and
all other bonds of foreign issuers.
(2) Excludes investments in affiliates of $233.4 million.
(3) Includes investments in affiliates of $233.4 million.
</TABLE>
<PAGE> 44
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Statements of Income
<TABLE>
<CAPTION>
For the years ended December 31,
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
(Millions)
Premiums............................... $ 1.3 $ .9 $ -
Net investment income.................. (7.9) (18.2) (1.4)
Net realized capital gains (losses).... (22.1) 5.7 .8
_______ ________ ________
Total revenue................... (28.7) (11.6) (.6)
Current and future benefits............ .8 .2 -
Operating expenses..................... 43.1 30.3 37.4
Severance and facilities charge........ 50.3 22.1 -
Interest expense....................... 70.1 76.9 93.8
_______ ________ ________
Total benefits and expenses 164.3 129.5 131.2
_______ ________ ________
Insurance operating losses before
federal income taxes and equity
in earnings of affiliates........... (193.0) (141.1) (131.8)
Federal income tax benefits:
Current............................. (53.4) (35.5) (37.3)
Deferred............................ (45.6) (15.7) (65.8)
Equity in earnings (losses) of
affiliates (521.3) 84.6 395.1
_______ ________ ________
Income (loss) from continuing
operations before extraordinary item
and cumulative effect adjustments... (615.3) (5.3) 366.4
Discontinued operations, net of tax:
Income from operations............... - 86.8 138.8
Gain on sale......................... 27.0 38.1 -
Cumulative effect adjustments........ - 48.9 -
_______ ________ ________
Income (loss) before extraordinary item
and cumulative effect adjustments for
continuing operations................. (588.3) 168.5 505.2
Extraordinary loss on debenture
redemption, net of tax................ (4.7) - -
Cumulative effect adjustments for
continuing operations................. 227.1 (1) (112.5)(2) -
_______ ________ ________
Net Income (Loss)....................... $(365.9) $ 56.0 $ 505.2
_______ ________ ________
_______ ________ ________
<FN>
(1) The amount of the cumulative effect adjustment applicable to affiliates
is $276.3 million.
(2) The amount of the cumulative effect adjustment applicable to affiliates
is $285.4 million.
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE> 45
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Balance Sheets
<TABLE>
<CAPTION>
As of December 31,
(Millions, except share data) 1993 1992
____ ____
<S> <C> <C>
ASSETS
Investments:
Equity securities, at market
(cost $5.6 and $4.4).................. $ 1.6 $ .7
Short-term investments.................. 83.3 83.1
Other................................... 10.5 10.1
Investments in affiliates:
Insurance and financial services
companies........................... 7,916.4 7,838.7
International insurance and
financial services companies........ 636.4 578.7
________ _________
Total investments................. 8,648.2 8,511.3
Cash and cash equivalents.................. 5.8 88.2
Premiums due and other receivables......... 2.5 3.2
Due from affiliates........................ 165.5 168.4
Accrued investment income.................. 1.3 1.6
Deferred federal income taxes.............. 263.8 221.3
Other assets............................... 39.4 29.1
________ _________
Total assets...................... $9,126.5 $ 9,023.1
________ _________
________ _________
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance reserve liabilities........... $ .5 $ .4
Dividends payable to shareholders....... 77.4 76.1
Long-term debt.......................... 1,057.6 798.6
Other liabilities....................... 154.6 100.7
Liability for postretirement
benefits other than pensions........... 638.9 617.3
Due to affiliates....................... 149.0 167.7
Federal income taxes payable............ 5.4 24.0
________ _________
Total liabilities................. 2,083.4 1,784.8
________ _________
Shareholders' Equity:
Class A Voting Preferred Stock
(no par value; 10,000,000 shares
authorized; no shares issued or
outstanding) - -
Class B Voting Preferred Stock
(no par value; 15,000,000 shares
authorized; no shares issued or
outstanding) - -
Class C Non-voting Preferred Stock
(no par value; 15,000,000 shares
authorized; no shares issued or
outstanding) - -
Common stock (No par value; 250,000,000
shares authorized; 114,939,275 issued;
and 112,200,567 and 110,270,482
outstanding).......................... 1,422.0 1,417.7
Net unrealized capital gains............ 648.2 259.6
Retained earnings....................... 5,103.3 5,777.9
Treasury stock, at cost................. (130.4) (216.9)
________ _________
Total shareholders' equity.......... 7,043.1 7,238.3
________ _________
Total............................. $9,126.5 $ 9,023.1
________ _________
________ _________
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE> 46
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Three years ended December 31, 1993 Common Capital Retained Treasury
(Millions, except share data) Total Stock Gains Earnings Stock
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990 $ 7,072.4 $ 1,420.6 $ 49.7 $ 5,824.5 $ (222.4)
__________________________________________________________________________________________________________
Net income.............................. 505.2 505.2
Net change in unrealized capital gains
and losses............................ 116.2 116.2
Common stock acquired during year
(76,800 shares)....................... (6.3) (6.3)
Common stock issued for benefit plans
(28,796 shares)....................... 1.2 1.2
Loss on issuance of treasury stock...... (.5) (.5)
Common stock dividends declared......... (303.7) (303.7)
_____________________________________________________________
Balances at December 31, 1991 7,384.5 1,420.1 165.9 6,026.0 (227.5)
__________________________________________________________________________________________________________
Net income.............................. 56.0 56.0
Net change in unrealized capital gains
and losses............................ 93.7 93.7
Common stock issued for benefit plans
(205,848 shares)...................... 10.6 10.6
Loss on issuance of treasury stock...... (2.4) (2.4)
Common stock dividends declared:........ (304.1) (304.1)
__________________________________________________________________________________________________________
Balances at December 31, 1992 7,238.3 1,417.7 259.6 5,777.9 (216.9)
__________________________________________________________________________________________________________
Net income.............................. (365.9) (365.9)
Net change in unrealized capital gains
and losses............................ 388.6 388.6
Common stock issued for benefit plans
(1,930,085 shares).................... 86.5 86.5
Loss on issuance of treasury stock...... 4.3 4.3
Common stock dividends declared......... (308.7) (308.7)
_____________________________________________________________
Balances at December 31, 1993 $ 7,043.1 $ 1,422.0 $ 648.2(1)$ 5,103.3 $ (130.4)
__________________________________________________________________________________________________________
<FN>
See Notes to Condensed Financial Statements.
(1) Unrealized capital gains and losses at December 31, 1993 exclude unrealized capital
gains of $396.2 million attributable to assets supporting discontinued products and
unrealized capital gains of $466.3 million attributable to assets supporting experience
rated contracts.
</TABLE>
<PAGE> 47
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended December 31,
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income(loss).............................. $(365.9) $ 56.0 $ 505.2
Adjustments to reconcile net income (loss)
to net cash (used for) provided by
operating activities:
Cumulative effect adjustments............... (227.1) 112.5 -
Extraordinary loss on debenture redemption.. 4.7 - -
Discontinued operations..................... (27.0) (86.8) (72.7)
Cumulative effect of discontinued operations - (48.9) -
Decrease (increase) in premiums due and
other receivables.......................... 5.0 (41.7) (46.3)
Decrease (increase) in accrued investment
income..................................... 0.3 (3.1) (2.7)
Depreciation and amortization............... - 0.1 0.1
(Decrease) increase in federal income taxes (58.6) 73.3 45.4
Net (decrease) increase in other assets
and other liabilities...................... 38.3 110.2 (210.6)
Increase in insurance reserve
liabilities................................ 0.1 0.3 30.8
Equity in (earnings) losses of affiliates... 521.3 (84.6) (395.1)
Gain on sale of subsidiaries................ (15.0) (38.1) -
Net realized capital (gains) losses......... 22.1 (5.7) (0.8)
Amortization of net investment discounts.... (0.2) (0.2) -
Other, net.................................. (118.2) 65.8 6.8
______ ________ ________
Net cash (used for) provided by
operating activities..................... (220.2) 109.1 (139.9)
______ ________ ________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities............................... - - 14.2
Investment repayments of:
Debt securities............................... - - 0.1
Cost of investments in:
Debt securities............................... - - (7.8)
Equity securities............................. (26.3) (2.9) (20.9)
Mortgage loans................................ - - (0.2)
Real estate................................... (0.5) (1.8) (0.5)
Proceeds from disposal of subsidiaries.......... 93.1 - -
Increase in short-term investments.............. (0.2) (58.8) (213.2)
Decrease (Increase) in property plant
& equipment.................................... 0.1 (0.1) -
Investment in and advances from subsidiaries.... (631.3) 220.4 (256.2)
Dividends received from affiliates.............. 302.1 250.0 706.4
Net transfers resulting from change in
reinsurance arrangement........................ - - 102.7
Other, net...................................... 365.9 (72.8) 114.0
_______ ________ ________
Net cash provided by investing activities..... 102.9 334.0 438.6
Cash Flows from Financing Activities:
Issuance of long-term debt.................... 600.0 - -
Stock issued under benefit plans.............. 90.8 8.2 .7
Repayment of long-term debt................... (347.2) (69.9) -
Dividends paid to shareholders................ (308.7) (304.1) (303.7)
Treasury stock acquired....................... - - (6.3)
_______ ________ ________
Net cash provided by (used for)
financing activities....................... 34.9 (365.8) (309.3)
Net (decrease) increase in cash and
cash equivalents................................ (82.4) 77.3 (10.6)
Cash and cash equivalents, beginning of year..... 88.2 10.9 21.5
_______ ________ ________
Cash and cash equivalents, end of year........... $ 5.8 $ 88.2 $ 10.9
_______ ________ ________
_______ ________ ________
Supplemental disclosure of cash flow
information:
Interest paid............................... $ 64.2 $ 83.2 $ 94.2
_______ ________ ________
_______ ________ ________
Income taxes received, net.................. $ (56.7) $ (40.6) $ (149.3)
_______ ________ ________
_______ ________ ________
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE> 48
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Notes to Condensed Financial Statements
The accompanying condensed financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto in the company's 1993 Annual Report. Certain
reclassifications have been made to 1992 and 1991 financial
information to conform to 1993 presentation.
1. Long-Term Debt
<TABLE>
<CAPTION>
(millions) 1993 1992
____ ____
<S> <C> <C>
Long-term debt:
Eurodollar Notes, 9 1/2% due 1995.. $ 100.4 $ 100.6
Notes, 8 5/8% due 1998............. 99.8 99.7
Notes, 6 3/8% due 2003............. 198.7 -
Debentures, 8 1/8% due 2007........ - 200.0
Debentures, 6 3/4% due 2013........ 198.3 -
Eurodollar Notes, 7 3/4% due 2016.. 63.5 200.1
Debentures, 8% due 2017............ 198.6 198.2
Debentures, 7 1/4% due 2023........ 198.3 -
________ ________
$1,057.6 $ 798.6
________ ________
________ ________
</TABLE>
See Note 9 to the Consolidated Financial Statements in the Annual
Report for a description of the long-term debt and aggregate
maturities for 1994 to 1998 and thereafter.
2. Dividends
The amounts of cash dividends paid to Aetna Life and Casualty
Company by insurance affiliates for the years ended December 31,
1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
(millions) 1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Consolidated subsidiaries..... $302.1 $250.0 $706.2
50% or less owned accounted
for by the equity method.... - - .2
______ ______ ______
$302.1 $250.0 $706.4
______ ______ ______
______ ______ ______
</TABLE>
See Note 8 to the Consolidated Financial Statements in the Annual
Report for a description of dividend restrictions from the
consolidated insurance subsidiaries to the company.
<PAGE> 49
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Notes to Condensed Financial Statements (Continued)
3. Accounting Changes
See Note 1 to the Consolidated Financial Statements in the Annual
Report for a description of accounting changes.
4. Discontinued Products
See Note 2 to the Consolidated Financial Statements in the Annual
Report for a description of discontinued products.
5. Sales of Subsidiaries
See Note 3 to the Consolidated Financial Statements in the Annual
Report for a description of the sales of subsidiaries.
6. Severance and Facilities Charge
See Note 4 to the Consolidated Financial Statements in the Annual
Report for a description of the severance and facilities charges.
7. Federal and Foreign Income Taxes
See Note 10 to the Consolidated Financial Statements in the Annual
Report for a description of federal and foreign income taxes.
8. Litigation
See Note 16 to the Consolidated Financial Statements in the Annual
Report for a description of the Attorneys General Antitrust
litigation.
<PAGE> 50
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE V
Supplementary Insurance Information
As of and for the year ended December 31, 1993
<TABLE>
<CAPTION>
Deferred Unpaid Policyholders'
policy Future claims funds left
acquisition policy and claim Unearned with the Premium
Segment costs benefits expenses premiums company revenue
_______ ___________ _________ _________ _________ ___________ _________
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services.............$ 653.6 $ 4,884.2 $ 1,242.1 (1) $ 129.7 $ 1,450.4 $ 4,794.3
Financial Services.......... 462.3 10,749.1 2.5 - 24,772.5 217.9
Commercial Property-Casualty
Insurance and Services... 206.7 - 13,030.2 741.3 51.2 3,121.2
Personal Property-Casualty.. 122.9 - 2,346.7 587.3 - 1,489.3
International............... 421.5 1,964.3 490.7 43.9 1,318.1 952.2
_________ _________ _________ _________ _________ _________
Total....................$ 1,867.0 $17,597.6 $17,112.2 $ 1,502.2 $27,592.2 $10,574.9
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
Other income
(including Amortization of
Net realized Current deferred policy Other
investment capital gains and future acquisition operating Premiums
Segment income (2) and losses) benefits costs expenses written(3)
_______ ___________ _____________ __________ __________ __________ _________
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services................. $ 593.1 $ 1,089.9 $ 4,247.9 $ 21.2 $ 1,758.5 $ 67.0
Financial Services............. 3,049.9 225.0 3,040.4 17.3 441.2 -
Commercial Property-Casualty
Insurance and Services...... 762.6 254.5 3,031.4 337.4 1,033.7 3,026.3
Personal Property-Casualty..... 194.6 (9.9) 1,144.4 308.8 245.3 1,438.4
International.................. 318.8 64.3 927.8 51.7 388.1 114.1
_________ ________ _________ _________ ________ _________
Total..................... $ 4,919.0 $ 1,623.8 $12,391.9 $ 736.4 $ 3,866.8 $ 4,645.8
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
<FN>
(1) Includes minimal property-casualty business.
(2) The allocation of net investment income is based upon the
investment year method or specific identification of certain
portfolios within specific segments.
(3) Excludes life insurance business pursuant to Regulation S-X.
</TABLE>
<PAGE> 51
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE V
Supplementary Insurance Information
As of and for the year ended December 31, 1992
<TABLE>
<CAPTION>
Deferred Unpaid Policyholders'
policy Future claims funds left
acquisition policy and claim Unearned with the Premium
Segment costs benefits expenses premiums company revenue
_______ ___________ _________ _________ _________ ___________ _________
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services.............$ 602.5 $ 4,804.6 $ 1,108.0(1) $ 107.6 $ 815.0 $ 4,679.9
Financial Services.......... 417.9 9,347.4 1.8 - 24,927.3 222.9
Commercial Property-Casualty
Insurance and Services... 201.4 .2 13,655.8 710.2 61.0 3,204.1
Personal Property-Casualty.. 127.2 - 2,107.0 621.5 - 1,788.7
International............... 357.0 1,838.2 249.6 48.9 1,466.9 898.3
_________ _________ _________ _________ _________ _________
Total....................$ 1,706.0 $15,990.4 $17,122.2 $ 1,488.2 $27,270.2 $10,793.9
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
Other income
(including Amortization of
Net realized Current deferred policy Other
investment capital gains and future acquisition operating Premiums
Segment income (2) and losses) benefits costs expenses written(3)
_______ ___________ _____________ __________ __________ __________ _________
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services................. $ 597.1 $ 1,026.2 $ 4,046.6 $ 19.3 $ 1,816.7 $ 59.8
Financial Services............. 3,170.3 151.9 3,265.5 13.4 327.9 -
Commercial Property-Casualty
Insurance and Services...... 762.6 304.8 3,242.1 376.3 1,083.1 3,339.3
Personal Property-Casualty..... 251.2 41.0 1,466.1 349.6 337.6 1,577.0
International.................. 287.8 110.4 828.6 41.6 404.2 72.3
_________ _________ _________ _________ _________ _________
Total..................... $ 5,069.0 $ 1,634.3 $12,848.9 $ 800.2 $ 3,969.5 $ 5,048.4
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
<FN>
(1) Includes minimal property-casualty business.
(2) The allocation of net investment income is based upon the
investment year method or specific identification of certain
portfolios within specific segments.
(3) Excludes life insurance business pursuant to Regulation S-X.
</TABLE>
<PAGE> 52
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE V
Supplementary Insurance Information
As of and for the year ended December 31, 1991
<TABLE>
<CAPTION>
(Millions)
Deferred Unpaid Policyholders'
policy Future claims funds left
acquisition policy and claim Unearned with the Premium
Segment costs benefits expenses premiums company revenue
_______ ___________ _________ __________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services............... $ 573.8 $ 4,573.5 $ 1,188.7(1) $ 49.1 $ 992.1 $ 4,628.6
Financial Services.......... 380.9 9,577.4 1.6 - 27,087.9 305.6
Commercial Property-Casualty
Insurance and Services..... 220.5 1.1 9,017.1 284.4 69.5 3,616.1
Personal Property-Casualty.. 177.1 - 2,271.2 833.1 - 2,344.9
International............... 170.8 1,198.6 171.5 28.0 1,424.9 549.4
_________ _________ _________ _________ _________ _________
Total.................... $ 1,523.1 $15,350.6 $12,650.1 $ 1,194.6 $29,574.4 $11,444.6
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
Other income
(including Amortization of
Net realized Current deferred policy Other
investment capital gains and future acquisition operating Premiums
Segment income (2) and losses) benefits costs expenses written(3)
_______ __________ ____________ ___________ __________ __________ __________
<S> <C> <C> <C> <C> <C> <C>
Health and Life Insurance
and Services............... $ 639.1 $ 848.7 $ 3,948.7 $ 68.2 $ 1,604.2 $ 50.3
Financial Services.......... 3,539.1 (134.6) 3,723.1 22.9 240.5 -
Commercial Property-Casualty
Insurance and Services..... 788.1 196.5 3,148.4 409.0 990.5 3,569.3
Personal Property-Casualty 292.5 31.3 2,001.5 513.8 243.9 2,241.3
International............... 255.7 141.5 608.1 14.2 262.0 82.5
_________ _________ ________ _________ _________ _________
Total.................. $ 5,514.5 $ 1,083.4 $13,429.8 $ 1,028.1 $ 3,341.1 $ 5,943.4
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
<FN>
(1) Includes minimal property-casualty business.
(2) The allocation of net investment income is based upon the
investment year method or specific identification of certain
portfolios within specific segments.
(3) Excludes life insurance business pursuant to Regulation S-X.
</TABLE>
<PAGE> 53
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE VIII
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
For the years ended December 31,
(Millions)
Additions
_________________________
Charged
Balance at Charged to to other Balance
beginning costs and accounts- Deductions- at end of
of period expenses (1) describe (2) describe (3) period
__________ ___________ ____________ ___________ _________
<S> <C> <C> <C> <C> <C>
1993
____
Asset valuation reserves:
Fixed maturities.......... $ 105.2 $ 14.5 $ 12.5 $ (29.4) $ 102.8
Mortgage loans............ 1,065.6 421.7 176.5 (355.5) 1,308.3
Equity securities......... 12.5 .8 - (2.7) 10.6
Real estate(4)............ 68.8 176.7 79.3 (57.1) 267.7
Other..................... 6.0 - - - 6.0
_________ _________ _________ _________ _________
$ 1,258.1 $ 613.7 $ 268.3 $ (444.7) $ 1,695.4
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
1992
____
Asset valuation reserves:
Fixed maturities.......... $ 145.7 $ (9.0) $ (3.1) $ (28.4) $ 105.2
Mortgage loans............ 767.6 366.5 115.4 (183.9) 1,065.6
Equity securities......... 8.0 4.5 - - 12.5
Real estate(4)............ - 53.6 22.6 (7.4) 68.8
Other..................... 131.6 - - (125.6)(5) 6.0(5)
_________ _________ _________ _________ _________
$ 1,052.9 $ 415.6 $ 134.9 $ (345.3) $ 1,258.1
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
1991
____
Asset valuation reserves:
Fixed maturities.......... $ 156.2 $ 23.9 $ 7.8 $ (42.2) $ 145.7
Mortgage loans............ 311.5 467.1 163.9 (174.9) 767.6
Equity securities......... 6.7 1.3 - - 8.0
Other..................... 131.6 - - - 131.6(5)
_________ _________ _________ _________ _________
$ 606.0 $ 492.3 $ 171.7 $ (217.1) $ 1,052.9
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Charged to net realized capital gains (losses) in the
Consolidated Statements of Income.
(2) Reflects additions to reserves related to assets supporting
experience rated contracts for which a corresponding
reduction was included in Policyholders' Funds Left with the
Company in the Consolidated Balance Sheets.
(3) Reduction in reserves is primarily a result of related asset
write-downs (including foreclosures of real estate) and sales.
(4) As a result of adopting the American Institute of Certified Public
Accountants' Statement of Position 92-3 retroactive to January 1,
1992, a valuation allowance was established to reflect declines in
certain real estate values which had previously been reflected as
write-downs.
(5) Primarily related to oil and gas properties. The oil and
gas investments are recorded as other investments in the
Consolidated Balance Sheets. During 1992, the majority of
the oil and gas properties were sold.
</TABLE>
<PAGE> 54
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE IX
Short-Term Borrowings
<TABLE>
<CAPTION>
For the years ended December 31,
(Millions)
Weighted
Maximum Average average rate
Category of Weighted amount amount on amount
aggregate Balance average outstanding outstanding outstanding
short-term at end of interest during the during the during the
borrowings period rate period period* period*
___________ _________ _________ ___________ ___________ ____________
<S> <C> <C> <C> <C> <C>
1993
____
Commercial paper.......... $ 8.4 7.0% $560.1 $150.4 3.6%
Bank notes................ - - 7.5 7.5 6.0
Other..................... 27.3 0.4 385.1 57.7 2.5
1992
____
Commercial paper.......... $ 22.5 6.0% $539.0 $263.9 3.7%
Bank notes................ - - 7.5 7.5 6.3
Other..................... 2.1 8.8 2.1 1.7 8.8
1991
____
Commercial paper.......... $ 4.3 10.0% $635.5 $389.8 6.0%
Bank notes................ - - 7.5 7.5 8.5
Other..................... 1.8 8.4 1.9 1.8 8.4
<FN>
* Method of computation - daily weighted average based upon
respective time outstanding and the amount of borrowings.
</TABLE>
<PAGE> 55
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE X
Supplemental Information Concerning
Property-Casualty Operations
<TABLE>
<CAPTION>
For the years ended December 31,
(Millions)
Reserves for Discount deducted
Deferred unpaid claims from reserves for
Affiliation policy and claim unpaid claims
with acquisition adjustment and claim Unearned Earned
registrant costs(1) expenses(2) adjustment expenses premiums(1) premiums(1)
___________ ___________ _____________ ___________________ ________ ________
<S> <C> <C> <C> <C> <C> <C>
1993 Consolidated
property-
casualty
entities $ 330 $11,438 $ 634 (3) $ 1,329 $ 4,611
1992 Consolidated
property-
casualty
entities $ 329 $11,747 $ - $ 1,042 $ 4,993
1991 Consolidated
property-
casualty
entities $ 398 $11,407 $ - $ 1,118 $ 5,961
Claims and claim Paid
Net adjustment expenses claims
Affiliation investment incurred related to: Amortization of and claim
with and other Current Prior deferred policy adjustment Premiums
registrant income(1) year(2) years(2) acquisition costs(1) expenses(1) written(1)
___________ __________ _______ ______ _________________ __________ ________
<S> <C> <C> <C> <C> <C> <C> <C>
1993 Consolidated
property-
casualty
entities $ 1,202 $ 3,724 $ 60 $ 646 $ 4,093 $ 4,465
1992 Consolidated
property-
casualty
entities $ 1,360 $ 4,407 $ 466 $ 726 $ 4,533 $ 4,916
1991 Consolidated
property-
casualty
entities $ 1,308 $ 5,019 $ 45 $ 923 $ 4,721 $ 5,811
<FN>
(1) Excludes International.
(2) Net of reinsurance and discounting.
(3) Reserves for workers' compensation life table indemnity claims are
discounted at 5% for voluntary business and 3.5% for involuntary business.
</TABLE>
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 18, 1994
AETNA LIFE AND CASUALTY COMPANY
(Registrant)
By
ROBERT E. BROATCH
______________________________
(Signature)
Robert E. Broatch
Senior Vice President, Finance and
Corporate Controller
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 18, 1994.
Signature Title
RONALD E. COMPTON
________________________
Ronald E. Compton Chairman, President and Director
(Principal Executive Officer)
WALLACE BARNES
________________________
Wallace Barnes Director
JOHN F. DONAHUE
________________________
John F. Donahue Director
WILLIAM H. DONALDSON
________________________
William H. Donaldson Director
BARBARA HACKMAN FRANKLIN
________________________
Barbara Hackman Franklin Director
EARL G. GRAVES
________________________
Earl G. Graves Director
GERALD GREENWALD
________________________
Gerald Greenwald Director
MICHAEL H. JORDAN
________________________
Michael H. Jordan Director
JACK D. KUEHLER
________________________
Jack D. Kuehler Director
FRANK R. O'KEEFE JR.
________________________
Frank R. O'Keefe Jr. Director
DAVID M. RODERICK
________________________
David M. Roderick Director
PATRICK W. KENNY
________________________
Patrick W. Kenny Group Executive, Finance and
Administration (Principal
Financial Officer)
<PAGE> 1
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
(Millions, except per share data) 1993 (1) 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Revenue:
Premiums:
Health and Life Insurance and Services $ 4,794.3 $ 4,679.9 $ 4,628.6 $ 4,453.8 $ 4,030.7
Financial Services 217.9 222.9 305.6 606.2 1,305.8
Commercial Property-Casualty
Insurance and Services 3,121.2 3,204.1 3,616.1 3,782.2 3,999.3
Personal Property-Casualty 1,489.3 1,788.7 2,344.9 2,625.4 2,752.9
International 952.2 898.3 549.4 455.5 343.9
______________________________________________________________
Total premiums 10,574.9 10,793.9 11,444.6 11,923.1 12,432.6
_________________________________________________________________________________________________________
Net Investment Income, Fees and Other Income,
and Net Realized Capital Gains and Losses:
Health and Life Insurance and Services 1,683.0 1,623.3 1,487.8 1,454.0 1,247.5
Financial Services 3,274.9 3,322.2 3,404.5 3,716.5 3,717.9
Commercial Property-Casualty
Insurance and Services 1,017.1 1,067.4 984.6 982.1 959.7
Personal Property-Casualty 184.7 292.2 323.8 357.7 345.8
International 383.1 398.2 397.2 265.8 268.9
Federated Investors - - - - 240.3
______________________________________________________________
Total net investment income, fees and
other income, and net realized
capital gains and losses 6,542.8 6,703.3 6,597.9 6,776.1 6,780.1
_________________________________________________________________________________________________________
Total Revenue $ 17,117.7 $ 17,497.2 $ 18,042.5 $ 18,699.2 $ 19,212.7
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments:
Health and Life Insurance and Services $ 288.1 $ 280.6 $ 386.0 $ 280.3 $ 241.7
Financial Services (2) (808.8) (17.2) (156.9) 28.4 106.9
Commercial Property-Casualty
Insurance and Services (115.9) (245.4) 139.5 199.5 232.0
Personal Property-Casualty (3.3) (36.2) (28.6) 24.8 (104.6)
International 24.6 12.9 26.4 (52.4) (17.2)
Federated Investors - - - - 54.0
_________________________________________________________________________________________________________
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments (2) (615.3) (5.3) 366.4 480.6 512.8
_________________________________________________________________________________________________________
Income from Discontinued Operations 27.0 173.8 138.8 133.5 126.6
_________________________________________________________________________________________________________
Cumulative Effect Adjustments (3) 227.1 (112.5) - - -
_________________________________________________________________________________________________________
Net Income (Loss) (2,3) $ (365.9) $ 56.0 $ 505.2 $ 614.1 $ 676.4
_________________________________________________________________________________________________________
Net Realized Capital Gains (Losses),
Net of Tax (included above) 59.0 78.6 (187.4) (79.2) 111.7
_________________________________________________________________________________________________________
Total Assets (4) 100,036.7 94,519.6 91,987.6 89,300.7 87,099.0
_________________________________________________________________________________________________________
Total Long-Term Debt 1,160.0 955.6 1,019.6 1,010.3 1,037.7
_________________________________________________________________________________________________________
Redeemable Preferred Stock,
Net of Treasury - - - - -
_________________________________________________________________________________________________________
Shareholders' Equity 7,043.1 7,238.3 7,384.5 7,072.4 6,936.7
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Per Common Share Data:
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments $ (5.54) $ (.05) $ 3.33 $ 4.32 $ 4.56
Income from Discontinued Operations .24 1.58 1.26 1.20 1.13
Cumulative Effect Adjustments for
Continuing Operations 2.05 (1.02) - - -
Net Income (Loss) (3.29) .51 4.59 5.52 6.02
Dividends Declared 2.76 2.76 2.76 2.76 2.76
Shareholders' Equity 62.77 65.64 67.09 64.23 61.94
Market Price at Year End 60.38 46.50 44.00 39.00 56.50
_________________________________________________________________________________________________________
See Notes to Financial Statements.
<FN>
(1) In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted which resulted
in an increase in the federal corporate tax rate from 34% to 35%. The enactment of OBRA resulted in
a net benefit of $21.8 million to continuing operations before extraordinary item and
cumulative effect adjustments. The net benefit resulted from an increase in the company's deferred
tax asset partially offset by an increase in current taxes.
(2) The 1993 results include a loss on discontinuance of the company's fully guaranteed large case
pension products of $825.0 million.
(3) The 1993 net loss includes a cumulative effect charge of $.7 million and a cumulative effect benefit
of $26.3 million as a result of the cumulative effects related to changes in accounting for certain
investments in debt and equity securities and retrospectively rated reinsurance contracts, respectively.
The 1993 net loss also includes a charge of $48.5 million and a benefit of $250.0 million as a result
of the cumulative effects related to changes in accounting for postemployment benefits and
workers' compensation life table indemnity reserves, respectively.
(4) Total assets in 1993 include $15.0 billion of assets attributable to discontinued products.
</TABLE>
<PAGE> 2
Item 6. Selected Financial Data. (continued)
<TABLE>
<CAPTION>
(Millions, except per share data) 1988 1987 1986 1985 1984 1983
____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums:
Health and Life Insurance and Services $ 3,029.4 $ 2,829.8 $ 3,136.5 $ 2,794.5 $ 2,966.2 $ 3,355.2
Financial Services 882.7 1,770.5 1,140.3 414.7 193.7 128.5
Commercial Property-Casualty
Insurance and Services 4,077.2 3,955.4 3,618.1 2,767.9 2,291.6 2,055.4
Personal Property-Casualty 2,669.0 2,449.6 2,156.5 1,879.6 1,694.8 1,643.1
International 425.5 461.7 369.8 404.8 414.9 359.6
________________________________________________________________
Total premiums 11,083.8 11,467.0 10,421.2 8,261.5 7,561.2 7,541.8
_________________________________________________________________________________________________________
Net Investment Income, Fees and Other
Income, and Net Realized Capital Gains
and Losses:
Health and Life Insurance and Services 985.8 884.3 886.0 893.3 713.0 659.9
Financial Services 3,471.8 3,162.7 3,203.9 2,899.3 2,511.6 1,491.5
Commercial Property-Casualty
Insurance and Services 829.1 817.8 671.6 533.5 402.1 329.9
Personal Property-Casualty 301.7 273.5 229.4 238.8 172.4 149.3
International 253.0 282.8 208.4 139.0 159.6 165.3
Federated Investors 193.5 209.2 180.6 149.3 109.1 115.8
Total net investment income, fees
and other income, and net realized
capital gains and losses 6,034.9 5,630.3 5,379.9 4,853.2 4,067.8 2,911.7
_________________________________________________________________________________________________________
Total Revenue $17,118.7 $17,097.3 $15,801.1 $13,114.7 $11,629.0 $10,453.5
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments:
Health and Life Insurance and Services $ 133.8 $ 150.2 $ 258.0 $ 291.7 $ 250.5 $ 224.8
Financial Services 100.5 48.6 168.5 104.2 74.3 106.8
Commercial Property-Casualty
Insurance and Services 205.8 318.3 147.9 20.9 (122.5) (31.8)
Personal Property-Casualty 80.5 137.0 63.9 44.0 3.3 29.6
International (17.8) 23.5 34.4 (36.3) 13.9 29.7
Federated Investors 54.6 58.3 49.4 38.7 23.3 22.1
_________________________________________________________________________________________________________
Income from Continuing Operations
before Extraordinary Item and
Cumulative Effect Adjustments 557.4 735.9 722.1 463.2 242.8 381.2
_________________________________________________________________________________________________________
Income (Loss) from Discontinued
Operations 142.1 130.9 138.3 (101.9) (130.2) (37.0)
_________________________________________________________________________________________________________
Cumulative Effect Adjustments - - - - - -
_________________________________________________________________________________________________________
Net Income (Loss) $ 713.3 $ 915.3 $ 1,015.6 $ 365.3 $ 112.6 $ 344.2
_________________________________________________________________________________________________________
Net Realized Capital Gains (Losses),
Net of Tax (included above) 32.0 4.0 97.6 59.5 (36.0) 40.4
_________________________________________________________________________________________________________
Total Assets 81,344.6 75,724.1 69,360.1 60,096.0 52,604.3 49,110.7
_________________________________________________________________________________________________________
Total Long-Term Debt 1,093.8 930.9 654.4 527.9 484.2 485.7
_________________________________________________________________________________________________________
Redeemable Preferred Stock,
Net of Treasury 118.6 177.1 200.0 75.0 - -
_________________________________________________________________________________________________________
Shareholders' Equity 6,453.8 6,015.7 5,633.4 4,745.9 4,112.3 4,375.7
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Per Common Share Data:
Income from Continuing Operations
Before Extraordinary Item and
Cumulative Effect Adjustments $ 4.87 $ 6.33 $ 6.25 $ 4.14 $ 2.20 $ 3.63
Income (Loss) from Discontinued
Operations 1.26 1.15 1.24 (.95) (1.31) (.37)
Cumulative Effect Adjustments
for Continuing Operations - - - - - -
Net Income (Loss) 6.25 7.91 8.87 3.23 .89 3.26
Dividends Declared 2.76 2.76 2.64 2.64 2.64 2.64
Shareholders' Equity 57.50 52.95 48.58 41.19 39.14 41.96
Market Price at Year End 47.25 45.25 56.38 53.50 36.50 36.00
_________________________________________________________________________________________________________
See Notes to Financial Statements.
</TABLE>
<PAGE> 3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.*
Consolidated Results of Operations: Operating Summary
<TABLE>
<CAPTION>
(Millions, except per share data) 1993 1992 1991
_________________________________________________________________________________________
<S> <C> <C> <C>
Premiums...................................... $ 10,574.9 $ 10,793.9 $ 11,444.6
Net investment income......................... 4,919.0 5,069.0 5,514.5
Fees and other income......................... 1,534.0 1,519.4 1,365.5
Net realized capital gains (losses)........... 89.8 114.9 (282.1)
________________________________________
Total revenue............................. 17,117.7 17,497.2 18,042.5
________________________________________
Current and future benefits................... 12,391.9 12,848.9 13,429.8
Operating expenses............................ 3,558.8 3,824.5 3,341.1
Amortization of deferred policy
acquisition costs......................... 736.4 800.2 1,028.1
Loss on discontinuance of products............ 1,270.0 - -
Severance and facilities charge............... 308.0 145.0 -
________________________________________
Total benefits and expenses............... 18,265.1 17,618.6 17,799.0
________________________________________
Income (Loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect adjustments......... (1,147.4) (121.4) 243.5
Income tax benefits........................... (532.1) (116.1) (122.9)
________________________________________
Income (Loss) from continuing operations
before extraordinary item and cumulative
effect adjustments........................ (615.3) (5.3) 366.4
Discontinued operations, net of tax........... 27.0 173.8 138.8
________________________________________
Income (loss) before extraordinary item and
cumulative effect adjustments............. (588.3) 168.5 505.2
Extraordinary loss on debenture redemption,
net of tax................................ (4.7) - -
Cumulative effect adjustments, net of tax..... 227.1 (112.5) -
________________________________________
Net income (loss) $ (365.9) $ 56.0 $ 505.2
_________________________________________________________________________________________
Net realized capital gains (losses),
net of tax (included above) $ 59.0 $ 78.6 $ (187.4)
_________________________________________________________________________________________
Per common share data:
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments.......... $ (5.54) $ (.05) $ 3.33
Income from discontinued operations,
net of tax............................. .24 1.58 1.26
Extraordinary loss on debenture redemption (.04) - -
Cumulative effect adjustments............. 2.05 (1.02) -
________________________________________
Net income (loss)...................... $ (3.29) $ .51 $ 4.59
________________________________________
________________________________________
Dividends declared........................ $ 2.76 $ 2.76 $ 2.76
Shareholders' equity 62.77 65.64 67.09
_________________________________________________________________________________________
Sources of earnings (losses):
Health and Life Insurance and Services...... $ 288.1 $ 280.6 $ 386.0
Financial Services.......................... (808.8) (17.2) (156.9)
Commercial Property-Casualty
Insurance and Services.................... (115.9) (245.4) 139.5
Personal Property-Casualty.................. (3.3) (36.2) (28.6)
International............................... 24.6 12.9 26.4
________________________________________
Total from continuing operations........ (615.3) (5.3) 366.4
Discontinued operations..................... 27.0 173.8 138.8
Extraordinary loss on debenture redemption.. (4.7) - -
Cumulative effect adjustments............... 227.1 (112.5) -
________________________________________
Net income (loss) $ (365.9) $ 56.0 $ 505.2
_________________________________________________________________________________________
<FN>
* This Management's Discussion and Analysis is as of February 8, 1994.
</TABLE>
<PAGE> 4
Overview
Aetna's 1993 net loss was $366 million, compared with net income of $56
million and $505 million in 1992 and 1991, respectively. The 1993 net
loss included income from discontinued operations of $27 million
(compared with $174 million in 1992 and $139 million in 1991) and a net
benefit of $227 million for cumulative effect adjustments for accounting
changes (compared with a net charge of $113 million for such adjustments
in 1992). (Please see "Cumulative Effect Adjustments" on page 6.)
Summary Segment Results
The following summary of segment results is based upon results of
continuing operations, excluding capital gains and losses and excluding
the 1993 and 1992 severance and facilities charges.
Health and Life Insurance and Services:
Results improved in 1993, reflecting reductions in operating expenses in
both the group health and life and individual life businesses. However,
1993 results also reflected an increasing level of managed care expenses
to meet current and future needs. Improved health maintenance
organization ("HMO") earnings also are reflected in 1993 results.
Financial Services:
Results in 1993 included an after-tax charge for anticipated future
losses of $825 million related to the discontinuance of the company's
fully guaranteed large case pension products. Excluding the loss on
discontinuance, results in 1993 improved, primarily due to increased
annuity earnings and non-recurring investment gains on futures
contracts. However, the large case pension business continued to be
negatively impacted by adverse conditions in commercial real estate
markets and lower interest rates. (Please see "Net Realized Capital
Gains and Losses" on page 6.)
Commercial Property-Casualty Insurance and Services:
Results in 1993 were negatively impacted by increased charges for
additions to loss and loss expense reserves for prior accident years,
including significant charges for workers' compensation reserves.
Excluding the increase in workers' compensation reserves, results
improved significantly, reflecting lower operating expenses, improved
underwriting, a tax benefit associated with a change in federal income
tax rates and lower catastrophe losses. Results in 1992 included a $30
million after-tax charge related to an Olympia & York financial
guarantee.
Personal Property-Casualty:
Improved results in 1993 reflected a reduction in operating expenses and
lower catastrophe losses, partially offset by lower net investment
income. Results in 1993 also benefited from favorable loss trends.
International:
Improved 1993 results reflected continued improvement in Pacific Rim
operations and earnings from the company's increased investment in a
Mexican insurance operation, partially offset by weaker earnings in
Canada. Earnings in 1993 also included an after-tax capital loss of $12
million realized on the sale of the U.K. life and investment management
operations, a $37 million tax benefit from prior year operating losses
on those operations and after-tax charges of $29 million for additions
to loss and loss expense reserves for prior accident years in the U.K.
reinsurance operations.
<PAGE> 5
Results of Continuing Operations -- 1993 vs. 1992
The loss from continuing operations (before results of discontinued
operations, the extraordinary item and cumulative effect adjustments)
was $615 million in 1993, compared with a loss from continuing
operations of $5 million in 1992. The following factors complicate the
comparison of 1993 and 1992 results:
- - In January 1994, the company announced its decision to discontinue the
sale of its fully guaranteed large case pension products. Results in
1993 included an after-tax charge for anticipated future losses on
these products of $825 million.
- - Results in 1993 included a fourth quarter pretax addition to workers'
compensation reserves for prior accident years of $574 million ($259
million increase, after-tax, after the current year effect of
discounting). The 1992 reserve additions for prior accident years
included significant charges for asbestos bodily injury and
environmental liability claims.
- - Results in 1993 and 1992 included after-tax severance and facilities
charges of $200 million and $96 million, respectively.
- - Catastrophe losses (after-tax) were $85 million in 1993 compared with
$118 million in 1992. Catastrophe losses in 1992 were primarily due
to Hurricane Andrew and Winter Storm Beth.
- - Results in 1992 included an after-tax charge of $30 million related to
an Olympia & York financial guarantee.
- - The enactment of the Omnibus Budget Reconciliation Act of 1993
("OBRA") resulted in an increase of $27 million in the company's
deferred tax asset. Federal income tax expense for 1993 included a
corresponding deferred benefit of $27 million, offset by an increase
in current taxes of $6 million.
- - Results in 1993 included net after-tax realized capital gains of $59
million (compared with $79 million in 1992) which included significant
realized capital gains, primarily from the sale of bonds, partially
offset by charges for additions to reserves for mortgage loans and
real estate.
Income from continuing operations in 1993 also reflected after-tax
reductions in operating expenses over 1992 of $173 million.
Results of Continuing Operations -- 1992 vs. 1991
The loss from continuing operations in 1992 was $5 million, compared
with income from continuing operations of $366 million in 1991. Results
in 1992 were adversely affected by increased charges for additions to
property-casualty reserves for prior accident years (including fourth
quarter charges of $180 million for asbestos bodily injury and
environmental liability claims), an after-tax reorganization charge of
$96 million, charges for the current year effects of changes in
accounting, increased catastrophe losses and an after-tax charge of $30
million related to an Olympia & York financial guarantee.
However, 1992 results of continuing operations compared with 1991
benefited from an increase in net realized capital gains, primarily due
to gains on sales of bonds and equity securities and lower charges for
additions to reserves for mortgage loans and real estate, and improved
International results. The 1991 results included a $50 million benefit
resulting from a reversal of previously established tax reserves based
on a favorable court decision and an after-tax charge of $55 million
related to the company's withdrawal from the Massachusetts personal
automobile insurance market.
<PAGE> 6
Results of Discontinued Operations
Discontinued operations reflect the results of Reinsurance and Related
Services provided through the company's formerly wholly owned
subsidiary, American Re-Insurance Company ("Am Re"), which was sold
effective September 30, 1992. Income from discontinued operations was
$27 million in 1993, $174 million in 1992 and $139 million in 1991. The
1993 income resulted from the redemption of preferred stock received in
connection with the sale of Am Re. Included in 1992 earnings from
discontinued operations is a net benefit of $49 million for cumulative
effect adjustments from accounting changes and a gain of $38 million
realized on the sale of Am Re.
Cumulative Effect Adjustments
Net income in 1993 and 1992 included the following cumulative effect
adjustments, net of tax:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_______________________________________________________________________
<S> <C> <C>
Discounting of workers' compensation life
table indemnity claims $ 250.0 $ -
Change in accounting for postemployment
benefits (primarily accrual of long-term
disability benefits) (48.5) -
Change in accounting for retrospectively
rated reinsurance contracts 26.3 -
Change in accounting for debt
and equity securities (.7) -
Change in accounting for postretirement
benefits other than pensions - (385.0)
Change in accounting for income taxes - 272.5
_____________________
Net cumulative effect benefit (charge) $ 227.1 $ (112.5)
_______________________________________________________________________
_____________________
</TABLE>
There were no cumulative effect adjustments reflected in 1991 net
income. (Please see Notes 1, 5, 10 and 13 of Notes to Financial
Statements.)
Net Realized Capital Gains and Losses
Net realized after-tax capital gains (losses) included in the results of
continuing operations were as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
________________________________________________________________________________
<S> <C> <C> <C>
Net realized capital gains from sales
(primarily of bonds and equity securities) $ 486.5 $ 355.8 $ 182.3
Realized capital losses from real estate
write-downs and additions to reserves for
mortgage loans and real estate (417.6) (280.2) (353.1)
Realized capital gains (losses) from additions
to reserves for debt and equity securities (9.9) 3.0 (16.6)
________________________________________________________________________________
Net realized after-tax capital gains (losses) $ 59.0 $ 78.6 $(187.4)
________________________________________________________________________________
_______________________________
</TABLE>
<PAGE> 7
Net realized capital gains from sales, as presented above, included a
$12 million loss in 1993 on the sale of the U.K. life and investment
management operations, a $50 million gain in 1992 from the sale of a
portion of the company's equity interest in MBIA Inc. (principally a
municipal bond insurance company) and a $33 million gain in 1991 from
the sale of the company's equity interest in La Estrella, S.A., a
Spanish insurance company.
Adverse conditions in commercial real estate markets have negatively
impacted earnings in each of the last three years. However, the company
also has reduced its exposure to commercial real estate markets in
recent years. The company has reduced the mortgage loan and equity real
estate portfolios, after reserves and write-downs, by $6.0 billion since
the end of 1991, bringing mortgage loans and real estate as a percentage
of general account invested assets from 38% in 1991 to 26% at December
31, 1993. It is management's continuing objective, real estate and
capital market conditions permitting, to reduce over the next several
years the size of the mortgage loan and real estate portfolios relative
to total invested general account assets. Although extensions and
refinancings of existing mortgage loans may delay achieving this
objective, management intends to aggressively pursue plans to maximize
returns and reduce portfolio levels through loan restructurings and
sales of foreclosed real estate.
Income Taxes
In August 1993, OBRA was enacted, increasing the federal corporate tax
rate from 34% to 35% retroactive to January 1, 1993. Future net income
of the company will be adversely impacted by the increased tax rate.
Effective January 1, 1992, the company adopted Financial Accounting
Standard ("FAS") No. 109, Accounting for Income Taxes, which requires
the recognition of deferred tax benefits to the extent it is more likely
than not that such benefits will be realized. In accordance with this
statement, the company recognized income tax benefits of $532 million
and $116 million in 1993 and 1992, respectively. Additionally, the
company had a deferred tax asset of approximately $1.3 billion at
December 31, 1993 and management believes it is more likely than not
that the company will realize the benefit of this deferred tax asset.
While there are no assurances that this benefit will be realized, the
company expects sufficient taxable income in the future (requires $3.6
billion of future taxable income) based on its historical taxable income
(average of approximately $200 million from continuing operations over
the past three years excluding non-recurring charges). (Please see Note
10 of Notes to Financial Statements.)
Income tax benefits of $123 million in 1991 (of which $50 million
resulted from the reversal of previously established tax reserves based
on a favorable court decision) were calculated using the deferred method
of accounting for income taxes. Income taxes in 1991 were not restated
for the retroactive effect of adopting FAS No. 109.
The Revenue Reconciliation Act of 1990 increased federal tax payments
for insurance companies in part by including in taxable income estimated
recoverables from property-casualty salvage and subrogation claims.
However, a portion of the income related to such estimated recoverables
as of January 1, 1990 was not taxed ("fresh start"). This resulted in
$18 million of "fresh start" tax benefits for the company in 1991. Net
income in 1991 also included $42 million of tax benefits from the "fresh
start" provisions of the Tax Reform Act of 1986. Due to the company's
adoption of FAS No. 109 retroactive to January 1, 1992, "fresh start"
benefits are no longer treated as a reduction of tax expense.
<PAGE> 8
Per Common Share
The loss from continuing operations per common share before
extraordinary item and cumulative effect adjustments was $5.54 in 1993,
compared with a loss from continuing operations per common share before
cumulative effect adjustments of $.05 in 1992 and income from continuing
operations per common share of $3.33 in 1991. The net loss per common
share was $3.29 in 1993, compared with net income per common share of
$.51 in 1992 and $4.59 in 1991. Return on shareholders' equity was
(5.1)% in 1993, compared with .8% in 1992 and 7.0% in 1991. The
weighted average number of common shares outstanding was 111.1 million
in 1993 and 110.1 million in each of 1992 and 1991. Shareholders'
equity was $62.77 per common share at the end of 1993, down from $65.64
at the end of 1992 and $67.09 at the end of 1991.
Revenue
Total revenue decreased 2% in 1993, primarily as a result of lower
premiums and net investment income. Premium income decreased 2%
primarily reflecting decreased volume resulting from the company's
withdrawal from certain workers' compensation and personal automobile
insurance markets and continued price competition in the commercial and
personal property-casualty businesses. Net investment income decreased
3% in 1993 primarily due to lower investment yields and lost investment
income on non-performing mortgage loans.
Severance and Facilities Charge
In recent years, management has placed a strong focus on reducing costs
in order to improve the competitive position of the company's
businesses. In 1994, the company will take additional steps to further
reduce its costs. As a result of these planned actions, the company
announced, in January 1994, a $200 million after-tax severance and
facilities charge to 1993 earnings. This charge relates primarily to
severance costs associated with the planned elimination of approximately
4,000 positions and abandonment of certain facilities. The cost
reduction measures are expected to be substantially completed in 1994
and are expected to produce annual after-tax savings in excess of $200
million by 1995, including savings resulting from a modification of the
company's postretirement health care plan. The cost reduction measures
are not expected to significantly impact cash flows in 1994.
Actions associated with the 1992 restructuring charge have been
implemented as planned and the expected savings have been achieved.
<PAGE> 9
Health and Life Insurance and Services
<TABLE>
<CAPTION>
Operating Summary (Millions) 1993 1992 1991
_______________________________________________________________________
<S> <C> <C> <C>
Premiums $ 4,794.3 $ 4,679.9 $ 4,628.6
Net investment income 593.1 597.1 639.1
Fees and other income 1,082.1 1,027.1 882.0
Net realized capital gains(losses) 7.8 (.9) (33.3)
_________________________________
Total revenue 6,477.3 6,303.2 6,116.4
_________________________________
Current and future benefits 4,247.9 4,046.6 3,948.7
Operating expenses 1,670.0 1,762.6 1,604.2
Amortization of deferred policy
acquisition costs 21.2 19.3 68.2
Severance and facilities charge 88.5 54.1 -
_________________________________
Income before taxes 449.7 420.6 495.3
Income taxes 161.6 140.0 109.3
_________________________________
Income before cumulative
effect adjustments $ 288.1 $ 280.6 $ 386.0
_______________________________________________________________________
_________________________________
Net realized capital gains
(losses), net of tax
(included above) $ 1.1 $ .9 $ (21.2)
_______________________________________________________________________
_________________________________
Universal life deposits
not included in premiums
above (1) $ 268.7 $ 260.5 $ 239.7
_______________________________________________________________________
_________________________________
<FN>
(1) Under FAS No. 97, universal life deposits are not included in
premiums or revenue.
</TABLE>
The Health and Life Insurance and Services segment ("Health and Life")
includes units marketing a wide range of group health and life insurance
products and services, including managed health care products, to
employers and employer-sponsored groups. Individual life insurance
product results also are included in Health and Life.
Health and Life income before cumulative effect adjustments (excluding
the 1993 and 1992 after-tax severance and facilities charges of $58
million and $36 million, respectively) increased $29 million, or 9% in
1993, following a $70 million, or 18%, decrease in 1992. Results in
1993 benefited from a reduction in operating expenses. Despite the
overall reduction in operating expenses, managed care-related expenses
continued to increase in 1993 to meet both current and future needs.
Results in 1993 also reflected increased HMO earnings.
The $70 million decrease in earnings from 1991 to 1992 was partially due
to a decrease in after-tax investment income from $407 million in 1991
to $382 million in 1992, primarily due to lower investment yields and
reduced cash flows. Results in 1992 also included an after-tax charge
of $19 million related to postretirement benefits other than pensions
and by costs related to continued development of managed care
operations. Favorable medical experience on several contracts partially
offset the decline in earnings. Earnings in 1991 included a $50 million
benefit resulting from a reversal of previously established tax reserves
based on a favorable court decision.
Health and Life premiums grew 2% in 1993 and 1% in 1992, primarily as a
result of new business sales and price increases on existing business
that were offset in part by policy lapses and conversions of insured
lives to non-insured plans. (As noted below, revenue from non-insured
plans is reflected in "fees and other income.")
<PAGE> 10
Group Insurance
Continuing concern over the rising costs of health care and the need for
quality assurance have resulted in a continuation of a market shift away
from traditional forms of health benefit coverage to a variety of
"managed care" products. Managed care products, which may be sold on a
stand-alone basis or in combination with traditional indemnity products,
vary from traditional indemnity products primarily through the use of
health care networks (physicians and hospitals) and of medical
management procedures designed to enhance the quality and reduce the
cost of medical services provided.
The company offers a broad spectrum of traditional indemnity and managed
care group products. The latter include preferred provider ("PPO")
arrangements, which offer enhanced coverage benefits for services
received from participating providers; point-of-service ("POS") plans,
which typically combine PPO-style benefit designs with stronger
utilization management; and HMOs, which arrange for non-emergency
services exclusively through the HMO's network of providers. The
company's health care network physicians and hospitals have
traditionally been independent contractors. In 1993, the company began
to develop and manage primary care physician practices as a means of
increasing network access and overall product integration.
At year-end 1993, Aetna operated various types of managed care networks
in approximately 211 Standard Metropolitan Statistical Areas. The
number of members covered under all arrangements, including traditional
health plans, at December 31 were:
<TABLE>
<CAPTION>
(Millions)
1993 (1) 1992 1991
____ ____ ____
<S> <C> <C> <C>
Traditional health plans 9.6 9.5 9.7
PPOs and POS plans 4.0 2.2 2.0
HMOs 1.4 1.3 1.3
<FN>
(1) During 1993, the company implemented a more comprehensive membership
reporting system. This change in membership counting resulted
in a .8 million increase in traditional health plan membership
and a 1.0 million increase in PPO and POS membership as of
December 31, 1993. HMO membership was not affected by the change.
Prior year membership has not been restated for this change.
</TABLE>
Revenue produced by health care operations is reflected in "premiums" or
in "fees and other income" depending upon the extent to which risk is
assumed by the company or by the customer. Plans may be insured, in
whole or in part, or may be entirely funded by the customer ("self-
funded"). Insured plans generally involve the assumption of all or a
portion of health care cost and utilization risk by the company. HMO
plans typically involve full risk assumption by the HMO. Self-funded
plans do not involve the assumption of significant insurance or credit
risk by the company and thus typically generate lower earnings than
comparable insured plans.
<PAGE> 11
Individual Life
The individual life business was a strong contributor to earnings in each of
1993, 1992 and 1991. Individual life earnings in 1993 were $48 million, or
$17 million higher than in 1992, reflecting increased investment income and
a reduction in operating expenses. Individual life earnings in 1992 were
about level with 1991.
Outlook
The shift from traditional health plans to various managed care programs is
expected to continue, thus necessitating continuing investment by the
company in its managed care operations. Subject to the considerations
discussed below, management expects the Health and Life segment to be a
continued source of substantial earnings.
Health care costs have continued to rise because of increased costs of
medical services and increased usage of those services. The level of Health
and Life earnings will continue to depend, to a large degree, on Aetna's
ability to price its products appropriately in light of rising health care
costs, and to restrain rising costs for Aetna's customers through effective
network and medical management procedures.
Enactment of comprehensive health care reform legislation at the federal
level remains a key priority of both the Clinton Administration and many
members of Congress. Leading proposals already under consideration,
including the Administration's bill, tend to focus on "managed competition"
among private health care plans, although these proposals differ in
important details. The company generally supports federal initiatives that
(i) expand access to and control costs of health care through expanded
reliance on managed care and (ii) preserve a strong private sector role in
the financing and delivery of health care. Substantial Congressional debate
on health care reform is expected during 1994 and perhaps beyond.
During recent legislative sessions, a few states enacted significant health
care reform measures intended to increase access to health coverage and
control costs of health care. Specific features of these initiatives vary,
but in general they seek to promote competition for membership among managed
care plans, principally through the creation of cooperative purchasing
mechanisms for small groups.
The company continues to support state reforms that seek to expand access to
coverage for small employers, stabilize rates for such coverage or encourage
the use of managed care, provided that all competitors are subject to
consistent standards and are provided sufficient flexibility to manage
pricing and risk on a prospective basis. Management believes that the
company generally is well positioned to compete under state initiatives
which are based on the principles of managed competition. The growing
diversity of state regulation has increased administrative complexity
associated with the company's health businesses, however, and certain
proposed state reform measures (notably those which would hinder the growth
of managed care in those states in which the company has, or is establishing
a significant presence) may, if enacted, adversely affect the company's
health operations in those states.
Management currently is not able to predict the outcome of the various
federal and state legislative initiatives discussed above, or what effect
the resulting legislation, if any, will have on the company's health
businesses.
<PAGE> 12
Financial Services
<TABLE>
<CAPTION>
Operating Summary (Millions) 1993 1992 1991
_______________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 217.9 $ 222.9 $ 305.6
Net investment income 3,049.9 3,170.3 3,539.1
Fees and other income 224.2 184.6 171.5
Net realized capital gains(losses) .8 (32.7) (306.1)
____________________________________
Total revenue 3,492.8 3,545.1 3,710.1
____________________________________
Current and future benefits 3,040.4 3,265.5 3,723.1
Operating expenses 389.0 322.3 240.5
Amortization of deferred policy
acquisition costs 17.3 13.4 22.9
Loss on discontinuance of products 1,270.0 - -
Severance and facilities charge 52.2 5.6 -
____________________________________
Loss before taxes (1,276.1) (61.7) (276.4)
Income tax benefits (467.3) (44.5) (119.5)
____________________________________
Loss before cumulative effect adjustments $ (808.8) $ (17.2) $ (156.9)
_______________________________________________________________________________
____________________________________
Net realized capital losses,
net of tax (included above) $ (.3) $ (21.4) $ (201.6)
____________________________________
Net loss attributable to discontinued
products, net of tax (included above) $ (858.4) ${eq \D\ba3()} (109.8) $ (212.2)
_______________________________________________________________________________
____________________________________
Deposits not included
in premiums above:(1)
Fully guaranteed $ 869.0 $ 953.8 $ 2,195.2
Experience rated 1,800.8 1,719.3 1,741.1
Non-guaranteed 3,077.1 2,742.1 2,074.9
____________________________________
Total $ 5,746.9 $ 5,415.2 $ 6,011.2
_______________________________________________________________________________
____________________________________
Assets under management:
Fully guaranteed $ 16,336.9 $ 17,246.1 $ 18,438.2
Experience rated 24,296.7 23,407.2 23,634.4
Non-guaranteed 26,494.5 21,163.0 18,609.8
____________________________________
Total $ 67,128.1 $ 61,816.3 $ 60,682.4
_______________________________________________________________________________
____________________________________
<FN>
(1) Under FAS No. 97, certain deposits are not included in premiums or revenue.
</TABLE>
Business units in the Financial Services segment ("Financial Services")
market a variety of retirement and other savings products (including
pension and annuity products) and services to businesses, government
units, associations, collectively bargained welfare trusts, hospitals,
educational institutions and individuals. These products are grouped
into "large case" and "small case" categories.
Large case products consist of group annuity and/or investment
management arrangements that generally are offered to larger employers.
These products generally are tailored for marketing to defined benefit
and defined contribution pension plans that qualify under Internal
Revenue Code ("IRC") Section 401 for tax deferral. Contracts providing
fully guaranteed, partially guaranteed (experience rated) and non-
guaranteed investment options have been offered. Non-guaranteed and
certain partially guaranteed investment options include insurance
company separate accounts and investment advisory arrangements. Large
case products are offered primarily by Aetna Life Insurance Company and
certain of its affiliated registered investment advisor affiliates.
<PAGE> 13
Small case products include pension products, mutual funds and annuities
sold under contracts or to plans that qualify under IRC Sections 401,
403, 408 and 457, and are written primarily by Aetna Life Insurance and
Annuity Company ("ALIAC"). ALIAC offers annuity contracts (with fully
guaranteed, partially guaranteed and non-guaranteed features), generally
to smaller employers and to individuals, with a high level of service
associated with the investment management. The non-guaranteed
investment options offered under these contracts are ALIAC separate
accounts that invest in Aetna and outside mutual funds. Aetna mutual
funds also are available to individual and institutional investors
outside of the ALIAC retirement products.
The company is involved in a multi-year program to improve profitability
and enhance shareholder value. As part of that program, management has
committed to exiting from businesses or products that underperform, lack
potential or otherwise no longer fit the company's long-term strategy.
Fully guaranteed large case pension products, consisting of guaranteed
investment contracts ("GICs") and single-premium annuities ("SPAs"),
have negatively impacted earnings in recent years as a result of
depressed conditions in commercial real estate markets and lower
interest rates in general. The poor results from this business are
expected to continue for the foreseeable future. Accordingly, in
January 1994, the company announced its decision to discontinue the sale
of its fully guaranteed large case pension products. As a result of
this decision, the company recognized an after-tax loss on
discontinuance of products of $825 million which is reflected in the
1993 financial statements. This charge reflects anticipated future
losses expected to be realized on the run off of this business. (Please
see "Discontinued Products" on page 16.)
Total Segment Results
Excluding net realized capital gains and losses, the 1993 and 1992
after-tax severance and facilities charges of $34 million and $4
million, respectively, and the 1993 loss on discontinuance of products,
Financial Services results before cumulative effect adjustments
increased by $43 million in 1993 and decreased by $37 million in 1992.
The improvement in 1993 results was primarily due to increased annuity
earnings and non-recurring investment gains on futures contracts.
Results in 1992 also reflected strong annuity earnings. However, the
large case pension business continued to be negatively impacted in each
of the last two years by adverse conditions in commercial real estate
markets and lower interest rates.
After-tax net realized capital losses were less than $1 million in 1993,
compared with losses of $21 million and $202 million in 1992 and 1991,
respectively. Such net realized capital losses excluded net capital
losses of $111 million, $43 million and $104 million in 1993, 1992 and
1991, respectively, which were attributable to assets supporting
experience rated pension and annuity contracts. Included in net capital
losses for 1993, 1992 and 1991 were net gains from bond sales of $185
million, $104 million and $42 million, respectively. Net realized
capital losses in 1993, 1992 and 1991 also included $242 million, $185
million and $257 million, respectively, from additions to mortgage loan
and real estate reserves and real estate write-downs. (Please see
"Mortgage Loan Investments" on page 36 and "Real Estate Investments" on
page 41.)
<PAGE> 14
Assets under management at December 31, 1993 of $67 billion (including
assets supporting discontinued products of $14.7 billion) were 9% above
1992 levels, following a 2% increase in 1992. The increase in assets
under management in 1993 and 1992 was primarily due to strong sales,
separate account deposits, and favorable asset retention in the annuity
and small case pension businesses.
Continuing Product Lines
The company continues to offer experience rated and non-guaranteed
products to its large case pension customers.
Experience rated large case products require the customer to assume
investment and other risks subject, among other things, to certain
minimum guarantees. At December 31, 1993, experience rated products
included defined contribution products of $7.5 billion ($2.7 billion of
which were supported by assets held in the company's separate accounts)
and defined benefit products of $9.5 billion ($3.9 billion of which were
supported by assets held in the company's separate accounts). Excluding
those products which are supported by separate accounts assets,
approximately $3.4 billion of the experience rated contracts at
December 31, 1993 ($5.3 billion at December 31, 1992) allowed for
unscheduled contractholder withdrawals, subject to timing restrictions.
Amounts withdrawn by contractholders also are subject to market value
adjustments intended to reflect the estimated value of the assets
supporting the contract at the time of withdrawal. The extent to which
market value adjustments on individual contractholder withdrawals
actually reflect such estimated value is dependent upon, among other
factors, the difference between assumed and actual realized experience
on assets supporting experience rated contracts.
Excluding those products which are supported by separate accounts
assets, approximately $5 billion of the large case experience rated
pension contracts at December 31, 1993 could be withdrawn at the
direction of plan participants without market value adjustment. Such
participant directed withdrawals include both withdrawals from the
contractholder's plan ("plan withdrawals") and transfers from plan
investment options supported by large case pension products ("plan
transfers"). Plan withdrawals are generally subject to significant tax
and plan constraints. Contractual provisions relating to plan
withdrawals and transfers also may limit the effect of such transactions
on the company. Participant directed withdrawal activity has declined
in recent years.
Experience rated contractholder and participant directed withdrawals
were as follows (excluding transfers to other company products) for the
years ended December 31:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Scheduled contract maturities
and benefit payments (1) $1,049.8 $ 999.5 $ 749.2
Contractholder withdrawals other than scheduled
contract maturities and benefit payments (2) 893.2 1,129.7 1,228.2
Participant directed withdrawals 222.5 396.8 426.9
<FN>
(1) Includes payments made upon contract maturity and other amounts
distributed in accordance with contract schedules.
(2) Includes withdrawals made in 1992 and 1993 in connection with the
fourth quarter 1992 conversion offer (described below).
</TABLE>
<PAGE> 15
Pursuant to the terms of the company's experience rated large case
pension contracts, realized capital gains and losses related to assets
supporting such contracts are passed through to contractholders,
subject, among other things, to certain minimum guarantees, and the
effect of such realized capital gains and losses does not impact the
company's results.
During 1992, the company offered to holders of certain classes of
experience rated contracts the opportunity to modify such contracts
("conversion offer"). The contract amendments provided, with respect to
pre-1993 deposits, that the company would increase minimum guaranteed
credited rates in return for contractholders relinquishing the right to
make lump-sum withdrawals and accepting defined payout schedules. The
contract modifications reduced the company's exposure to significant
fluctuations in unscheduled withdrawals, but also have reduced the
company's capacity to pass through future investment losses, should they
emerge, to contractholders. Other factors, such as customer withdrawal
activity, future losses on investments, including mortgage loans,
further experience rated contract modifications, if any, and significant
increases in interest rates could further reduce the company's capacity
to pass through future investment losses to contractholders (or
investment losses currently considered allocable to contractholders)
either as a result of triggering minimum guarantee provisions or through
exercise of management judgment, thereby adversely affecting the
company's future results.
Non-guaranteed large case products provide for full assumption by the
customer of investment results. Assets ($19.5 billion at December 31,
1993) supporting non-guaranteed products are held in the company's
various separate accounts and are managed by the company for a fee.
Separate account investment income and net realized capital gains and
losses are allocated to such customers' contracts and are therefore not
reflected in the company's consolidated results of operations.
Withdrawals are based on the actual market value of the assets in the
separate account.
Small case assets under management at December 31, 1993 included $1.6
billion in fully guaranteed funds, $7.3 billion in experience rated
funds, and $7.0 billion in non-guaranteed funds. The funds have
transfer and withdrawal limitations, and contracts typically impose
surrender fees (which decline over the duration of the contract). Any
withdrawals from the guaranteed fund prior to maturity include an
adjustment intended to reflect the estimated fair value of the assets
supporting the contract at the time of withdrawal. Approximately 91% of
small case assets under management at December 31, 1993 (compared with
90% at December 31, 1992) allowed for contractholder withdrawal, subject
to market value adjustments.
<PAGE> 16
Discontinued Products
In January 1994, the company announced its decision to discontinue the
sale of its fully guaranteed large case pension products. The after-tax
loss on discontinuance of these products was $825 million as of the
December 31, 1993 measurement date. The loss on discontinuance
represents the present value of anticipated net cash flow shortfalls as
the liabilities are run off. Such net cash flow shortfalls include
anticipated losses from negative interest margins (i.e., the amount by
which interest credited to holders of such contracts exceeds interest
earned on investment assets supporting the contracts), future capital
losses, and operating expenses and other costs expected to be incurred
as the liabilities are run off. (Please see Note 2 of Notes to
Financial Statements.)
The 1993 loss from discontinued products includes a $390 million loss on
discontinuance of GICs and a $435 million loss on discontinuance of
SPAs. Excluding the loss on discontinuance of products, results in 1993
reflected a negative interest margin of $72 million, excluding $19
million of gains on futures contracts (which are not expected to recur).
The negative interest margin was $66 million in each of 1992 and 1991.
Results in 1993 also included net realized capital losses of $10
million, compared with net realized capital losses of $41 million and
$179 million in 1992 and 1991, respectively.
Discontinued fully guaranteed products provide guarantees on investment
return, maturity values, and if applicable, benefit payments. Assets
under management supporting GICs and SPAs at December 31, 1993 were $9.1
billion and $5.6 billion, respectively. The interest credited on these
contracts at December 31, 1993 ranged from 2.91% to 17.95%, with an
average rate of 9.48%. As of December 31, 1993 and 1992, none of these
contracts allowed for contractholder withdrawal, except in extraordinary
circumstances.
Maturity and benefit payments on fully guaranteed pension products were
$2.6 billion, $3.6 billion and $4.5 billion in 1993, 1992 and 1991,
respectively. Sales of such products in 1993, 1992 and 1991 were $.6
billion, $.5 billion and $1.5 billion, respectively. The company has
ceased selling new fully guaranteed large case pension products but will
honor all obligations under existing contracts.
At December 31, 1993, scheduled maturities, future benefit payments, and
other expected payments of GICs and SPAs, including future interest,
were as follows:
<TABLE>
<CAPTION>
(Millions)
GICs SPAs
________ ________
<S> <C> <C> <C>
1994 $2,040.1 $ 539.5
1995 2,027.6 533.6
1996 2,296.7 527.9
1997 1,798.9 522.0
1998 1,354.4 516.6
1999-2003 2,258.5 2,506.5
2004-2008 40.7 2,340.1
2009-2013 9.3 2,085.6
2014-2018 10.9 1,752.1
Thereafter 1.1 2,049.7
</TABLE>
<PAGE> 17
Management expects that the cash outflows from these products will be
funded over approximately the next 25 years by earnings on, sales of,
and normal amortization of invested assets. To the extent that such
cash flows are insufficient to meet the payments of one of the products,
a loan, at then current interest rates, may be made from the other
product to meet the cash flow shortfall. Further, the receivables
established from the continuing operations may be utilized to meet cash
flow shortfalls in one or both products. The anticipated cash flow
shortfalls are not expected to affect the company's future earnings as
anticipated future losses on this business were considered in
establishing the reserve for discontinued products. However, to the
extent that actual future losses differ from anticipated future losses,
such shortfalls will affect the company's results of operations. Such
differences may occur because the calculation of anticipated future
losses reflects a number of estimates, including estimates relating to
the expected future performance of invested assets supporting
discontinued products. Due to these uncertainties, management is
unable to determine whether the effect of such shortfalls will be
material to the company's future results.
Pursuant to a segmentation plan approved in 1983 by the New York
Insurance Department, the combined assets supporting discontinued
products were segregated coincident with the receipt of premiums and
deposits on the discontinued products. The assets were distinguished,
physically, operationally and for financial reporting purposes, from the
remaining assets of the company. Invested assets of discontinued
products (net of impairment reserves) at December 31, 1993, and the
related impairment reserves, were as follows:
<TABLE>
<CAPTION>
Carrying Impairment
(Millions) Value Reserves (1)
________________________________________________________________________
<S> <C> <C>
Debt securities $ 8,269.0 $ 37.8
Mortgage loans 5,419.1 647.2
Real estate 534.5 298.3 (2)
Short-term and other invested assets 472.5 -
____________________________
Total $14,695.1 $ 983.3
________________________________________________________________________
<FN>
(1) Please see "Investments" on pages 34, 38 and 42 for definitions
of impairment reserves.
(2) Includes real estate write-downs in addition to impairment reserves.
</TABLE>
Debt securities attributable to discontinued products at December 31,
1993 had an average quality rating of AA-.
Included in discontinued products' assets at December 31, 1993 were the
following categories of mortgage loans:
<TABLE>
<CAPTION>
(Millions)
Balance (1)
_______________________________________________
<S> <C>
Problem loans $ 410.8
Restructured loans 957.4
Potential problem and
restructured loans 523.8
___________
Total $ 1,892.0
_______________________________________________
<FN>
(1) Please see "Mortgage Loan Investments" on pages 39
and 40 for a description of problem loans, restructured
loans, and potential problem and restructured loans.
</TABLE>
<PAGE> 18
Please see "Investments" on pages 32 through 43 for a detailed
description of invested assets supporting both continuing and
discontinued product lines.
Outlook
A substantial portion of the company's mortgage loan portfolio supports
the fully guaranteed and experience rated large case pension business,
and realized capital gains and losses and lost investment income in that
portfolio had their greatest impact on results of the Financial Services
segment. This impact is expected to be less significant in the future
because the loss on discontinuance of the fully guaranteed large case
pension products is an estimate of all anticipated future losses,
including capital losses, on such products. However, capital losses on
experience rated large case pension business may increase in the future
if the company's capacity to pass through future investment losses to
experience rated contractholders is reduced.
The company's ability to retain and grow its continuing large case
pension business is affected by consumer confidence in both the company
and the insurance industry. Consumer confidence may be influenced by
such factors as reduced insurance company ratings (please see "Liquidity
and Capital Resources" on page 47) and perceived financial difficulties
in the industry. Management believes that a continuation of the
substantial competitive pressures in the large case pension market,
particularly if further ratings downgrades or other developments reduce
consumer confidence, may make it unlikely that new deposits and earnings
on assets will offset withdrawals and plan benefit payments in this
market.
Management expects the company's business to move increasingly toward
experience rated separate account and non-guaranteed products as the
company seeks to consolidate and enhance its existing investment
advisory and asset management services businesses. These businesses
service, on a fee basis, pension plan sponsors, small-and medium-sized
insurance companies, and other asset pools. Management expects these
businesses to provide a growing source of earnings for the company.
ALIAC annuity and small case pension sales and business retention are
expected to continue to be strong in 1994. ALIAC invests primarily in
United States government securities, mortgage-backed securities (please
see "Bond Investments" on page 35) and publicly traded corporate bonds.
Therefore, the ALIAC businesses have not experienced the significant
capital losses or surrender activity caused by adverse conditions in the
commercial real estate markets.
<PAGE> 19
Commercial Property-Casualty Insurance and Services
<TABLE>
<CAPTION>
Operating Summary (Millions) 1993 1992 1991
_____________________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 3,121.2 $ 3,204.1 $ 3,616.1
Net investment income 762.6 762.6 788.1
Fees and other income 138.8 176.3 196.2
Net realized capital gains 115.7 128.5 .3
____________________________________
Total revenue 4,138.3 4,271.5 4,600.7
____________________________________
Current and future benefits 3,031.4 3,242.1 3,148.4
Operating expenses 926.1 1,044.3 990.5
Amortization of deferred policy
acquisition costs 337.4 376.3 409.0
Severance and facilities charge 107.6 38.8 -
____________________________________
Income (Loss) before taxes (264.2) (430.0) 52.8
____________________________________
Income tax benefits(1) (148.3) (184.6) (86.7)
____________________________________
Income (Loss) before cumulative
effect adjustments $ (115.9) $ (245.4) $ 139.5
_____________________________________________________________________________________
____________________________________
Cumulative effect adjustment for the change in
accounting for workers' compensation reserves $ 250.0 $ - $ -
_____________________________________________________________________________________
____________________________________
Net realized capital gains, net of tax
(included above) $ 74.3 $ 85.0 $ 1.3
_____________________________________________________________________________________
____________________________________
Catastrophe losses, net of tax
(included above) $ 36.5 $ 51.5 $ 16.8
_____________________________________________________________________________________
____________________________________
Statutory combined loss and expense ratio 130.9% 131.0% 116.7%
_____________________________________________________________________________________
____________________________________
Statutory combined loss and expense ratio,
adjusted for discounting (2) 117.9% 131.0% 116.7%
_____________________________________________________________________________________
____________________________________
GAAP combined loss and expense ratio 130.3% 132.1% 116.7%
_____________________________________________________________________________________
____________________________________
GAAP combined loss and expense ratio,
adjusted for discounting (2) 117.3% 132.1% 116.7%
_____________________________________________________________________________________
____________________________________
<FN>
(1) Income tax benefits in 1993 and 1992 resulted from the pretax loss and tax-exempt
interest income. Income tax benefits in 1991 resulted from tax-exempt interest
income and "fresh start" tax benefits.
(2) The 1993 combined loss and expense ratios have been adjusted for the cumulative
effect benefit of discounting of workers' compensation life table indemnity reserves
($250.0 million, after-tax).
</TABLE>
The business units in the Commercial Property-Casualty Insurance and
Services segment ("Commercial Property-Casualty") provide most types of
property-casualty insurance, bonds, and insurance-related services for
businesses, government units and associations.
Results before cumulative effect adjustments (excluding the 1993 and
1992 after-tax severance and facilities charges of $70 million and $26
million, respectively) increased by $174 million in 1993, following a
$359 million decrease in 1992. Results in 1993 reflected a reduction in
operating expenses, improved underwriting, a net tax benefit of $22
million related to the enactment of OBRA (primarily from revaluing the
deferred tax asset) and lower catastrophe losses. Partially offsetting
the improvement in earnings were increased charges for additions to loss
and loss expense reserves for prior accident years, including
significant charges for workers' compensation reserves (please see
"Property-Casualty Reserves" on page 23).
In addition to significantly increasing workers' compensation reserves
in 1993, the company implemented a change in accounting, retroactive to
January 1, 1993, to discount reserves for workers' compensation life
table indemnity claims. Management believes that this change better
reflects the economic value of its obligations and improves the matching
of revenues and expenses; additionally, it is consistent with the
practice of the company's principal competitors. This change in
accounting resulted in an after-tax cumulative effect benefit of $250
million which relates entirely to the Commercial Property-Casualty
segment.
<PAGE> 20
The decline in 1992 results was due primarily to significantly increased
charges for additions to loss and loss expense reserves for prior
accident years, including significant charges for asbestos bodily injury
and environmental liability claims. (Please see "Property-Casualty
Reserves" on page 23.) Also impacting 1992 results were current year
charges totaling $53 million (after-tax) resulting from changes in the
methods of accounting for income taxes and postretirement benefits other
than pensions, increased catastrophe losses, and an after-tax charge of
$30 million related to an Olympia & York financial guarantee. Results
in 1992 also reflected lower premium volume, driven by weak economic
conditions, continued price competition, and reduced workers'
compensation exposure.
After-tax catastrophe losses were $36 million, $51 million and $17
million in 1993, 1992 and 1991, respectively, and were net of
reinsurance recoverables of $25 million and $219 million in 1993 and
1992, respectively. Catastrophe losses contributed 1.8 points to the
combined ratio in 1993, compared with 2.4 points and less than 1 point
to the combined ratios for 1992 and 1991, respectively. Catastrophe
losses in 1992 included $31 million (net of reinsurance recoverables of
$195 million) from Hurricane Andrew and Winter Storm Beth.
During 1993, the company continued to reduce workers' compensation
exposure in certain states where that business does not offer the
potential to achieve acceptable financial returns. Workers'
compensation represented approximately 27% of Commercial Property-
Casualty's 1993 earned premiums, compared with 30% in 1992. Total
Commercial Property-Casualty earned premiums decreased 3% in 1993,
primarily as a result of weak economic conditions, continued price
competition, and reduced workers' compensation exposure.
Outlook
Except in isolated markets and lines of business, expectations in recent
years among market analysts that prices would significantly increase in
the commercial property-casualty lines have proven incorrect. Should
existing market conditions continue, earnings will continue to be under
pressure. In addition, as a result of the significant amount of
reinsured catastrophe losses in recent years, the extent of reinsurance
coverage has been limited and the cost of such coverage has risen
significantly. Reduced reinsurance coverage and the change in
accounting for retrospectively rated reinsurance contracts could lead to
greater volatility in earnings in the future. Further, state regulatory
pressure restraining workers' compensation rate increases will make it
difficult to cover expected growth in loss costs, particularly the
medical components of those costs. The Clinton Administration's health
reform proposal includes provisions pertaining to workers' compensation
medical services. Management is unable to predict how or if its
commercial property-casualty business will be impacted by these
proposals. Management will continue to pursue workers' compensation
claim cost control measures and exposure reduction where appropriate.
The company recently announced that it expects to report losses of $80
million for the segment, net of tax and reinsurance, related to the Los
Angeles earthquake and the severe winter weather occurring in January and
February of 1994.
<PAGE> 21
Personal Property-Casualty
<TABLE>
<CAPTION>
Operating Summary (Millions) 1993 1992 1991
________________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 1,489.3 $ 1,788.7 $ 2,344.9
Net investment income 194.6 251.2 292.5
Fees and other income 5.6 30.3 29.0
Net realized capital gains(losses) (15.5) 10.7 2.3
____________________________________
Total revenue 1,674.0 2,080.9 2,668.7
____________________________________
Current and future benefits 1,144.4 1,466.1 2,001.5
Operating expenses 197.9 291.6 243.9
Amortization of deferred policy
acquisition costs 308.8 349.6 513.8
Severance and facilities charge 47.4 46.0 -
____________________________________
Loss before taxes (24.5) (72.4) (90.5)
Income tax benefits (1) (21.2) (36.2) (61.9)
____________________________________
Loss before cumulative effect adjustments $ (3.3) $ (36.2) $ (28.6)
________________________________________________________________________________
____________________________________
Net realized capital gains (losses),
net of tax (included above) $ (10.7) $ 6.9 $ 1.8
________________________________________________________________________________
____________________________________
Catastrophe losses, net of tax
(included above) $ 48.5 $ 66.7 $ 43.6
________________________________________________________________________________
____________________________________
Statutory combined loss and expense ratio 112.9% 117.9% 113.4%
________________________________________________________________________________
____________________________________
GAAP combined loss and expense ratio 111.6% 119.6% 117.5%
________________________________________________________________________________
____________________________________
<FN>
(1) Income tax benefits in 1993 and 1992 resulted from the pretax loss and
tax-exempt interest income. Income tax benefits in 1991 resulted from
tax-exempt interest income and "fresh start" tax benefits.
</TABLE>
The business units in the Personal Property-Casualty segment provide
primarily personal automobile insurance and homeowners insurance.
Results before cumulative effect adjustments (excluding the 1993 and
1992 after-tax severance and facilities charges of $31 million and $30
million, respectively, and the 1991 after-tax charge of $55 million
related to the company's withdrawal from the Massachusetts personal
automobile insurance market) improved by $33 million in 1993, following
a $32 million decrease in 1992.
The improvement in 1993 results reflects a reduction in operating
expenses and lower catastrophe losses partially offset by lower net
investment income. The decline in results from 1991 to 1992 was due
primarily to increased catastrophe losses in the homeowners business,
including $54 million (net of reinsurance recoverables of $99 million)
from Hurricane Andrew and Winter Storm Beth, and charges totaling $12
million resulting from the current year effect of accounting changes.
Results in 1993 and 1992 benefited from the company's reduction of
exposure in the personal automobile insurance market in those states
where that business did not offer the potential to achieve acceptable
financial returns and from favorable loss trends that resulted in a
reduction of loss reserves.
Personal Property-Casualty after-tax catastrophe losses were $49
million, $67 million and $44 million in 1993, 1992 and 1991,
respectively, and were net of reinsurance recoverables of $3 million and
$111 million for 1993 and 1992, respectively. Catastrophe losses
contributed 4.8 points to the combined ratio in 1993, and 5.6 points and
2.8 points in 1992 and 1991, respectively.
<PAGE> 22
Premium revenue was $1.5 billion in 1993, down from $1.8 billion and
$2.3 billion in 1992 and 1991, respectively, primarily reflecting the
company's efforts to reduce exposure in, and capital committed to, the
personal automobile insurance market in those states that do not offer
the potential to achieve acceptable returns. Actions taken to reduce
personal automobile exposure have had an adverse impact on sales of
homeowners insurance. Automobile and homeowners policies in force at
December 31 were:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Automobile .7 .8 1.3
Homeowners 1.5 1.6 1.9
</TABLE>
Outlook
Based upon evaluation of conditions in each state, the company has in
recent years withdrawn from or reduced exposure to personal automobile
insurance in certain states in which management has concluded that it is
not in the company's interests to continue selling personal automobile
insurance. Management will continue to evaluate market conditions and
maintain or increase the company's presence in those states that offer
acceptable returns.
The adverse impact on homeowners results of personal automobile
insurance withdrawal and reduction actions began to abate during the
last half of 1993 as the two lines furthered the establishment of
separate identities in the marketplace. This trend is expected to
continue in 1994.
As a result of the significant amount of reinsured catastrophe losses in
recent years, the extent of reinsurance coverage has been limited and
the cost of such coverage has risen significantly. Reduced reinsurance
coverage and the change in accounting for retrospectively rated
reinsurance contracts could lead to greater volatility in earnings in
the future. Management is reviewing its exposure to catastrophes and
working toward reducing such exposure in areas or to products where it
is concentrated.
The Clinton Administration's health reform proposal includes provisions
pertaining to auto insurance medical services. Management is unable to
predict how or if its personal property-casualty business will be
effected by these proposals.
The company will continue to seek to reduce further the costs associated
with processing and servicing personal property-casualty business.
Management also will continue to seek to obtain rate increases where
appropriate and will continue to challenge in court regulatory or
legislative initiatives that deny the company an opportunity to earn a
satisfactory return on this business.
The company recently announced that it expects to report losses of $40
million for the segment, net of tax and reinsurance, related to the Los
Angeles earthquake and the severe winter weather occurring in January
and February of 1994.
<PAGE> 23
Property-Casualty Reserves
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
____________________________________________________________________
<S> <C> <C> <C>
Loss and Loss Expense Reserves:
Commercial Property-Casualty $ 9,478 $ 9,641 $ 9,136
Personal Property-Casualty 1,960 2,106 2,271
________________________________
Total (1) $ 11,438 $ 11,747 $ 11,407
____________________________________________________________________
________________________________
<FN>
(1) Total loss and loss expense reserves, as presented above, are
net of reinsurance recoverables of $4.4 billion, $4.2 billion and
$4.0 billion at December 31, 1993, 1992 and 1991, respectively.
</TABLE>
Loss and loss expense reserves represent the amounts established to fund
the estimated liability for the ultimate cost of claims (including claim
adjustment expenses) that have been reported but not settled and claims
that have been incurred but not yet reported ("IBNR"). The length of
time between occurrence and settlement of a claim varies depending on
the coverage and type of claim involved. Estimates become more
difficult to make (and are therefore more subject to change) as such
length of time increases. Actual claim costs are dependent upon a
number of complex factors including social and economic trends and
changes in doctrines of legal liability and damage awards.
Because the size of the reserves is substantial relative to
shareholders' equity and earnings, it is important that reserves be
continually monitored and adjusted as more current information becomes
available. Accordingly, estimated liabilities for property-casualty
coverages are recomputed periodically using a variety of actuarial and
statistical techniques.
Loss and loss expense reserves decreased by $309 million and increased
by $340 million in 1993 and 1992, respectively. The table below shows
the increases attributable to prior accident years, most of which were
for losses and related expenses for workers' compensation claims,
asbestos and other product liability risks and environmental liability
risks attributable to property-casualty policies. An increase in
reserves for prior accident years reduces net income for the period in
which the adjustment is made.
Additions to Reserves for Prior Accident Years
<TABLE>
<CAPTION>
Commercial Personal
Property- Property-
(Millions) Casualty Casualty Total
_______________________________________________________________________
<S> <C> <C> <C>
1993 (1)
Pretax $ 79 $ (19) $ 60
After-tax 51 (12) 39
_______________________________________________________________________
1992
Pretax $ 465 $ 1 $ 466
After-tax 307 1 308
_______________________________________________________________________
1991
Pretax $ 43 $ 2 $ 45
After-tax 28 1 29
_______________________________________________________________________
<FN>
(1) Reserve additions in 1993 include the effect of discounting
workers' compensation life table indemnity reserves.
</TABLE>
<PAGE> 24
Workers' Compensation
During the fourth quarter of 1993, the company added $574 million
(pretax, before discount) to prior accident year loss reserves for
workers' compensation claims. This increase resulted from a recently
completed study of the company's workers' compensation reserves which
indicated that workers' compensation claims have a longer duration than
previously estimated. Concurrent with the addition to workers'
compensation reserves, the company implemented a change in accounting to
discount reserves for workers' compensation life table indemnity claims
consistent with industry practice. This discounting resulted in a
reduction of $634 million (pretax) to loss reserves for workers'
compensation claims. (Please see Note 1 of Notes to Financial
Statements.)
Asbestos and Environmental-Related Claims
Reserving for asbestos and environmental-related claims is subject to
significant uncertainties (discussed below). Because of these
significant uncertainties and the likelihood that they will not be
resolved in the near future, management is unable to make a reasonable
estimate as to the ultimate amount of losses for all asbestos and
environmental-related claims and related litigation expenses. Reserves
for asbestos and environmental liabilities are evaluated by management
regularly, and, subject to the significant uncertainties discussed
below, adjustments are made to such reserves as developing loss patterns
and other information appear to warrant.
The company's reinsurance arrangements have been designed to provide a
significant amount of protection for all types of casualty losses which
may arise, including losses which may arise from asbestos and
environmental-related exposures. It is not possible at this time to
determine whether reinsurance coverage for asbestos and environmental
claims will be exhausted prior to disposing of or otherwise settling all
such claims and related lawsuits, primarily because the ultimate amount
of payments that the company may make for all asbestos and
environmental-related claims and related litigation expenses is unknown.
The company has taken reinsurance recoveries into account in its reserve
calculations for known asbestos and environmental claims, and for
unreported asbestos bodily injury claims where, in many cases, the
company reserves for policy limits.
Environmental-Related Claims
There are a large number of environmental-related claims concerning
hazardous waste cleanups that have been brought against policyholders of
the company. The company generally disputes that there is any insurance
coverage for such claims and is vigorously litigating coverage and
related issues.
<PAGE> 25
Significant environmental-related claim activity is more recent than
asbestos-related claim activity, and there is great uncertainty involved
in estimating liabilities related to environmental claims. First, the
underlying liabilities of the claimants are extremely difficult to
estimate. At any given waste site, the amount of remedial cost that may
be allocated to a potentially responsible party ("PRP") depends on a
wide variety of factors, including volumetric contribution, relative
toxicity, number of years active at the site, extent of impairment to
the environment and ability to pay. A PRP may have no liability, may
share responsibility with hundreds of others or may bear the cost alone.
Second, there are significant uncertainties for the company and the
insurance industry relating to whether insurance policies cover such PRP
liabilities. For example, courts have reached inconsistent conclusions
regarding such scope of coverage issues as: whether insurance coverage
exists at all; what policies provide the coverage; whether an insurer
has a duty to defend; whether an insured's environmental losses are
caused by one or more "occurrence(s)" for purposes of determining
applicable policy limits; how pollution exclusions in policies should be
applied; and whether cleanup costs are payable as "damages." Further,
even if and when the courts rule definitively on the various legal
issues, many cases will still present complicated factual questions
affecting coverage that will need to be resolved.
The company has made very few indemnity payments to date for
environmental claims. Because these payments have not been significant
in the aggregate and have varied in amount from claim to claim,
management cannot determine whether past claims experience will be
representative of future claims experience.
Because of the significant uncertainties discussed above, and the
likelihood that these uncertainties will not be resolved in the near
future, management is unable to make a reasonable estimate as to the
ultimate amount or a reasonable range of losses for environmental-
related claims.
The company had approximately 4,200 open claims concerning
environmental-related liabilities (involving approximately 1,100
policyholders) at December 31, 1993 and approximately 3,200 such claims
(involving approximately 1,000 policyholders) at December 31, 1992. Of
the claims open at December 31, 1993 and 1992, 81% and 82%,
respectively, represented environmental pollution-related cleanup cases
(including Superfund claims) against policyholders, 11% and 9%,
respectively, represented environmental pollution-related third-party
bodily injury and property damage claims against policyholders, and 8%
and 9%, respectively, represented coverage disputes between the company
and its policyholders that had reached the litigation stage. In 1993,
the company opened 2,062 new claims and closed 1,032 claims. In 1992,
the company opened 1,186 new claims and closed 662 claims. At December
31, 1993, the company had closed a total of over 4,000 environmental-
related claims involving policyholders. For purposes of this paragraph,
"claims" are calculated separately for each of the three categories
described above and are calculated on a "per policyholder, per site"
basis.
<PAGE> 26
The "claims" numbers above reflect cases where policyholders have
notified the company of a claim under primary insurance policies issued
by the company. In addition, policyholders have placed the company on
notice of possible claims that may potentially involve excess general
liability policies written by the company. The company generally does
not consider these notifications open "claims" (and the claims numbers
above do not include these notifications) because under these policies
(i) the company does not have a duty to defend the policyholder, and
(ii) the policyholders must first exhaust their primary insurance
coverage for such claims before they can look to the company for
coverage.
In 1992, the company added $202 million (pretax) to reserves for
environmental liability claims primarily as a result of the continuing
increases in the number of environmental-related claims that had been
brought against policyholders of the company and the increased costs of
related litigation. The table below reflects paid activity and reserves
(primarily claim adjustment expenses, including legal fees) for
environmental liability claims (pretax):
<TABLE>
<CAPTION>
(Millions)
For the years ended December 31 All periods prior to
Environmental Liability Claims 1993 1992 1991 January 1, 1991
____________________________________ ___________________________________ ____________________
<S> <C> <C> <C> <C>
Beginning reserve $ 231 $ 73 $ 34 $ -
Reserve addition for incurred losses (1) 40 202 81 117
Net payments for claims and claim
adjustment expense (2,3) 40 44 42 83
_________________________________ _________________
Ending reserve (4) $ 231 $ 231 $ 73 $ 34
____________________________________________________________________________ _________________
<FN>
(1) The reserve additions for incurred losses are net of reinsurance
recoverables of $(3) million in 1993 and $11 million in 1992.
(2) Net payments for claims and claim adjustment expense are net of
reinsurance recoveries of $2 million in 1993 and $4 million in 1992.
(3) Includes approximately $31 million of legal fees paid in 1993 and
$35 million paid in each of 1992 and 1991.
(4) The ending reserves for environmental claims, as presented above, are net
of reinsurance recoverables of $3 million in 1993 and $7 million in 1992.
</TABLE>
Approximately two-thirds of the reserves at December 31, 1993 and 1992
represents a bulk reserve for legal fees. The remainder of such
reserves represents estimated liabilities (including legal fees) for a
small number of known claims for which the company believes it can
reasonably estimate its liability.
<PAGE> 27
Congress is scheduled to reauthorize the Superfund law in 1994. There
is substantial dissatisfaction among insurance and business groups and
others with the current law, and general recognition that major reforms
should be made as part of the reauthorization, although there is
currently no consensus as to the nature or objectives of reform.
Insurer and business groups are advocating a variety of reform proposals
which focus on the law's cleanup requirements and liability provisions.
If enacted, certain of these proposals could reduce the insurance
industry's and the company's potential environmental liability exposure
related to Superfund, probably in return for new federal taxes on the
insurance industry. Although the Clinton Administration has submitted
reauthorization legislation to Congress and is working with these
insurer and business groups and with Congress to try to bring about a
consensus, it is too early to determine whether the law will be
reauthorized on schedule, what the substance of the enacted legislation
will be, or what the effect of any such reforms will be on the company's
potential environmental liability exposure.
Asbestos Bodily Injury Claims
Numerous liability claims for bodily injury have been asserted against
major producers of asbestos and asbestos products, some of which are
insureds of the company. In order to control transaction costs and
provide efficient claim handling, the Center for Claims Resolution
("CCR") was formed in 1988 to handle asbestos-related bodily injury
claims on behalf of its member producers. The company participates in
CCR by virtue of its existing insurance contracts with certain CCR
members and is assessed a fee by CCR for its claim handling services.
The company also provides insurance coverage to producers that are not
CCR members.
A large number of asbestos bodily injury actions that were pending in
pretrial stages in various courts have been consolidated and transferred
to single federal or state courts. In 1992, CCR members agreed to
settle approximately 8,000 asbestos bodily injury cases which had been
consolidated in state court in Maryland. In January 1993, CCR announced
a global proposal involving plaintiffs, attorneys, producers and
insurers to settle asbestos bodily injury claims over the next 10 years,
as well as pending asbestos bodily injury lawsuits against its members.
The proposed settlement is subject to, among other things, court
approval and acceptance by a minimum number of plaintiffs, and no
assurance can be given that all such claims will be settled, or settled
on the terms proposed. To date, the CCR proposed settlement has not
been approved by the courts.
In 1992, the company added $219 million (pretax) to reserves for
asbestos bodily injury claims. Of this increase, $152 million ($100
million after-tax) was added primarily because of the CCR developments
described above. These reserves are equal to the applicable policy
limits of liability for many of the company's insureds, less payments to
date, plus an estimate of the associated future expenses of litigation.
In 1993, net payments increased, primarily reflecting increased
settlements, including the settlements of certain large claims for which
reserves had previously been established.
<PAGE> 28
Over the last few years, asbestos bodily injury claims also have been
filed by plaintiffs against entities that installed products that
contained asbestos and/or produced products that contained asbestos.
There is inadequate history from which the company can estimate the
ultimate liability it may have with respect to such claims brought
against its insureds.
The company's indemnity payments per claim with respect to all asbestos
bodily injury claims have varied over time and from case to case, due
primarily to wide variations in insureds, policy terms, types of claims,
injury and the results of claim settling mechanisms (such as CCR).
Management cannot predict whether indemnity payments per claim will
increase, decrease or remain the same.
The table below reflects paid activity and reserves, net of reinsurance
and other recoveries, for asbestos bodily injury claims (pretax). Legal
fees have represented approximately one-half of net payments. At
December 31, 1993 and 1992, approximately one-half and one-third,
respectively, of reserves represented legal fees.
<TABLE>
<CAPTION>
For the years ended December 31 All periods prior to
Asbestos Bodily Injury Claims (Millions) 1993 1992 1991 January 1, 1991
________________________________________ __________________________________ ____________________
<S> <C> <C> <C> <C>
Beginning reserve $ 243 $ 60 $ 25 $ -
Reserve addition for incurred losses (1) 75 219 28 507
Net payments for claims and claim
adjustment expense (2) 115 36 (7) 482
_______________________________ _______________________
Ending reserve (3) $ 203 $ 243 $ 60 $ 25
___________________________________________________________________________ _______________________
<FN>
(1) The reserve additions for incurred losses are net of reinsurance
recoverables of $20 million in 1993 and $115 million in 1992.
(2) Net payments for claims and claim adjustment expense are net of reinsurance
recoveries of $27 million in 1993 and $51 million in 1992. Asbestos
bodily injury claims paid in 1991 were less than reinsurance recovered.
(3) The ending reserves for asbestos bodily injury claims, as presented above,
are net of reinsurance recoverables of $45 million in 1993 and $52 million in 1992.
</TABLE>
Asbestos Property Damage Claims
In addition to bodily injury claims, property damage claims have been
brought against the company's insureds seeking reimbursement for the
expense of replacing insulation material and other building components
made of asbestos. It is the company's position that in most cases its
product liability policies do not cover this replacement expense.
Management cannot predict whether the courts will ultimately support the
company's position.
In the limited number of asbestos property damage cases where payments
have been made by the company, indemnity payments per claim have varied
over time and from case to case primarily because of variations in
insurance policies and policy limits, the type of asbestos product
material installed and relevant state law. Management cannot predict
whether such indemnity payments per claim will increase, decrease or
remain the same.
<PAGE> 29
The table below reflects paid activity (primarily legal fees) and
reserves (a significant portion of which represents legal fees) for
asbestos property damage claims (pretax):
<TABLE>
<CAPTION>
For the years ended December 31 All periods prior to
Asbestos Property Damage Claims (Millions) 1993 1992 1991 January 1, 1991
__________________________________________ _________________________________ ____________________
<S> <C> <C> <C> <C>
Beginning reserve $ 28 $ 21 $ 17 $ -
Reserve addition for incurred losses (1) 14 23 18 72
Net payments for claims and claim
adjustment expense (2) 20 16 14 55
______________________________ _______________________
Ending reserve (3) $ 22 $ 28 $ 21 $ 17
__________________________________________________________________________ _______________________
<FN>
(1) The reserve additions for incurred losses are net of reinsurance
recoverables of $3 million in 1993 and $6 million in 1992.
(2) Net payments for claims and claim adjustment expense are net of reinsurance
recoveries of $2 million in 1992. There were no such reinsurance recoveries in 1993.
(3) The ending reserves for asbestos property damage claims, as presented above,
are net of reinsurance recoverables of $7 million in 1993 and $3 million in 1992.
</TABLE>
Future results of the company are expected to be affected adversely by
losses for asbestos and environmental-related claims and related
litigation expenses. Due to the significant uncertainties discussed
above, management is unable to determine whether such effect will be
material to the company's future results, liquidity and/or capital
resources.
<PAGE> 30
International
<TABLE>
<CAPTION>
Operating Summary (Millions) 1993 1992 1991
____________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 952.2 $ 898.3 $ 549.4
Net investment income 318.8 287.8 255.7
Fees and other income 83.3 101.1 86.8
Net realized capital gains (losses) (19.0) 9.3 54.7
________________________________
Total revenue 1,335.3 1,296.5 946.6
Current and future benefits 927.8 828.6 608.1
Operating expenses 375.8 403.7 262.0
Amortization of deferred policy
acquisition costs 51.7 41.6 14.2
Severance and facilities charge 12.3 .5 -
________________________________
Income (Loss) before taxes (32.3) 22.1 62.3
Income taxes (benefits) (56.9) 9.2 35.9
________________________________
Income before cumulative
effect adjustments $ 24.6 $ 12.9 $ 26.4
____________________________________________________________________________
________________________________
Net realized capital gains (losses),
net of tax (included above) $ (5.4) $ 7.2 $ 32.3
____________________________________________________________________________
________________________________
</TABLE>
The International segment, through subsidiaries and joint venture
operations, sells primarily life insurance and financial services
products in non-U.S. markets including Canada, Malaysia, Taiwan, Chile,
Mexico, the United Kingdom, Hong Kong, Korea and New Zealand.
Results before cumulative effect adjustments increased $12 million in
1993, following a $14 million decrease in 1992. Results in 1993
included an after-tax capital loss of $12 million realized on the sale
of the U.K. life and investment management operations and a $37 million
tax benefit from prior year operating losses on those operations.
Results in 1993 also reflected after-tax charges of $29 million for
additions to loss and loss expense reserves for prior accident years in
the U.K. reinsurance operations. Income before cumulative effect
adjustments in 1991 was due primarily to an after-tax capital gain of
$33 million on the sale of the company's 43% interest in La Estrella.
Excluding net capital gains and losses and the 1993 after-tax severance
and facilities charge of $8 million, International reported income
before cumulative effect adjustments of $38 million in 1993, compared
with earnings of $6 million in 1992 and a loss of $6 million in 1991.
Results in 1993 reflected continued improvement in Pacific Rim
operations and earnings from the company's increased investment in a
Mexican insurance operation, partially offset by weaker earnings in
Canada. The 1992 earnings improvement was due primarily to improved
performance in the Pacific Rim and Chile.
Premiums in 1993 were 6% higher than in 1992, following a 64% increase
in 1992 premiums as compared with 1991. Premium growth in 1993 was due
primarily to a 26% increase in Pacific Rim operations, partially offset
by a combined 19% decline in Canadian and United Kingdom operations.
Premium growth for International during 1992 was driven primarily by
increases in Pacific Rim operations, where premiums were $411 million,
compared with $170 million in 1991. Included in Pacific Rim premiums
for 1992 was $128 million from the second quarter 1992 consolidation of
a previously unconsolidated subsidiary as a result of an increase in the
company's ownership percentage.
<PAGE> 31
Outlook
International's strategy is to invest resources in areas outside the
U.S. that have the potential for attractive returns, with emphasis on
the emerging insurance and financial services markets of newly
industrialized countries. These smaller but economically vigorous
markets generally have lower cost of entry and higher premium growth
rates. This long-term strategy requires significant up-front investment
and a willingness to accept negative or low returns in the initial years
of such operations.
Operations outside the U.S. have added risks such as nationalization,
expropriation, and the potential for restrictive capital regulations.
Given the particular countries in which International has operations,
and the current size and nature of those operations, management does not
believe such risks are material to the company.
<PAGE> 32
Investments
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
____________________________________________________________________________
<S> <C> <C> <C>
Invested Assets:
Life Companies:
Fully Guaranteed $ 16,933.1 $ 15,724.5 $ 17,384.4
Experience Rated 18,824.1 17,699.6 18,787.0
Other 7,445.5 8,113.9 5,741.7
Property-Casualty Companies 18,253.1 17,258.5 16,543.8
______________________________________
Total General Account Assets 61,455.8 58,796.5 58,456.9
Separate Accounts (1) 24,704.7 21,721.7 20,188.6
____________________________________________________________________________
Total, net of impairment reserves $ 86,160.5 $ 80,518.2 $ 78,645.5
____________________________________________________________________________
______________________________________
Net investment income (excluding
separate accounts) $ 4,919.0 $ 5,069.0 $ 5,514.5
____________________________________________________________________________
______________________________________
<FN>
(1) The following discussion excludes separate accounts investments.
Separate accounts are discussed on page 15.
</TABLE>
The company's investment strategies and portfolios are intended to match
the duration of the related liabilities and provide sufficient cash flow
to meet obligations while maintaining a competitive after-tax rate of
return. The risks associated with investments supporting experience
rated pension and annuity products are assumed by those customers
subject to, among other things, certain minimum guarantees. The
anticipated future losses associated with investments supporting
discontinued products were provided for in the loss on discontinuance of
products established at December 31, 1993. Investment-related amounts
disclosed in the following investment section relate to the total
portfolio (including assets supporting discontinued products and
experience rated products) and are before deductions for impairment
reserves unless otherwise noted. (Please see Financial Services on page
17 for a separate discussion of the invested assets of discontinued
products.)
<TABLE>
<CAPTION>
Invested Assets of Life Companies Invested Assets of Property-Casualty Companies
12/31/93 12/31/93
_________________________________ ______________________________________________
<S> <C> <C> <C>
Bonds 66% Bonds 71%
Mortgages 28% Mortgages 14%
Real Estate 2% Common Stock 7%
Short-Term 1% Real Estate 2%
Common Stock 1% Short-Term 2%
Other 2% Other 4%
</TABLE>
Mortgage loan balances, net of impairment reserves, comprised 24% and
31% of total general account invested assets at December 31, 1993 and
1992, respectively. The mortgage loan portfolio yielded an average cash
return of approximately 9% in each of 1993 and 1992. The average loan
size for commercial mortgage loans was $6.9 million at December 31, 1993
and 1992. Commercial mortgage loans represented 98% and 99% of the
total mortgage loan portfolio at such respective dates.
<PAGE> 33
Bond Investments
As of December 31, 1993 and 1992, the company's investments in bonds
represented 67% and 59% of total general account invested assets and
were as follows:
<TABLE>
<CAPTION>
(Millions)
December 31, 1993 December 31, 1992
___________________________________ ___________________________________
Supporting Experience Rated Supporting Experience Rated
Pension and Annuity Contracts Pension and Annuity Contracts
_____________________________ _____________________________
Total Amount % of Total Total Amount % of Total
_____ ______ __________ _____ ______ __________
<S> <C> <C> <C> <C> <C> <C>
Total investments in bonds,
net of impairment reserves $41,425.6 $11,739.0 28.3% $34,643.9 $10,652.3 30.7%
"Below investment grade"
securities 1,913.4 449.4 23.5 1,465.0 481.8 32.9
Problem bonds 194.3 26.6 13.7 362.2 80.9 22.3
Potential problem bonds 191.0 65.1 34.1 166.3 61.7 37.1
</TABLE>
Of the total bond investments (net of impairment reserves) at December
31, 1993, $8.3 billion supported discontinued products, $11.7 billion
supported experience rated products, and $21.4 billion supported
remaining company business.
It is management's objective that the bond portfolio be of high quality
and be well-diversified by market sector. The bonds in the company's
portfolio are generally rated by external rating agencies, and, if not
externally rated, are rated by the company on a basis believed to be
similar to that used by the rating agencies. The average quality rating
of the company's bond portfolio was AA at both December 31, 1993 and
December 31, 1992.
<TABLE>
<CAPTION>
Bond Quality Ratings Bond Investments by Market Sector
12/31/93 12/31/93
____________________ ___________________________________
<S> <C> <C> <C>
AAA 54% Mortgage-Backed Securities 25%
AA 12% Corporate 25%
A 18% Treasuries/Agencies 22%
BBB 11% Financial 14%
BB & Below 5% Municipals 6%
Public Utilities 8%
</TABLE>
At December 31, 1993 and 1992, 6% and 78%, respectively, of the fixed
income investments included in Aetna's bond portfolio were carried at
amortized cost. The decline in the percentage of assets carried at
amortized cost is due to the company's adoption of FAS No. 115 on
December 31, 1993. FAS No. 115 requires that available for sale
securities, which had previously been carried at the lower of amortized
cost or fair value, be carried at fair value (please see Note 1 of Notes
to Financial Statements). The carrying value of investments in prior
years was not restated for the adoption of FAS No. 115. At year-end
1993, the estimated market value of investments carried at amortized
cost was approximately $146 million greater than their carrying value.
Of the difference between market and carrying value, $18 million is
related to bond investments supporting experience rated contracts.
<PAGE> 34
"Below investment grade" securities are defined to be securities that
carry a rating below BBB-/Baa3. The fair value of such investments
approximated their carrying value at December 31, 1993 and exceeded
their carrying value by $47 million at December 31, 1992. At year end
1993 and 1992, $1.2 billion of the below investment grade assets were
investments that were purchased at investment grade, but the quality of
which has since deteriorated.
To a very limited degree, the company has purchased debt securities
related to highly leveraged transactions ("HLTs"). HLTs are defined as
financing transactions used for buyouts, acquisitions or
recapitalizations of existing businesses that meet specified criteria.
The company held HLT investments of $386 million and $483 million, or
less than 1% of the company's total invested assets, at December 31,
1993 and 1992, respectively. These amounts include bonds and
investments in leveraged buyout funds. The company has commitments, if
called, to fund $107 million of leveraged buyout fund investments over
the next five years. The company's investments in HLTs were carried at
fair value at December 31, 1993.
The company also participates in venture capital investments and held
$38 million and $86 million of such investments at December 31, 1993 and
1992, respectively.
Bond impairment reserves are established to provide for 1) estimated
losses on specific bonds and 2) losses that management believes are
likely to arise from the overall portfolio excluding that portion of the
portfolio supporting experience rated pension and annuity contracts
("general reserve"). As of December 31, bond impairment reserves were
as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992
______________________
<S> <C> <C>
Allocable to the company $ 80.7 $ 90.0
Allocable to contractholders 15.0 5.6
______________________
Total $ 95.7 * $ 95.6
______________________
______________________
<FN>
* The carrying value of bonds carried at fair value is net of
$76.7 million of impairment reserves (included above) at
December 31, 1993.
</TABLE>
PAGE> 35
For the years ended December 31, after-tax bond impairment expense was
as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
_______ _______ _______
<S> <C> <C> <C>
Allocable to the company $ 9.4 $ (6.3) $ 15.8
Allocable to contractholders* 8.0 (3.2) 5.1
<FN>
* Impairment expense allocable to contractholders does not
affect the company's results of operations.
</TABLE>
Management defines problem bonds to be bonds for which payment is in
default, bonds of issuers which are currently in bankruptcy or in out-
of-court reorganizations, or bonds of issuers for which bankruptcy or
reorganization within six months is considered likely.
"Potential problem bonds" are currently performing bonds for which
neither payment default nor debt restructuring is anticipated within six
months, but whose issuers are experiencing major financial difficulties.
Identifying such potential problem bonds requires significant judgment
as to likely future market conditions and developments specific to
individual bonds. Provision for losses that are likely to arise from
potential problem bonds, excluding those potential problem bonds
supporting experience rated pension and annuity contracts, is included
in the general reserve.
The company does not accrue interest on problem bonds when management
believes the likelihood of collection of interest is doubtful. Had such
interest been accrued, pretax net investment income would have been
higher by approximately $6 million, $20 million and $22 million for the
years ended December 31, 1993, 1992 and 1991, respectively. Of such
amounts, $1 million, $6 million and $7 million, respectively, would have
been related to investments supporting experience rated pension
contracts.
Collateralized Mortgage Obligations
At December 31, 1993 and 1992, the carrying value of collateralized
mortgage obligations ("CMOs") was $6.3 billion and $7.7 billion,
respectively. The principal risks inherent in holding CMOs are
prepayment and extension risks related to dramatic decreases and
increases in interest rates whereby the CMOs would be subject to
repayment of principal earlier or later than originally anticipated.
<PAGE> 36
At December 31, 1993 and 1992, approximately 91% and 80%, respectively,
of the company's CMO holdings consisted of sequential and planned
amortization class ("PAC") bonds that are subject to less prepayment and
extension risk than other CMO instruments. Repayment of principal for
both sequential and PAC bonds follows a defined schedule that considers
a range of prepayment scenarios. Most sequential and PAC bonds are
collateralized by mortgage loans, on which the timely payment of
principal and interest is backed by specified government agencies (e.g.,
GNMA, FNMA, FHLMC). At December 31, 1993 and 1992, 3% and 7%,
respectively, of the company's CMO holdings consisted of interest-only
strips ("IOs") or principal-only strips ("POs"). IOs receive payments
of interest and POs receive payments of principal on the underlying pool
of mortgages. The company has mitigated the risks associated with
holding IOs and POs by holding positions in both types of instruments
such that exposure from significant changes in interest rates is
reduced. Z-tranches, which amounted to approximately 5% and 9% of the
company's CMO holdings at December 31, 1993 and 1992, respectively,
receive principal payments from the underlying mortgage pool only after
all other priority classes have been retired.
If due to declining interest rates, principal was to be repaid earlier
than originally anticipated, the company could be affected by a decrease
in investment income due to the reinvestment of these funds at a lower
interest rate. Such prepayments may result in a duration mismatch
between assets and liabilities which could be corrected as cash from
prepayments could be reinvested at an appropriate duration to adjust the
mismatch.
Conversely, if due to increasing interest rates, principal was to be
repaid slower than originally anticipated, the company could be affected
by a decrease in cash flow which reduces the ability to reinvest
expected principal repayments at higher interest rates. Such slower
payments may result in a duration mismatch between assets and
liabilities which could be corrected as available cash flow could be
reinvested at an appropriate duration to adjust the mismatch.
Mortgage Loan Investments
At December 31, 1993, the company's mortgage loan investments and
related impairment reserves supported the following types of business:
<TABLE>
<CAPTION>
Impairment Balance, Net of
(Millions) Balance Reserves Impairment Reserves
_____________________________________________________________________________________
<S> <C> <C> <C>
Discontinued products $ 6,066.3 $ 647.2 $ 5,419.1
Experience rated products 5,001.2 268.5 4,732.7
Remaining products 5,080.0 392.6 4,687.4
_____________________________________________________________________________________
Total $16,147.5 $ 1,308.3 $14,839.2
_____________________________________________________________________________________
</TABLE>
<PAGE> 37
At December 31, 1993 and 1992, the company's mortgage loan balances, net
of specific impairment reserves, by property type and geographic region
were as follows:
<TABLE>
<CAPTION>
December 31, 1993
Hotel/ Mixed
(Millions) Office Retail Apartment Motel Industrial Use Other Total
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Atlantic $ 1,058.3 $ 667.1 $ 412.5 $ 758.6 $ 253.7 $ 238.9 $ 48.0 $ 3,437.1
Middle Atlantic 1,391.7 617.6 227.0 165.1 73.9 118.7 16.9 2,610.9
New England 975.2 511.9 82.9 130.6 46.5 215.5 37.4 2,000.0
South Central 430.1 394.3 236.2 103.0 80.7 - 34.8 1,279.1
North Central 855.1 444.6 193.7 244.9 45.7 92.9 61.3 1,938.2
Pacific and
Mountain 1,341.9 668.5 367.2 203.3 502.3 78.0 86.4 3,247.6
Other 101.7 183.8 175.6 20.0 80.4 3.5 161.3 726.3
__________________________________________________________________________________________________
Total $ 6,154.0 $ 3,487.8 $ 1,695.1 $ 1,625.5 $ 1,083.2 $ 747.5 $ 446.1 $15,239.2
__________________________________________________________________________________________________
Less general portfolio loss reserve 400.0
__________________________________________________________________________________________________
Adjusted total, net of reserves $14,839.2
__________________________________________________________________________________________________
December 31, 1992
Hotel/ Mixed
(Millions) Office Retail Apartment Motel Industrial Use Other Total
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Atlantic $ 1,234.4 $ 843.5 $ 608.7 $ 795.6 $ 304.1 $ 249.9 $ 65.5 $ 4,101.7
Middle Atlantic 1,553.0 685.2 339.7 229.1 84.7 132.3 26.2 3,050.2
New England 1,237.7 532.8 84.5 132.8 60.7 216.2 47.4 2,312.1
South Central 494.1 604.2 343.1 146.9 106.0 - 79.3 1,773.6
North Central 953.4 731.0 233.3 288.9 56.1 131.0 73.0 2,466.7
Pacific and
Mountain 1,515.0 880.1 527.2 247.4 589.9 79.2 112.9 3,951.7
Other 122.3 204.4 194.2 41.2 93.4 36.3 104.1 795.9
__________________________________________________________________________________________________
Total $ 7,109.9 $ 4,481.2 $ 2,330.7 $ 1,881.9 $ 1,294.9 $ 844.9 $ 508.4 $18,451.9
__________________________________________________________________________________________________
Less general portfolio loss reserve 400.0
__________________________________________________________________________________________________
Adjusted total, net of reserves $18,051.9
__________________________________________________________________________________________________
</TABLE>
In 1990, the company ceased actively investing new money in mortgage
loans. When originating its commercial mortgage loan portfolio, the
company used guidelines that generally included loan-to-value ratios of
75% or less with stabilized debt service coverage ratios of at least 1.2
times required debt service payments. Property-type and geographic
diversification were key considerations in the overall investment
evaluation process for determining investment strategy for new loans.
Additional collateral, such as letters of credit, master leases or
guarantees, were required in certain cases to strengthen the economic
terms of the investment. Transactions were evaluated and approved with
primary emphasis on the anticipated performance of the underlying
property securing the mortgage loan. Construction loans have never been
a significant component of the company's mortgage loan portfolio.
<PAGE> 38
In response to competitive pressures beginning in the early 1980s in the
large case pension market and in an effort to better match asset and
liability maturities, the company increasingly invested in mortgage
loans with shorter terms and balloon (or bullet) principal payments due
upon maturity. At December 31, 1993 and 1992, approximately 90% and
88%, respectively, of the outstanding principal balance of the portfolio
consisted of commercial loans with balloon maturity features. (Please
see "Liquidity and Capital Resources" on page 45 for discussion of
mortgage loan maturities and extensions.)
The mortgage loan portfolio is monitored closely through the review of
loan and property information such as debt service coverage, annual
operating statements and property inspection reports. This information
is evaluated in light of current economic conditions and other factors
such as geographic and property-type loan concentrations. Evaluation of
individual mortgage loans, including identification of currently
performing loans that, for a variety of reasons, management believes
warrant closer monitoring, is part of the company's regular review
process designed, among other things, to help determine whether
adjustments to mortgage loan impairment reserves appear warranted.
Overbuilding in many real estate markets, generally weak economic
conditions, reduced rental rates and overall tight lending practices by
banks have led to a severe deterioration in commercial real estate
markets in recent years and have had substantial adverse effects on the
company's mortgage loan portfolio. Mortgage loan impairment reserves
are established to provide for 1) probable estimated losses on specific
loans (i.e., "specific reserves") and 2) losses that management believes
are likely to arise from the overall portfolio excluding that portion of
the portfolio supporting experience rated pension contracts (i.e.,
"general reserve"). As of December 31, the mortgage loan impairment
reserves were as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992
______________________________ ______________________________
Specific General Specific General
Reserves Reserve Total Reserves Reserve Total
______________________________ ______________________________
<S> <C> <C> <C> <C> <C> <C>
Allocable to the company * $ 639.8 $ 400.0 $1,039.8 $ 475.6 $ 400.0 $ 875.6
Allocable to contractholders 268.5 ** 268.5 190.0 ** 190.0
_______________________________________________________________
Total $ 908.3 $ 400.0 $1,308.3 $ 665.6 $ 400.0 $1,065.6
_______________________________________________________________
_______________________________________________________________
<FN>
* Includes total reserves of $647.2 million ($406.0 million of specific reserves and $241.2
million of general reserve) allocated to discontinued products at December 31, 1993.
** The general reserve at December 31, 1993 and 1992 excluded reserves for losses of $217
million and $159 million, respectively, that management believes are likely to arise from
that portion of the overall portfolio supporting experience rated pension contracts.
</TABLE>
<PAGE> 39
For the years ended December 31, after-tax mortgage loan impairment
expense was as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Allocable to discontinued products $152.6 $142.6 $190.3
Allocable to contractholders* 114.7 76.0 108.2
Allocable to remaining products 145.4 98.9 117.9
<FN>
* Impairment expense allocable to contractholders does not
affect the company's results of operations.
</TABLE>
Included in the company's total mortgage loan balances at December 31
were the following categories of mortgage loans:
<TABLE>
<CAPTION>
(Millions)
December 31, 1993
______________________________________________________
Supporting Experience Rated Supporting Discontinued
Pension Contracts Products
___________________________ _______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ ___________
<S> <C> <C> <C> <C> <C>
Problem loans $1,116.0 $ 387.8 34.7% $ 410.8 36.8%
Restructured loans 1,858.8 481.1 25.9 957.4 51.5
Potential problem and
restructured loans 1,575.6 602.0 38.2 523.8 33.2
______________________________________________________________________________________________
Total $4,550.4
_____________________________________
Impairment reserves $1,308.3
_____________________________________
Impairment reserves as
a percentage of total 28.8%
_____________________________________
</TABLE>
<TABLE>
<CAPTION>
(Millions) December 31, 1992
Supporting Experience Rated
Pension Contracts
Total Amount % of Total
<S> <C> <C> <C>
Problem loans $1,403.7 $ 460.0 32.8%
Restructured loans 1,568.8 405.5 25.8
Potential problem and
restructured loans 1,402.1 472.0 33.7
Total $4,374.6
Impairment reserves $1,065.6
Impairment reserves as
a percentage of total 24.4%
</TABLE>
Problem mortgage loans are defined to be loans with payments over 60
days past due, loans on properties in the process of foreclosure ($399
million and $410 million at December 31, 1993 and 1992, respectively),
loans on properties involved in bankruptcy proceedings and loans on
properties subject to redemption.
<PAGE> 40
<TABLE>
<CAPTION>
Problem Mortgage Loans by Property Type Geographic Distribution of Problem Mortgage Loans
12/31/93 12/31/93
_______________________________________ _________________________________________________
<S> <C> <C> <C>
Office 54% South Atlantic 17%
Retail 17% Pacific & Mountain 26%
Hotel/Motel 7% Middle Atlantic 12%
Apartment 6% North Central 18%
Industrial 3% New England 21%
Mixed Use 9% South Central 1%
Other 4% Non-U.S. 5%
</TABLE>
Restructured loans are loans whose original contract terms have been
modified to payment terms less than market at the time of restructure
and are currently performing pursuant to such modified terms. Loans
with extended maturities classified as restructured loans were $779
million and $431 million at December 31, 1993 and 1992, respectively,
with the average extension period being five years. Restructured
mortgage loans at December 31, 1993 yielded cash returns of
approximately 6%.
<TABLE>
<CAPTION>
Restructured Mortgage Loans Geographic Distribution of
by Property Type Restructured Mortgage Loans
12/31/93 12/31/93
___________________________ ___________________________
<S> <C> <C> <C>
Office 63% South Atlantic 28%
Hotel/Motel 14% Pacific & Mountain 7%
Retail 10% North Central 17%
Apartment 6% South Central 12%
Mixed Use 3% New England 13%
Industrial 3% Middle Atlantic 23%
Agriculture 1%
</TABLE>
Currently performing loans which management believes are likely to
become classified as problem or restructured loans in the next 12 months
or so are identified through the portfolio review process on the basis
of known information about the ability of borrowers to comply with
present loan repayment terms. Identifying such "potential problem and
restructured loans" requires significant judgment as to likely future
market conditions, developments specific to individual properties and
borrowers, and the timing of potential defaults. Provision for losses
that are likely to arise from such potential problem and restructured
loans, excluding those potential problem and restructured loans
supporting experience rated pension contracts, is included in the
general reserve.
<PAGE> 41
The company does not accrue interest on problem loans or restructured
loans when management believes the collection of interest is unlikely.
The amount of pretax investment income required by the original terms of
such non-accruing problem and restructured loans outstanding at December
31 and the portion thereof actually recorded as income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Income which would have been
recorded under original terms
of loans $ 299.1 $ 312.6 $ 256.2
Income recorded 149.9 168.1 148.2
_______ _______ _______
Lost investment income $ 149.2 $ 144.5 $ 108.0
_______ _______ _______
_______ _______ _______
Lost investment income allocated to
investments supporting discontinued
products (included above) $ 73.8 $ 76.7 $ 54.9
_______ _______ _______
_______ _______ _______
Lost investment income allocated to
investments supporting experience
rated pension contracts
(included above) $ 41.7 $ 40.2 $ 35.0
_______ _______ _______
_______ _______ _______
</TABLE>
Real Estate Investments
At December 31, 1993 and 1992, Aetna's equity real estate balances, net
of write-downs and reserves, were as follows:
<TABLE>
<CAPTION>
(Millions)
December 31, 1993
______________________________________________________
Supporting Experience Rated Supporting Discontinued
Pension Contracts Products
___________________________ _______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ ___________
<S> <C> <C> <C> <C> <C>
Investment real estate $ 434.9 $ 36.7 8.4% $ 98.5 22.6%
Properties held for sale 880.9 243.7 27.7 436.0 49.5
___________________________ ________
Total equity real estate $1,315.8 $ 280.4 21.3 $ 534.5 40.6
___________________________ ________
___________________________ ________
</TABLE>
<TABLE>
<CAPTION>
(Millions) December 31, 1992
_______________________________
Supporting Experience Rated
Pension Contracts
_______________________________
Total Amount % of Total
_____ ______ __________
<S> <C> <C> <C>
Investment real estate $ 502.2 $ 40.0 8.0%
Properties held for sale 1,094.1 400.0 36.6
___________________________
Total equity real estate $1,596.3 $ 440.0 27.6
___________________________
___________________________
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Property Held for Sale Geographic Distribution of
by Property Type Property Held for Sale
12/31/93 12/31/93
________________________ ___________________________
<S> <C> <C> <C>
Office 50% South Central 23%
Retail 18% South Atlantic 28%
Hotel/Motel 13% North Central 17%
Apartment 8% Pacific & Mountain 16%
Industrial 8% New England 6%
Other 3% Non-U.S. 4%
Middle Atlantic 6%
</TABLE>
The company's investment real estate is held for the production of
income and is generally carried at depreciated cost. Property
valuations are reviewed regularly by investment management. The
carrying value is evaluated based upon various factors, including a
review of market conditions and the company's long-range strategy for
the property. The carrying value of investment real estate is reduced
through a valuation reserve to reflect other than temporary declines in
market value. The fair value of assets acquired through foreclosure is
established as the cost basis at the time of foreclosure. Subsequent to
foreclosure, properties held for sale are carried at the lower of cost
or fair value less selling costs. Beginning in 1992, adjustments to the
carrying value, as a result of changes in fair value subsequent to
foreclosure, are recorded in a valuation reserve. Prior to 1992, such
changes in carrying value of both investment real estate and properties
held for sale were recorded as write-downs. Capital additions and asset
improvements increase the carrying value and depreciation reduces the
carrying value of both properties held for sale and investment real
estate.
Total real estate write-downs and valuation reserves on properties
included in the company's equity real estate balances at December 31
were as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992
____ ____
<S> <C> <C>
Allocable to discontinued products $ 298.3 $ -
Allocable to contractholders 228.3 207.7
Allocable to remaining products 242.9 355.9
________ ________
Total $ 769.5 $ 563.6
________ ________
________ ________
</TABLE>
For the years ended December 31, total after-tax net realized capital
losses from real estate write-downs and changes in the valuation
reserves were as follows:
<TABLE>
<CAPTION>
(Millions)
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Allocable to discontinued products $ 55.1 $ 22.8 $ 27.3
Allocable to contractholders* 51.5 15.4 15.4
Allocable to remaining products 64.5 15.9 17.6
<FN>
* Write-downs and impairment expense allocable to contractholders
do not affect the company's results of operations.
</TABLE>
<PAGE> 43
Valuation reserves increased in 1993, primarily as a result of a change
in management's strategy to more aggressively sell properties held for
sale.
Outlook
Management intends that general account investments in new mortgage
loans for the foreseeable future will be restricted largely to extending
and refinancing existing mortgages as they mature (please see "Liquidity
and Capital Resources" on page 45). The company has reduced the
mortgage loan and equity real estate portfolios, after reserves and
write-downs, by $6.0 billion since the end of 1991, bringing mortgage
loans and real estate as a percentage of general account invested assets
from 38% in 1991 to 26% at December 31, 1993. It is management's
continuing objective, real estate and capital market conditions
permitting, to reduce over the next several years the size of the
mortgage loan and real estate portfolios relative to total invested
general account assets. Although extensions and refinancings of
existing mortgage loans may delay achieving this objective, management
intends to aggressively pursue plans to maximize returns and reduce
portfolio levels through loan restructurings and sales of foreclosed
real estate.
Despite various indications that liquidity is returning to certain real
estate markets and that certain market conditions are stabilizing,
management believes it is possible that there may be further
deterioration in the office sector and in certain geographic regions.
Even in those markets that appear to be stable, real estate values
continue to be severely depressed. Management therefore believes that
additional losses may emerge in the company's mortgage loan and real
estate portfolios, and may increase to the extent any recovery in those
markets is delayed. However, the reserve for discontinuance of products
established in 1993 reflects all expected future losses on discontinued
products, including capital losses relating to the $6 billion of
mortgage loans and real estate supporting such products. Therefore,
additional losses on the portion of the portfolio supporting
discontinued products are not expected to impact the company's results
of operations, although there can be no assurances that such losses will
not materially impact such results.
{eq \D\ba3()}
<PAGE> 44
Liquidity and Capital Resources
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
___________________________________________________________________
<S> <C> <C> <C>
Consolidated Assets $100,036.7 $ 94,519.6 $ 91,987.6
___________________________________________________________________
Shareholders' Equity 7,043.1 7,238.3 7,384.5
___________________________________________________________________
Cash and Cash Equivalents
and Short-Term Investments 2,227.7 3,925.8 3,539.5
___________________________________________________________________
Long-Term Debt 1,160.0 955.6 1,019.6
___________________________________________________________________
Average Short-Term Debt 215.6 273.1 399.1
___________________________________________________________________
Interest Expense 77.4 87.1 106.7
___________________________________________________________________
</TABLE>
Liquidity needs of the company's businesses have generally been met by
cash provided by premiums, deposits, asset maturities and income
received on investments. Cash provided from these sources is used
primarily for claim and benefit payments, fund withdrawals and operating
expenses.
Please refer to "Financial Services" on pages 16 and 17 for a discussion
of the liquidity requirements specific to the large case pension
business. The following discussion addresses the investments available
to meet the liquidity needs of all of the company's businesses.
Bonds, redeemable preferred stocks and mortgage loans have durations
that were selected to approximate the durations of the liabilities they
support. The duration of these investments is monitored, and investment
purchases and sales are executed with the objective of having adequate
funds available to satisfy the company's maturing liabilities.
In attempting to match asset and liability durations, a number of
assumptions must be made with regard to cash flows from insurance
operations, and from investing and financing activities. In the event
that actual experience varies from earlier assumptions, maturing
liabilities and maturing investment assets may no longer be matched to
the degree originally anticipated, placing unanticipated demands on cash
flow and liquidity. The investment portfolios are closely monitored to
assess asset and liability matching in order to rebalance the portfolios
as conditions warrant.
The company's invested assets at December 31, 1993 totaled $61.5 billion
and consisted primarily of debt securities ($41.5 billion), mortgage
loan and real estate investments ($16.2 billion), short-term investments
($.7 billion) and equity securities ($1.7 billion). (Please see
"Investments" on page 32.) The company also held substantial cash and
cash equivalents at December 31, 1993. (Please see "Other Factors
Affecting Cash Flow" on page 48.)
<PAGE> 45
Given the high quality of the bond portfolio, management expects the
vast majority of the company's bond investments to be repaid. At
December 31, 1993, the scheduled principal repayments of bond
investments company-wide (excluding fixed maturity trading securities of
$118 million and mortgage-backed securities of $10.3 billion) are $1.3
billion in 1994, $11.0 billion in the years 1995 through 1998, and $18.8
billion in the aggregate in the years after 1998. Mortgage-backed
securities included in the bond portfolio are primarily mortgage
obligations on which the timely payment of principal and interest is
backed by specified government agencies. (Please see "Bond
Investments" on page 35.) Such mortgage-backed securities, treasuries
and public bonds in the portfolio are highly marketable and thus can be
used to enhance cash flow before maturity.
A large portion of the mortgage loan portfolio consists of loans with
balloon maturity features. (Please see "Mortgage Loan Investments" on
page 38.) As a result of adverse conditions in real estate markets and
tight lending practices by banks and other financial institutions, the
company has extended the maturity of, and adjusted interest rates to
current market on, certain maturing mortgage loans where the borrower
was unable to obtain financing elsewhere. Of the $2.4 billion of
commercial mortgage loans scheduled to mature during 1993, $1.8 billion
was not paid as scheduled, a substantial portion of which supported
large case pension liabilities. Of the loans not paid as scheduled,
approximately $793 million were extended at interest rates at least
equal to current market (average rate of 8% over an average extension
period of six years), $343 million are under forbearance (continuing to
make payments under original loan terms), $38 million were foreclosed
upon, and $615 million were under discussion with borrowers at December
31, 1993. Of the $615 million of loans under discussion with borrowers,
approximately $560 million were classified as problem or restructured
loans at December 31, 1993. The decision to extend a loan involves an
evaluation of many factors including, among others, property cash flow
and collateral value, as well as an evaluation of alternative courses of
action such as foreclosure.
Absent significant improvement in commercial real estate markets or in
the availability of refinancing by other financial institutions, there
will continue to be a similar need to extend or refinance maturing
loans. However, the aggregate of normal principal amortization payments
on traditional loans, payments at maturity on loans that did pay off on
schedule and prepayments (in whole or in part) on other loans, produced
substantial cash flow in 1993. Prepayments on mortgage loans were $1.4
billion in 1993.
At December 31, 1993, scheduled mortgage loan principal repayments were
as follows:
<TABLE>
<CAPTION>
(Millions)
<S> <C> <C>
1994 $2,454.2
1995 1,963.9
1996 2,127.8
1997 1,748.6
1998 1,098.5
Thereafter 6,754.5
</TABLE>
<PAGE> 46
Consolidated Cash Flows
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
__________________________________________________________________________
<S> <C> <C> <C>
Net cash used for
operating activities $ (1,187.2) $ (578.1) $ (404.3)
__________________________________________________________________________
Net cash provided by
investing activities $ 796.7 $ 2,203.0 $ 2,639.7
__________________________________________________________________________
Net cash used for
financing activities $ (455.2) $ (2,110.5) $ (1,108.4)
__________________________________________________________________________
Cash and cash equivalents $ 1,557.8 $ 2,415.0 $ 2,919.5
__________________________________________________________________________
</TABLE>
The company's cash flow requirements for 1993 were met by funds provided
from operations, from the maturity and sale of investments and from
financing activities. As detailed in the Consolidated Statements of
Cash Flows, during 1993 net cash of $1,187 million was used for
operating activities, and included $2,089 million used for net purchases
of fixed maturity trading securities. Net cash of $578 million used for
operating activities during 1992 included $1,223 million used for net
purchases of fixed maturity trading securities.
Net cash provided by investing activities was $797 million in 1993 and
included a $674 million decrease in short-term investments. Net cash
provided by investing activities of $2,203 million in 1992 included
proceeds of $1,326 million from the sale of Am Re and an increase of
$693 million in short-term investments.
Net cash used for financing activities includes cash generated by sales
of investment contracts which was lower, in 1993, 1992 and 1991, than
cash paid for maturing investment contracts and other withdrawals.
Since 1987, the company has paid annual dividends to shareholders of
$2.76 per share, or approximately $300 million annually.
Parent Company Cash Flow
Cash flow needs at the parent company level include primarily
shareholder dividends and debt service. The parent company also may
fund growth of the company's businesses through the use of cash and/or
other assets. Such parent company needs historically have been met, in
large part, through a combination of borrowings and dividends from
operating subsidiaries. As a matter of course, the company monitors
existing and alternative financing sources to support Aetna Life and
Casualty Company's capital and liquidity needs including, but not
limited to, debt issuance, preferred stock issuance, intercompany
borrowings and pledging of assets. Efforts to simultaneously grow
certain of the company's businesses to their full potential may require
significant future capital.
<PAGE> 47
Other Factors Affecting Cash Flow
Cash flow also may be influenced by general economic conditions,
including general interest rate levels, investment returns, competition
for business, and the perceived financial strength of the insurer. In
recent years, financial strength has taken on added significance because
of questions about insurers' asset quality and the well-publicized
insolvencies of certain insurers. Adverse changes in, among other
factors, claims paying ratings, general economic conditions, or overall
customer confidence have the effect of decreasing new sales and deposits
and increasing withdrawals and surrenders. Additionally, adverse
changes in debt and commercial paper ratings may adversely affect the
availability and cost of certain external funding sources.
During 1993, the senior debt rating of Aetna Life and Casualty Company
and the claims paying ratings of certain of its subsidiaries were
lowered by certain of the rating agencies. Aetna's ratings at February
9, 1993, as detailed in the 1992 Annual Report, and at February 8, 1994,
follow:
<TABLE>
<CAPTION>
Rating Agencies
____________________________________________________________
Moody's Investors Standard
A.M. Best Duff & Phelps Service & Poor's
____________________________________________________________
<S> <C> <C> <C> <C>
Aetna Life and Casualty Company
(senior debt)
February 9, 1993 * AA A1 AA
February 8, 1994 * AA- A1 AA-
Aetna Life and Casualty Company
(commercial paper)
February 9, 1993 * * P-1 A-1+
February 8, 1994 * Duff 1+ P-1 A-1+
Aetna Life Insurance Company
(claims paying)
February 9, 1993 A+ AA+ Aa3 AA-
February 8, 1994 A AA Aa3 A+
The Aetna Casualty and Surety Company
(claims paying)
February 9, 1993 A AA+ Aa2 AA
February 8, 1994 A AA Aa2 AA-
Aetna Life Insurance and Annuity Company
(claims paying)
February 9, 1993 A++ AAA Aa2 AAA
February 8, 1994 A++ AAA Aa2 AAA
<FN>
* Not rated by the agency.
</TABLE>
<PAGE> 48
Should significant cash flow reductions occur in any of the company's
businesses, for any combination of the reasons discussed above, the
company has several alternatives for meeting its cash requirements.
These include, among other things, selling or pledging public and
private bond investments, borrowing among affiliates and using external
short-term borrowing capacity.
The company has significant short-term liquidity supporting its
businesses. At year-end 1993, cash and cash equivalents were $1.5
billion and short-term securities were $.7 billion. The company also
has substantial external borrowing capacity, including committed bank
credit lines providing $820 million of short-term debt capacity. The
company's bank credit facility terminates in July of 1994. The company
expects to extend or replace the bank credit facility on or prior to
such time. (Please see Note 9 of Notes to Financial Statements.)
Debt and Short-Term Borrowing
Long-term debt at December 31, 1993 was $1.2 billion, of which $46
million was attributable to the company's international subsidiaries.
During 1993, the company redeemed $200 million principal amount of its 8
1/8% Debentures whose scheduled maturity was 2007. The company
recognized an after-tax extraordinary loss of $5 million on the early
redemption. Additionally, $137 million of the company's 7 3/4%
Eurodollar Notes due 2016 were redeemed at par at the option of the
holders thereof during 1993.
During 1993, the company issued $200 million of 6 3/8% Notes due in
2003, $200 million of 6 3/4% Debentures due in 2013 and $200 million of
7 1/4% Debentures due in 2023. The proceeds were primarily used to
repay commercial paper borrowings, a significant portion of which was
incurred in connection with the retirement of debt discussed above. The
remaining proceeds were used for general corporate purposes.
Pursuant to shelf registration statements declared effective by the
Securities and Exchange Commission during 1993, the company may offer
and sell up to an additional $550 million of securities.
In 1992, $67 million of 9 1/4% Eurosterling Notes were repaid at their
stated maturity.
Short-term borrowing through the commercial paper and other markets is
used to fund interim cash requirements. Funding interim cash
requirements with short-term borrowing allows funds that support the
insurance lines to remain invested at higher rates, thus benefiting the
company's earnings.
Treasury Stock Transactions
In 1993 and 1992, the company did not acquire any shares of its common
stock. In 1991, the company acquired 76,800 shares of its common stock
at an average price of $38.04.
<PAGE> 49
Sales of Subsidiaries
On June 30, 1993, the company completed the sale of its U.K. life and
investment management operations. The company realized an after-tax
loss of $12 million on the sale, as well as $37 million of tax benefits
from cumulative operating losses of the subsidiary not previously
available for tax benefits.
On September 30, 1992, the company completed the sale of American Re-
Insurance Company ("Am Re"), formerly a wholly owned subsidiary. The
company realized a gain on the sale of Am Re in the third quarter of
1992 of $38 million (after adjusting for the net cumulative effect
adjustments related to accounting changes of $49 million, and the 1992
decrease to earnings related to such accounting changes of $9 million).
No taxes were incurred on this transaction. As part of the sale, the
company received 70,000 shares of American Re Corporation's (the new
holding company) Junior Cumulative Redeemable Exchangeable Preferred
Stock which were redeemed in the first quarter of 1993 resulting in an
after-tax gain of $27 million.
As of May 16, 1991, the company completed the sale of its 43% interest
in La Estrella to Banco Hispano Americano. Proceeds from the sale
approximated $100 million, primarily in the form of cash. The company
realized a net capital gain of $33 million (after-tax) on the sale.
Dividend Restrictions
Because Aetna Life and Casualty Company is a Connecticut insurance
company, the amount of dividends that may be paid to shareholders in
1994 without prior approval by the Insurance Commissioner of the State
of Connecticut is $434 million. Dividend payments by the consolidated
domestic insurance subsidiaries to Aetna Life and Casualty Company are
subject to similar restrictions in Connecticut and other states, and are
limited in 1994 to approximately $630 million in the aggregate.
Regulatory Environment
Solvency Regulation
In recent years, state insurance regulators have been considering
changes in statutory accounting practices and other initiatives to
strengthen solvency regulation. In 1992, the National Association of
Insurance Commissioners ("NAIC") adopted risk-based capital ("RBC")
standards for life insurers. The RBC formula, effective December 31,
1993, is a regulatory tool designed to identify weakly capitalized
companies. The formula determines a required amount of capital based on
the risks (e.g., asset, pricing, interest rate) that the insurer
assumes. Various regulatory actions are then prescribed if a company's
ratio falls below the minimum required RBC ratio. These actions range
from requiring the insurer to submit a comprehensive plan to the
insurance commissioner to placing the insurer under regulatory control.
The RBC ratio for each of the company's primary life insurance
subsidiaries as measured at December 31, 1993 was significantly above
the levels which would require regulatory action.
<PAGE> 50
In December 1993, the NAIC adopted RBC standards for property-casualty
insurers, effective December 31, 1994. Based upon preliminary internal
calculations, management expects that the RBC ratio for each of the
company's primary property-casualty insurance subsidiaries will be well
above the levels that would require regulatory action.
The NAIC also is considering several other solvency related regulations
including the development of a model investment law which would limit
types of investments by insurance companies. In addition, in recent
years there has been growing interest among certain members of Congress
concerning possible federal roles in the regulation of the insurance
industry. Because these other initiatives are in a preliminary stage,
management cannot assess the potential impact of their adoption on the
company.
Federal Employee Benefit Regulation
The company provides a variety of products and services to employee
benefit plans that are covered by the Employee Retirement Income
Security Act of 1974 ("ERISA").
In December 1993 the United States Supreme Court decided a case
involving an employee benefit plan and an insurance company. The Court
ruled that assets in the insurance company's general account that were
attributable to the non-guaranteed portion of a group pension contract
issued by the insurance company to the plan were "plan assets" for
purposes of ERISA and that the insurance company was therefore an ERISA
fiduciary with respect to those assets. In reaching its decision, the
Court declined to follow a 1975 Department of Labor ("DOL") interpretive
bulletin that had stated that insurance company general account assets
were not plan assets and therefore had suggested that insurance
companies were not ERISA fiduciaries as to those assets.
The company and other insurers are seeking clarification from the DOL of
the effects, if any, of the decision on their businesses. Management is
not currently able to predict how the decision will ultimately affect
its businesses.
New Accounting Pronouncements
Accounting by Creditors for Impairment of a Loan
In May 1993, the Financial Accounting Standards Board issued FAS No.
114, Accounting by Creditors for Impairment of a Loan. This statement
requires that loans be impaired when it is probable that a creditor will
be unable to collect all amounts (i.e., principal and interest)
contractually due, and the impairment be measured based on the present
value of expected future cash flows discounted at the loan's original
effective interest rate. The statement also allows impairments to be
measured based on the loan's market price or the fair value of the
collateral if the loan is collateral dependent. This statement will be
effective for 1995 financial statements, although early adoption is
permissible. The company has not yet determined the timing or impact of
adoption of this statement.
<PAGE> 51
Item 8. Financial Statements and Supplementary Data.
Management's Responsibility for Financial Statements
Management is responsible for the financial statements of Aetna Life and
Casualty Company, which have been prepared in accordance with generally
accepted accounting principles. The financial statements are the
product of a number of processes that include the gathering of financial
data developed from the records of the company's day-to-day business
transactions. Informed judgments and estimates are used for those
transactions not yet complete or for which the ultimate effects cannot
be measured precisely. The company emphasizes the selection and
training of personnel who are qualified to perform these functions. In
addition, company personnel are subject to rigorous standards of ethical
conduct that are widely communicated throughout the organization.
The company's internal controls are designed to reasonably assure that
company assets are safeguarded from unauthorized use or disposition and
that company transactions are authorized, executed and recorded
properly. Company personnel maintain and monitor these internal
controls on an ongoing basis. In addition, the company's internal
auditors review and report upon the functioning of these controls with
the right of full access to all company personnel.
The company engages KPMG Peat Marwick as independent auditors to audit
its financial statements and express their opinion thereon. Their
audits include reviews and tests of the company's internal controls to
the extent they believe necessary to determine and conduct the audit
procedures that support their opinion. Members of that firm also have
the right of full access to each member of management in conducting
their audits. The report of KPMG Peat Marwick appears on page 93.
Aetna's Board of Directors has an Audit Committee composed solely of
independent directors. The committee meets periodically with
management, the internal auditors and KPMG Peat Marwick to review the
work of each and to inquire of each as to their assessment of the
performance of the others in their work relating to the company's
financial statements. Both the independent and internal auditors have,
at all times, the right of full access to the Audit Committee, without
management present, to discuss any matter they believe should be brought
to the attention of the Committee.
<PAGE> 52
Consolidated Statements of Income
For the years ended December 31,
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
________________________________________________________________________________________
<S> <C> <C> <C>
Revenue:
Premiums $ 10,574.9 $ 10,793.9 $ 11,444.6
Net investment income 4,919.0 5,069.0 5,514.5
Fees and other income 1,534.0 1,519.4 1,365.5
Net realized capital gains (losses) 89.8 114.9 (282.1)
___________________________________________
Total revenue 17,117.7 17,497.2 18,042.5
________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 12,391.9 12,848.9 13,429.8
Operating expenses 3,558.8 3,824.5 3,341.1
Amortization of deferred policy
acquisition costs 736.4 800.2 1,028.1
Loss on discontinuance of products 1,270.0 - -
Severance and facilities charge 308.0 145.0 -
___________________________________________
Total benefits and expenses 18,265.1 17,618.6 17,799.0
________________________________________________________________________________________
Income (Loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect adjustments (1,147.4) (121.4) 243.5
Income tax benefits (532.1) (116.1) (122.9)
___________________________________________
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments (615.3) (5.3) 366.4
Discontinued operations, net of tax:
Income from operations - 86.8 138.8
Gain on sale 27.0 38.1 -
Cumulative effect adjustments - 48.9 -
___________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments (588.3) 168.5 505.2
Extraordinary loss on debenture redemption,
net of tax (4.7) - -
Cumulative effect adjustments, net of tax 227.1 (112.5) -
___________________________________________
Net income (loss) $ (365.9) $ 56.0 $ 505.2
___________________________________________
___________________________________________
Pro forma amounts assuming the discounting
of workers' compensation life table
indemnity reserves is applied retroactively:
Income (Loss) from continuing operations $ (615.3) $ (3.4) $ 371.9
___________________________________________
___________________________________________
Net income (loss) $ (615.9) $ 57.9 $ 510.7
___________________________________________
___________________________________________
Pro forma amounts assuming the accounting for
retrospectively rated reinsurance contracts
is applied retroactively:
Income (Loss) from continuing operations $ (615.3) $ (26.7) $ 388.2
___________________________________________
___________________________________________
Net income (loss) $ (392.2) $ 34.6 $ 527.0
________________________________________________________________________________________
___________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 53
Consolidated Statements of Income (continued)
For the years ended December 31,
<TABLE>
<CAPTION>
1993 1992 1991
_____________________________________________________________________________________________
<S> <C> <C> <C>
Results Per Common Share:
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments $ (5.54) $ (.05) $ 3.33
Discontinued operations, net of tax:
Income from operations - .79 1.26
Gain on sale .24 .35 -
Cumulative effect adjustments - .44 -
____________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments (5.30) 1.53 4.59
Extraordinary loss on debenture redemption,
net of tax (.04) - -
Cumulative effect adjustments, net of tax 2.05 (1.02) -
____________________________________________
Net income (loss) $ (3.29) $ .51 $ 4.59
____________________________________________
____________________________________________
Pro forma amounts assuming the discounting
of workers' compensation life table
indemnity reserves is applied retroactively:
Income (Loss) from continuing operations $ (5.54) $ (.03) $ 3.38
____________________________________________
____________________________________________
Net income (loss) $ (5.55) $ .53 $ 4.64
____________________________________________
____________________________________________
Pro forma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (Loss) from continuing operations $ (5.54) $ (.25) $ 3.53
____________________________________________
____________________________________________
Net income (loss) $ (3.53) $ .31 $ 4.79
_____________________________________________________________________________________________
____________________________________________
Weighted average common shares outstanding 111,062,954 110,101,861 110,056,005
_____________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 54
Consolidated Balance Sheets
As of December 31,
<TABLE>
<CAPTION>
(Millions, except share data) 1993 1992
__________________________________________________________________________________
<S> <C> <C>
Assets:
Investments:
Debt securities:
Held for investment, at amortized cost
(fair value $2,704.2 and $3,127.1) $ 2,557.8 $ 2,982.4
Available for sale, at fair value in 1993
(amortized cost $36,933.6) and at lower of
amortized cost or fair value in 1992
(fair value $25,862.4) 38,868.9 24,332.5
Trading securities, at fair value (amortized
cost $119.0 and $7,386.2) 117.8 7,521.1
Equity securities, at fair value (cost $1,238.1
and $1,168.9) 1,658.9 1,495.5
Short-term investments 669.9 1,510.8
Mortgage loans 14,839.2 18,051.9
Real estate 1,315.8 1,596.3
Policy loans 490.7 463.5
Other 936.8 842.5
____________________________
Total investments 61,455.8 58,796.5
__________________________________________________________________________________
Cash and cash equivalents 1,557.8 2,415.0
Reinsurance recoverables and receivables 4,840.7 4,619.3
Accrued investment income 782.6 767.4
Premiums due and other receivables 1,664.9 1,744.8
Federal and foreign income taxes:
Current 124.0 68.7
Deferred 1,282.9 973.1
Deferred policy acquisition costs 1,867.0 1,706.0
Other assets 1,756.3 1,707.1
Separate Accounts assets 24,704.7 21,721.7
____________________________
Total assets $ 100,036.7 $ 94,519.6
__________________________________________________________________________________
__________________________________________________________________________________
Liabilities:
Future policy benefits $ 17,597.6 $ 15,990.4
Unpaid claims and claim expenses 17,112.2 17,122.2
Unearned premiums 1,502.2 1,488.2
Policyholders' funds left with the company 27,592.2 27,270.2
____________________________
Total insurance reserve liabilities 63,804.2 61,871.0
Dividends payable to shareholders 77.4 76.1
Short-term debt 35.7 24.6
Long-term debt 1,160.0 955.6
Other liabilities 3,162.1 2,580.7
Minority and participating policyholders'
interests 172.5 176.1
Separate Accounts liabilities 24,581.7 21,597.2
____________________________
Total liabilities 92,993.6 87,281.3
__________________________________________________________________________________
Commitments and Contingent Liabilities (Note 16)
Shareholders' Equity:
Class A Voting Preferred Stock (no par value;
10,000,000 shares authorized; no shares
issued or outstanding) - -
Class B Voting Preferred Stock (no par value;
15,000,000 shares authorized; no shares
issued or outstanding) - -
Class C Non-Voting Preferred Stock (no par value;
15,000,000 shares authorized; no shares
issued or outstanding) - -
Common Capital Stock (no par value; 250,000,000
shares authorized; 114,939,275 issued, and
112,200,567 and 110,270,482 outstanding) 1,422.0 1,417.7
Net unrealized capital gains 648.2 259.6
Retained earnings 5,103.3 5,777.9
Treasury stock, at cost (2,738,708 and 4,668,793
shares) (130.4) (216.9)
____________________________
Total shareholders' equity 7,043.1 7,238.3
__________________________________________________________________________________
Total liabilities and shareholders' equity $ 100,036.7 $ 94,519.6
__________________________________________________________________________________
__________________________________________________________________________________
Shareholders' equity per common share $ 62.77 $ 65.64
__________________________________________________________________________________
__________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 55
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Three Years Ended December 31, 1993 Common Capital Retained Treasury
(Millions, except share data) Total Stock Gains Earnings Stock
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990 $ 7,072.4 $ 1,420.6 $ 49.7 $ 5,824.5 $ (222.4)
_____________________________________________________________________________________________________
Net income 505.2 505.2
Net change in unrealized capital
gains and losses 116.2 116.2
Common stock acquired during year
(76,800 shares) (6.3) (6.3)
Common stock issued for benefit plans
(28,796 shares) 1.2 1.2
Loss on issuance of treasury stock (.5) (.5)
Common stock dividends declared (303.7) (303.7)
____________________________________________________________
Balances at December 31, 1991 7,384.5 1,420.1 165.9 6,026.0 (227.5)
_____________________________________________________________________________________________________
Net income 56.0 56.0
Net change in unrealized capital
gains and losses 93.7 93.7
Common stock issued for benefit plans
(205,848 shares) 10.6 10.6
Loss on issuance of treasury stock (2.4) (2.4)
Common stock dividends declared (304.1) (304.1)
____________________________________________________________
Balances at December 31, 1992 7,238.3 1,417.7 259.6 5,777.9 (216.9)
_____________________________________________________________________________________________________
Net loss (365.9) (365.9)
Net change in unrealized capital
gains and losses 388.6 388.6
Common stock issued for benefit plans
(1,930,085 shares) 86.5 86.5
Gain on issuance of treasury stock 4.3 4.3
Common stock dividends declared (308.7) (308.7)
____________________________________________________________
Balances at December 31, 1993 $ 7,043.1 $ 1,422.0 $ 648.2 $ 5,103.3 $ (130.4)
_____________________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 56
Consolidated Statements of Cash Flows
For the years ended December 31,
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_________________________________________________________________________________________________
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (365.9) $ 56.0 $ 505.2
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Cumulative effect adjustments (227.1) 112.5 -
Extraordinary loss on debenture redemption 4.7 - -
Discontinued operations - (135.7) (72.7)
(Increase) decrease in accrued investment income (17.9) 51.4 60.7
Decrease (increase) in premiums due
and other receivables 1.3 765.4 (158.5)
Increase in reinsurance recoverables
and receivables (225.8) (4,619.3) -
Increase in deferred policy acquisition costs (169.2) (71.4) (40.5)
Depreciation and amortization 199.4 205.6 150.5
Decrease in federal and foreign income taxes (387.7) (128.0) (310.4)
Net increase (decrease) in other assets
and other liabilities 860.7 (256.7) (63.1)
Increase in other insurance reserve liabilities 1,634.1 4,871.5 121.2
Net purchases of debt trading securities (2,089.1) (1,222.6) (681.0)
Gain on sale of subsidiaries (15.0) (38.1) (54.1)
Net realized capital (gains) losses (101.8) (114.9) 282.1
Amortization of net investment discounts (153.1) (150.1) (136.1)
Other, net (134.8) 96.3 (7.6)
___________________________________________
Net cash used for operating activities (1,187.2) (578.1) (404.3)
___________________________________________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities 6,300.9 3,862.1 4,751.9
Equity securities 929.9 836.7 688.2
Mortgage loans 211.9 82.6 419.7
Real estate 479.4 244.5 298.6
Investment repayments of:
Debt securities 5,804.6 6,089.9 4,219.9
Mortgage loans 2,488.7 1,893.6 1,345.8
Cost of investments in:
Debt securities (13,936.0) (9,637.3) (8,872.4)
Equity securities (1,025.4) (879.8) (751.9)
Mortgage loans (239.1) (417.3) (323.5)
Real estate (91.4) (103.5) (145.6)
Proceeds from disposal of subsidiaries 93.1 1,325.5 100.0
Decrease(increase) in short-term investments 674.4 (693.0) 1,141.7
Increase in property and equipment (148.4) (198.9) (231.0)
Decrease (increase) in Separate Accounts 1.4 1.2 (125.7)
Other, net (747.3) (203.3) 124.0
___________________________________________
Net cash provided by investing activities 796.7 2,203.0 2,639.7
___________________________________________
Cash Flows from Financing Activities:
Deposits and interest credited for
investment contracts 3,909.5 4,134.6 5,953.6
Withdrawals of investment contracts (4,358.3) (5,903.9) (6,765.2)
Issuance of long-term debt 689.6 8.2 13.7
Repayment of long-term debt (489.8) (73.2) (5.2)
Stock issued under benefit plans 90.8 8.2 .7
Net increase in short-term debt 11.7 19.7 4.0
Dividends paid to shareholders (308.7) (304.1) (303.7)
Purchases of treasury stock - - (6.3)
___________________________________________
Net cash used for financing activities (455.2) (2,110.5) (1,108.4)
_________________________________________________________________________________________________
Effect of exchange rate changes on cash
and cash equivalents (11.5) (18.9) 1.7
_________________________________________________________________________________________________
Net (decrease) increase in cash
and cash equivalents (857.2) (504.5) 1,128.7
Cash and cash equivalents, beginning of year 2,415.0 2,919.5 1,790.8
___________________________________________
Cash and cash equivalents, end of year $ 1,557.8 $ 2,415.0 $ 2,919.5
_________________________________________________________________________________________________
_________________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 57
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include Aetna Life and Casualty
Company and its majority-owned subsidiaries (collectively, the
"company"). Less than majority-owned entities in which the company has
at least a 20% interest are reported on the equity basis. These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications
have been made to 1992 and 1991 financial information to conform to 1993
presentation.
Accounting Changes
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the company adopted Financial Accounting Standard
("FAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which requires the classification of debt securities into
three categories and equity securities into two categories (Please refer
to Note 5). Initial adoption of this standard resulted in (i) a
cumulative effect charge of $.7 million ($.01 per common share), net of
taxes of $.4 million, which is reflected in the 1993 Consolidated
Statement of Income, and (ii) a net increase of $313.5 million, net of
taxes of $168.8 million, to net unrealized capital gains in
shareholders' equity. These amounts exclude gains and losses allocable
to discontinued products and experienced rated contractholders.
Adoption of FAS No. 115 did not have a material affect on deferred
policy acquisition costs.
Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts
During 1993, the company adopted FAS No. 113, Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts,
retroactive to December 31, 1992. Reinsurance recoverables (previously
reported as a reduction in insurance reserve liabilities) and
reinsurance receivables (previously reported as an asset in premiums due
and other receivables) are included in reinsurance recoverables and
receivables, and prepaid reinsurance premiums (previously reported as a
reduction in unearned premiums) are included in other assets. Adoption
of the income recognition provisions of FAS No. 113 had no impact on the
1993 net loss.
Accounting for Postemployment Benefits
In 1993, the company adopted, retroactive to January 1, 1993, FAS No.
112, Employers' Accounting for Postemployment Benefits, which requires
that employers accrue the cost and recognize the liability for providing
certain benefits (primarily long-term disability) to former or inactive
employees after employment but before retirement. A cumulative effect
charge of $48.5 million ($.44 per common share), net of taxes of $26.1
million, related to the adoption of this standard is reflected in the
1993 Consolidated Statement of Income. Adoption of FAS No. 112 had no
impact on the 1993 loss from continuing operations before extraordinary
item and cumulative effect adjustments.
<PAGE> 58
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Discounting of Workers' Compensation Life Table Indemnity Reserves
The company has elected to change its accounting policy for reporting
reserves for current and expected workers' compensation life table
indemnity claims to a discounted basis. These reserves are discounted
at 5% for voluntary business and 3.5% for involuntary business, with
mortality assumptions that reflect current company and industry
experience. Management believes that this change more appropriately
reflects the economic value of its obligations and improves the matching
of revenues and expenses (i.e., investment earnings from underlying
assets are matched with the accretion of the liability as those amounts
occur over time).
The company implemented discounting of reserves for workers'
compensation life table indemnity claims retroactive to January 1, 1993,
and reported a cumulative effect benefit of $250.0 million ($2.25 per
common share), net of taxes of $134.7 million, in the 1993 Consolidated
Statement of Income. The current year effect of the change for the year
ended December 31, 1993 was an increase to results from continuing
operations before extraordinary item and cumulative effect adjustments
of $78.0 million ($.70 per common share), net of taxes of $42.0 million.
Accounting for Retrospectively Rated Reinsurance Contracts
During 1993, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on a recommended method of
accounting for retrospectively rated reinsurance contracts. The company
changed its method of accounting for such contracts to conform to the
consensus. Accordingly, the company reported a cumulative effect
adjustment, retroactive to January 1, 1993, to recognize an asset for
the amounts due from reinsurers related to the experience through
January 1, 1993 under retrospectively rated reinsurance contracts.
These contracts provided for amounts to be returned to the company based
on favorable cumulative loss experience. The company reported a
cumulative effect benefit related to the change in accounting for
retrospectively rated reinsurance contracts of $26.3 million ($.24 per
common share), net of taxes of $8.6 million, in the 1993 Consolidated
Statement of Income. The effect of the change for 1993 was an increase
to results from continuing operations before extraordinary item and
cumulative effect adjustments of $3.3 million ($.03 per common share),
net of taxes of $1.8 million. Pro forma amounts presented on the
Consolidated Statements of Income exclude adjustments to results from
discontinued operations for the effects of this change because the
company sold and no longer controls the discontinued business.
<PAGE> 59
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting for Income Taxes
FAS No. 109, Accounting for Income Taxes, requires a change from the
deferred method of accounting for income taxes to the asset and
liability method of accounting for income taxes. Under FAS No. 109,
deferred tax assets and liabilities are established at the balance sheet
date in amounts that are expected to be recoverable or payable when the
differences in the tax basis and financial reporting basis of assets and
liabilities ("temporary differences") reverse.
The company adopted FAS No. 109 in 1992, retroactive to January 1, 1992.
A cumulative effect benefit for continuing operations of $272.5 million
($2.48 per common share) related to adoption of this standard is
reflected in the 1992 Consolidated Statement of Income.
Postretirement Benefits Other Than Pensions
FAS No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, requires that employers accrue the cost and recognize the
liability for providing non-pension benefits to retired employees. The
company implemented FAS No. 106 in 1992, retroactive to January 1, 1992
on the immediate recognition basis. A cumulative effect charge to
continuing operations of $385.0 million ($3.50 per common share), net of
taxes of $198.3 million, related to adoption of this standard is
reflected in the 1992 Consolidated Statement of Income.
Accounting for Foreclosed Assets
In 1992, the company adopted the American Institute of Certified Public
Accountants' Statement of Position 92-3 ("SOP"), Accounting for
Foreclosed Assets, effective as of January 1, 1992. This statement
requires the fair value of assets acquired through foreclosure to be
established as the cost basis at the time of foreclosure. Subsequent to
foreclosure, properties held for sale are to be carried at the lower of
cost or fair value less selling costs. Adjustments to the carrying
value, as a result of changes in fair value subsequent to foreclosure,
are to be recorded in a valuation reserve. The company had previously
recorded the changes to the lower of cost or fair value less selling
costs as write-downs. Adoption of the SOP had no impact on 1992 net
income.
Future Application of Accounting Standards
Accounting by Creditors for Impairment of a Loan
In May 1993, the Financial Accounting Standards Board ("FASB") issued
FAS No. 114, Accounting by Creditors for Impairment of a Loan. This
statement requires that loans be impaired when it is probable that a
creditor will be unable to collect all amounts (i.e., principal and
interest) contractually due, and the impairment be measured based on the
present value of expected future cash flows discounted at the loan's
original effective interest rate. The statement also allows impairments
to be measured based on the loan's market price or the fair value of the
collateral if the loan is collateral dependent. This statement will be
effective for 1995 financial statements, although early adoption is
permissible. The company has not yet determined the timing or impact of
adoption of this statement.
<PAGE> 60
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of ninety days or less when
purchased. The carrying amounts reported in the Consolidated Balance
Sheets approximate fair value of these instruments.
Investments
The company classifies investments in debt securities (bonds, redeemable
preferred stocks and mortgage-backed securities) in three categories:
held for investment, available for sale and trading.
Debt securities which the company had the positive intent and ability to
hold to maturity were classified as held for investment on the
Consolidated Balance Sheets at December 31, 1993 and 1992, and were
carried at amortized cost, net of valuation reserves.
On the Consolidated Balance Sheet at December 31, 1993, debt securities
which might be sold prior to maturity were classified as available for
sale and carried at fair value. Unrealized gains and losses related to
available for sale investments, after deducting amounts allocable to
experience rated contractholders, discontinued products and related
taxes, were reflected in shareholders' equity. Debt securities which the
company had the ability to hold to maturity, but which might be sold
prior to maturity were classified as available for sale on the
Consolidated Balance Sheet at December 31, 1992 and carried at the lower
of aggregate cost or fair value (which was cost at December 31, 1992).
Due to the adoption of FAS No. 115 at December 31, 1993, certain
reclassifications were made between debt securities classified as held
for investment, available for sale and trading. Such reclassifications
were considered non-cash transactions and were therefore not reflected
in the 1993 Consolidated Statement of Cash Flows.
Debt securities which were held with the objective of trading to
generate profits on short-term differences in price ("trading
securities") were carried at fair value on the Consolidated Balance
Sheet at December 31, 1993. As a result of implementing FAS No. 115 on
December 31, 1993, the net unrealized loss of $.7 million related to the
trading portfolio was reflected as a cumulative effect adjustment in the
1993 Consolidated Statement of Income. Future changes in fair value
will be reflected in net realized capital gains in the Consolidated
Statement of Income. Debt and equity securities which were traded with
the objective of maximizing investment returns or were expected to be
sold before maturity were classified as trading securities and carried
at fair value on the Consolidated Balance Sheet at December 31, 1992,
with the change in fair value reflected in shareholders' equity.
At December 31, 1993, equity securities were classified as available for
sale and carried at fair value. Unrealized gains and losses related to
such securities, after deducting amounts allocable to experience rated
contractholders and net of related taxes, were reflected in
shareholders' equity.
<PAGE> 61
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Investments (continued)
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where a quoted market price is not
available, fair value is measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the
estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt and equity securities are recorded on the
trade date. Purchases and sales of mortgage loans are recorded on the
closing date. Redeemable preferred stocks are expected to be retired as
a result of regular sinking fund payments by the issuer.
Mortgage loans and policy loans are carried at unpaid principal
balances, net of valuation reserves, and are generally secured.
Investment real estate, which the company has the intent to hold for the
production of income, is carried at depreciated cost plus capital
additions, net of valuation reserves for other than temporary declines
in fair value. Properties held for sale (primarily acquired through
foreclosure) are carried at the lower of depreciated cost (fair value at
foreclosure plus capital additions less accumulated depreciation) or
fair value less selling cost. Adjustments to the carrying value of
properties held for sale are recorded in a valuation reserve when the
fair value less selling cost is below depreciated cost. The accumulated
depreciation for real estate was $166.9 million and $151.5 million at
December 31, 1993 and 1992, respectively.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with an original maturity of over 90
days to one year, were considered available for sale at December 31,
1993 and were carried at fair value which approximated amortized cost.
Short-term investments were carried at amortized cost which approximated
fair value on the Consolidated Balance Sheet at December 31, 1992.
The company utilizes futures and forward contracts and swap agreements
in order to manage investment returns and to align maturities, interest
rates, currency rates and funds availability with its obligations.
Futures contracts are carried at fair value. Realized and unrealized
gains and losses on futures contracts which qualify as hedges are
deferred and recognized as an adjustment to the hedged asset or
liability, and amortized over the life of the related asset or liability
as an adjustment to the yield. Realized and unrealized gains and losses
on futures contracts which do not qualify as hedges are reflected in the
Consolidated Statements of Income. The difference between amounts paid
and received on swap agreements entered into to reduce the impact of
changes in interest rates and currency exchange rates is reflected in
the Consolidated Statements of Income.
Realized and unrealized gains and losses from contracts hedging foreign
translation exposures are reflected, net of tax, in shareholders'
equity. Realized and unrealized gains and losses from contracts hedging
foreign transaction exposures are reflected in the Consolidated
Statements of Income.
<PAGE> 62
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Investments (continued)
Significant non-cash investing and financing activities include
acquisition of real estate through foreclosures of mortgage loans
amounting to $295 million in 1993, $306 million in 1992 and $528 million
in 1991. In 1992, the company completed an equal exchange of pooled
multi-family mortgages for mortgage-backed securities from the Federal
National Mortgage Association ("FNMA") totaling $325 million. In 1991,
the company also exchanged a pool of residential mortgages carried at
$318 million for $343 million of mortgage-backed securities from FNMA.
No gains were recorded on these exchanges.
Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial
instrument, such as estimates of timing and amount of expected future
cash flows. Such estimates do not reflect any premium or discount that
could result from offering for sale at one time the company's entire
holdings of a particular financial instrument, nor do they consider the
tax impact of the realization of unrealized gains or losses. In many
cases, the fair value estimates cannot be substantiated by comparison to
independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. Please refer to the previous
investment section of this note and Note 5 for fair value disclosures
relative to short-term investments and debt and equity securities,
respectively.
Mortgage loans are carried at unpaid principal balances, net of
valuation reserves. Fair value is estimated by discounting expected
mortgage loan cash flows at market rates which reflect the rates at
which similar loans would be made to similar borrowers. The rates
reflect management's assessment of the credit quality and the remaining
duration of the loans. The fair value estimate of mortgage loans of
lower credit quality, including problem and restructured loans, is based
on the estimated fair value of the underlying collateral. The fair
value of the mortgage loan balances at December 31, 1993 and 1992 was
estimated to be $14.9 billion and $18.1 billion, respectively.
The fair value of investment contract liabilities with a fixed maturity
included in policyholders' funds left with the company is estimated
using discounted cash flow calculations based on interest rates
currently being offered by the company for similar contracts. The
carrying value of these liabilities was $13.7 billion and $14.6 billion
at December 31, 1993 and 1992, respectively, and fair value was
estimated to be $15.0 billion and $15.8 billion, respectively.
Investment contract liabilities included in policyholders' funds left
with the company that do not have a fixed maturity allow for withdrawal
upon request. The fair value of these contracts is estimated as the
amount payable to the contractholder upon demand. However, the company
has the right under such contracts to delay payment of withdrawals which
may ultimately result in paying an amount different than that determined
to be payable upon demand. The carrying value of these liabilities
without fixed maturities was $12.2 billion and $11.5 billion at December
31, 1993 and 1992, respectively, and fair value was estimated to be
$12.2 billion and $11.4 billion, respectively.
<PAGE> 63
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments (continued)
The estimated fair value of the company's long-term debt is based on
quoted market prices for the same or similar issued debt or on the
current rates estimated to be available to the company for debt of
similar terms and remaining maturities. The fair value of the company's
long-term debt at December 31, 1993 and 1992 was estimated to be
$1,202.7 million and $977.1 million, respectively.
In evaluating the company's management of interest rate and liquidity
risk, the fair values of all assets and liabilities should be taken into
consideration.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business have been deferred. These
costs, all of which vary with and are primarily related to the
production of new business, consist principally of commissions, certain
expenses of underwriting and issuing contracts, and certain agency
expenses. For fixed ordinary life and annuity contracts, such costs are
amortized over expected premium-paying periods. For universal life and
certain annuity contracts, such costs are amortized in proportion to
estimated gross profits and adjusted to reflect actual gross profits.
These costs are amortized over 20 years for annuity and pension
contracts, and over the contract period for universal life type
contracts. For all other lines of business, acquisition costs are
amortized over the life of the insurance contract.
Deferred policy acquisition costs would be written off to the extent
that it is determined that future policy premiums and investment income
or gross profits would not be adequate to cover related losses and
expenses.
Other Assets
Property and equipment are reported at depreciated cost using the
straight-line method based upon the estimated useful lives of the
assets. The carrying value of property and equipment at December 31,
1993 and 1992 was $697.3 million and $698.6 million, respectively, and
was net of accumulated depreciation of $833.1 million and $730.6
million, respectively.
Goodwill, which represents the excess of cost over the fair value of net
assets of acquired subsidiaries and affiliates, is amortized on a
straight-line basis over periods not exceeding 40 years. Total
unamortized goodwill, which is included in other assets, was $178.6
million and $173.8 million at December 31, 1993 and 1992, respectively.
<PAGE> 64
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Separate Accounts
Separate Accounts assets and liabilities generally represent funds
maintained in accounts to meet specific investment objectives of
contractholders who bear the investment risk, subject to minimum
guaranteed rates for certain contractholders. Investment income and
investment gains and losses accrue directly to such contractholders.
The assets of each account are legally segregated and are not subject to
claims that arise out of any other business of the company. The assets
and liabilities are carried at market value. Deposits, net investment
income and realized and unrealized capital gains and losses on Separate
Accounts assets are not reflected in the Consolidated Statements of
Income. Management fees charged to contractholders are included in fees
and other income.
Insurance Reserve Liabilities
Reserves for unpaid property-casualty claims and claim expenses include
provisions for payments to be made on reported losses, and losses
incurred but not reported and for associated settlement expenses.
Beginning in 1993, workers' compensation life table indemnity reserves
were discounted at 5% for voluntary business and 3.5% for involuntary
business, with mortality assumptions which reflected current company and
industry experience. Workers' compensation life table indemnity
reserves totaled $1.2 billion at December 31, 1993.
Future policy benefits include reserves for universal life, limited
payment and traditional life insurance contracts. Reserves for
universal life contracts are equal to cumulative premiums less charges
plus credited interest thereon. Reserves for limited payment and
traditional life insurance contracts are computed on the basis of
assumed investment yield, mortality, morbidity and expenses, including a
margin for adverse deviation, which generally vary by plan, year of
issue and policy duration. Reserve interest rates range from 2.25% to
11.25%. Investment yield is based on the company's experience.
Mortality, morbidity and withdrawal rate assumptions are based on the
experience of the company and are periodically reviewed against both
industry standards and experience. Policyholders' funds left with the
company include reserves for pension and annuity investment contracts.
Reserves on such contracts are equal to cumulative deposits less charges
plus credited interest thereon (rates range from 2.91% to 17.95%) net of
adjustments for investment experience that the company is entitled to
reflect in future credited interest. Reserves on contracts subject to
experience rating reflect the rights of contractholders, plan
participants and the company.
<PAGE> 65
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Property-casualty premiums are generally recognized as revenue on a pro
rata basis over the policy term. Certain policies allow the company to
charge additional premiums as a result of recognizing additional claim
and expense costs under the policies. Such premiums are recognized when
the related losses are provided.
For universal life and certain annuity contracts, charges assessed
against policyholders' funds for the cost of insurance, surrender
charges, actuarial margin and other fees are recorded as revenue in fees
and other income. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts.
Group Health and Life premiums are generally recorded as premium revenue
in the month due. Some group contracts allow for premiums to be
adjusted to reflect emerging experience. Fees for contracts providing
claim processing service only are recorded as revenue in fees and other
income.
Federal and Foreign Income Taxes
The company is taxed at regular corporate rates after adjusting income
reported for financial statement purposes for certain items. Aetna Life
and Casualty Company files a consolidated federal income tax return.
The Internal Revenue Code limits the amount of non-life insurance
company losses that may offset life insurance company taxable income.
Foreign subsidiaries and U.S. subsidiaries operating outside of the
United States are taxed under applicable foreign statutes. Deferred
income tax benefits result from changes during the year in cumulative
temporary differences between the tax basis and book basis of assets and
liabilities.
Earnings Per Share
Earnings per common share are computed using net income divided by the
weighted average number of common shares outstanding. There is not a
significant difference between primary and fully diluted earnings per
share.
<PAGE> 66
Notes to Financial Statements (continued)
2. Discontinued Products
In January 1994, the company announced its decision to discontinue the
sale of its fully guaranteed large case pension products, which include
guaranteed investment contracts ("GICs") and single-premium annuities
("SPAs") sold to large case pension customers. As a result of this
decision, the company recognized an after-tax loss on discontinuance of
products of $825 million which is reflected in the 1993 Consolidated
Statement of Income. Assets and liabilities of discontinued products
included in the Consolidated Balance Sheet at December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
Guaranteed Single-
Investment Premium
(Millions) Contracts Annuities Total
_________________________________________________________________________________
<S> <C> <C> <C>
Debt securities available for sale $ 4,690.9 $ 3,578.1 $ 8,269.0
Mortgage loans 3,468.2 1,950.9 5,419.1
Real estate 534.5 - 534.5
Short-term and other investments 399.7 72.8 472.5
________________________________________
Total investments 9,093.3 5,601.8 14,695.1
Deferred income taxes 253.7 26.2 279.9
Receivable from continuing business 390.0 435.0 825.0
Other 7.6 1.3 8.9
________________________________________
Total Assets $ 9,744.6 $ 6,064.3 $ 15,808.9
_________________________________________________________________________________
_________________________________________________________________________________
Future policy benefits $ - $ 5,079.1 $ 5,079.1
Policyholders' funds left with
the company 8,976.6 - 8,976.6
Reserve for future losses on
discontinued products 600.0 670.0 1,270.0
Other 168.0 315.2 483.2
_________________________________________________________________________________
Total Liabilities $ 9,744.6 $ 6,064.3 $ 15,808.9
_________________________________________________________________________________
_________________________________________________________________________________
</TABLE>
Net unrealized capital gains on available for sale debt securities of
discontinued products are included in other liabilities of discontinued
products and are not reflected in consolidated shareholders' equity.
The reserve for future losses on GICs is included in policyholders'
funds left with the company and the reserve for future losses on SPAs is
included in future policy benefits in the 1993 Consolidated Balance
Sheet.
The losses on discontinuance of $390.0 million for GICs and $435.0
million for SPAs represent the present value of the difference between
(a) the expected cash flows from the assets supporting discontinued
products, and (b) the cash flows expected to be required to meet the
obligations of the outstanding contracts. Calculation of the losses on
discontinuance required projection of both the amount and the timing of
cash flows over approximately the next 30 years, including consideration
of, among other things, asset defaults and prepayments, changes in real
estate values, participant withdrawal and mortality rates, and cost of
asset management and customer service. The amounts of cash flows on the
assets of the discontinued products projected to occur in each period
are risk-adjusted such that the present value (at the risk-free rate at
December 31, 1993, consistent with the duration of the liabilities) of
those cash flows approximates the current fair value of the assets.
<PAGE> 67
Notes to Financial Statements (continued)
2. Discontinued Products (continued)
The average contractual yields guaranteed on the contracts relating to
the discontinued products exceed the historical and expected future
yields on assets supporting the products. The resulting anticipated
negative cash flows will be funded from the cash flows of the company's
continuing business.
An $825.0 million receivable for these negative cash flows (which
accrues interest at the rates used to measure the loss for the two
products) is included in the discontinued products' assets at December
31, 1993. This receivable is fully offset by a payable from the
company's continuing business. These amounts are eliminated in
consolidation and are therefore not reflected on the 1993 Consolidated
Balance Sheet.
Pursuant to a segmentation plan approved in 1983 by the New York
Insurance Department, the combined assets supporting discontinued
products were segregated coincident with the receipt of premiums and
deposits on the discontinued products. Assets of the discontinued
products were distinguished, physically, operationally and for financial
reporting purposes, from the remaining assets of the company.
Management believes the timing and amount of cash flows with respect to
the discontinued products have been estimated with reasonable accuracy,
and the financial statements reflect management's best estimate of the
most likely cash flows that will occur. However, future periods may
include a charge or benefit equal to the present value of the
differences, if any, between future projected cash flows and current
estimates.
3. Sales of Subsidiaries
On June 30, 1993, the company completed the sale of its U.K. life and
investment management operations. The company realized an after-tax
capital loss of $12.0 million on the sale as well as $37.4 million of
tax benefits from cumulative operating losses of the subsidiary not
previously available for tax benefits.
On September 30, 1992, the company completed the sale of American
Re-Insurance Company ("Am Re"), formerly a wholly owned subsidiary.
The company realized a gain on the sale of Am Re in the third quarter of
1992 of $38.1 million (after adjusting for the net cumulative effect
adjustments related to accounting changes of $48.9 million, and the 1992
decrease to earnings related to such accounting changes of $9.0
million). No taxes were incurred on this transaction. As part of the
sale, the company received 70,000 shares of American Re Corporation's
(the new holding company) Junior Cumulative Redeemable Exchangeable
Preferred Stock all of which were redeemed in the first quarter of 1993.
The company realized an after-tax gain of $27.0 million on the
redemption.
<PAGE> 68
Notes to Financial Statements (continued)
3. Sales of Subsidiaries (continued)
The operating results of Reinsurance and Related Services, provided
through Am Re, were presented as a discontinued operation through the
sale date of September 30, 1992. Results for the nine months ended
September 30, 1992, and for the year ended December 31, 1991 were:
<TABLE>
<CAPTION>
(Millions) 1992 1991
_______________________________________________________________
<S> <C> <C>
Total revenue $ 846.4 $1,153.1
______________________
Income before taxes $ 120.9 $ 173.5
Income taxes 34.1 34.7
______________________
Income from discontinued operations $ 86.8 $ 138.8
_______________________________________________________________
</TABLE>
As of May 16, 1991, the company completed the sale of its 43% interest
in La Estrella S.A. de Seguros, a Spanish insurance company, to Banco
Hispano Americano. The company realized a net capital gain of $32.6
million (after-tax) on the sale.
4. Severance and Facilities Charge
The 1993 and 1992 results reflect after-tax severance and facilities
charges of $200.0 million ($308.0 million pretax) and $95.7 million
($145.0 million pretax), respectively.
Please see Note 14 for the effect of these charges on the company's
segments.
<PAGE> 69
Notes to Financial Statements (continued)
5. Investments
<TABLE>
<CAPTION>
Debt securities at December 31, 1993 were as follows:
Amortized Gross Gross
Cost, Net of Unrealized Unrealized Fair
(Millions) Reserves Gains Losses Value
______________________________________________________________________________________________
Held for Investment:
______________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 20.7 $ .9 $ - $ 21.6
Obligations of states and
political subdivisions 398.7 5.9 6.7 397.9
Utilities 277.9 20.4 - 298.3
Financial 355.2 27.8 - 383.0
Transportation/Capital Goods 255.1 21.2 .8 275.5
Other corporate securities 792.9 67.6 2.8 857.7
Mortgage-backed securities 10.6 .1 - 10.7
Foreign governments 318.7 7.2 - 325.9
Other 128.0 7.5 1.9 133.6
_____________________________________________________
Total Held for Investment $ 2,557.8 $ 158.6 $ 12.2 $ 2,704.2
______________________________________________________________________________________________
Available for Sale:
______________________________________________________________________________________________
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 7,943.1 $ 200.5 $ 57.6 $ 8,086.0
Obligations of states and
political subdivisions 2,016.7 80.0 2.6 2,094.1
Utilities 3,013.2 207.4 31.1 3,189.5
Financial 4,919.0 200.1 16.7 5,102.4
Transportation/Capital Goods 1,745.0 239.0 15.1 1,968.9
Other corporate securities 4,862.9 377.4 48.6 5,191.7
Mortgage-backed securities 9,655.5 686.5 17.1 10,324.9
Foreign governments 2,651.9 130.9 9.9 2,772.9
Other 126.3 12.5 .3 138.5
_____________________________________________________
Total Available for Sale $36,933.6 $ 2,134.3 $ 199.0 $38,868.9
______________________________________________________________________________________________
Available for sale
securities of discontinued
products (included above) $ 7,659.4 $ 695.1 $ 85.5 $ 8,269.0
______________________________________________________________________________________________
<FN>
Net unrealized appreciation of $1,935.3 million on available for sale debt securities
includes $717.4 million related to experience rated contractholders and $609.6 million
related to discontinued products, which is not reflected in shareholders' equity.
</TABLE>
<PAGE> 70
Notes to Financial Statements (continued)
5. Investments (continued)
<TABLE>
<CAPTION>
Debt securities at December 31, 1992 were as follows:
Amortized Gross Gross
Cost, Net of Unrealized Unrealized Fair
(Millions) Reserves Gains Losses Value
_______________________________________________________________________________________________
Held for Investment:
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 6.1 $ .6 $ - $ 6.7
Obligations of states and
political subdivisions 395.2 2.1 12.4 384.9
Utilities 494.5 30.6 .2 524.9
Financial 564.4 24.8 .8 588.4
Transportation/Capital Goods 432.8 31.5 - 464.3
Other corporate securities 1,064.8 73.0 4.6 1,133.2
Mortgage-backed securities 24.6 .5 .4 24.7
______________________________________________________
Total Held for Investment $ 2,982.4 $ 163.1 $ 18.4 $ 3,127.1
_______________________________________________________________________________________________
Available for Sale:
_______________________________________________________________________________________________
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 899.1 $ 39.4 $ .6 $ 937.9
Obligations of states and
political subdivisions 1,295.4 40.3 19.3 1,316.4
Utilities 2,066.7 175.9 9.6 2,233.0
Financial 2,185.0 117.8 13.7 2,289.1
Transportation/Capital Goods 1,508.6 163.3 16.4 1,655.5
Other corporate securities 4,061.8 369.6 54.7 4,376.7
Mortgage-backed securities 11,335.8 774.5 74.8 12,035.5
Other 788.0 16.1 13.2 790.9
______________________________________________________
Total Bonds $24,140.4 $ 1,696.9 $ 202.3 $ 25,635.0
Redeemable Preferred Stock 192.1 39.5 4.2 227.4
______________________________________________________
Total Available for Sale $24,332.5 $ 1,736.4 $ 206.5 $ 25,862.4
_______________________________________________________________________________________________
</TABLE>
The carrying and fair value of debt securities held for investment and
available for sale as of December 31, 1993 are shown below by
contractual maturity. Actual maturities may differ from contractual
maturities because securities may be restructured, called or prepaid.
<TABLE>
<CAPTION>
Amortized
Cost, Net Fair
(Millions) of Reserves Value
____________________________________________________________________________
Held For Investment:
____________________________________________________________________________
<S> <C> <C>
Due to mature:
One year or less $ 440.3 $ 447.3
After one year through five years 1,494.5 1,598.9
After five years through ten years 323.0 346.1
After ten years 289.4 301.2
Mortgage-backed securities 10.6 10.7
______________________________
Total Held for Investment $ 2,557.8 $ 2,704.2
____________________________________________________________________________
Available For Sale:
____________________________________________________________________________
Due to mature:
One year or less $ 847.7 $ 862.2
After one year through five years 9,262.8 9,521.0
After five years through ten years 8,568.1 8,868.0
After ten years 8,599.5 9,292.8
Mortgage-backed securities 9,655.5 10,324.9
______________________________
Total Available for Sale $36,933.6 $38,868.9
____________________________________________________________________________
</TABLE>
<PAGE> 71
Notes to Financial Statements (continued)
5. Investments (continued)
Investments in equity securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
______________________________________________________________________________________________
1993
______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Equity securities available for sale $ 1,238.1 $ 455.2 $ 34.4 $ 1,658.9
______________________________________________________________________________________________
______________________________________________________________________________________________
1992
______________________________________________________________________________________________
Equity securities $ 1,168.9 $ 366.3 $ 39.7 $ 1,495.5
______________________________________________________________________________________________
</TABLE>
There were no equity securities of discontinued products at December 31,
1993.
Real Estate holdings at December 31 were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_______________________________________________________________________
<S> <C> <C>
Properties held for sale $ 1,122.2 $ 1,129.6
Investment real estate 461.3 535.5
__________________________
1,583.5 1,665.1
Valuation reserve 267.7 68.8
__________________________
Net carrying value $ 1,315.8 $ 1,596.3
_______________________________________________________________________
Net carrying value of real estate of
discontinued products (included above) $ 534.5 $ -
_______________________________________________________________________
</TABLE>
Total real estate write-downs included in the net carrying value of the
company's real estate holdings on the Consolidated Balance Sheets at
December 31, 1993 and 1992 were $501.8 million (including $218.5 million
attributable to assets of discontinued products) and $494.8 million,
respectively.
Impairment reserves at December 31 were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_______________________________________________________________________
<S> <C> <C>
Debt securities $ 102.8 $ 105.2
Equity securities 10.6 12.5
Mortgage loans 1,308.3 1,065.6
Real estate 267.7 68.8
Other 6.0 6.0
_______________________
Total impairment reserves $ 1,695.4 $ 1,258.1
_______________________________________________________________________
Impairment reserves of
discontinued products (included above) $ 764.8 $ -
_______________________________________________________________________
</TABLE>
<PAGE> 72
Notes to Financial Statements (continued)
5. Investments (continued)
The carrying values of investments that were non-income producing for
the twelve months preceding the balance sheet date were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
____________________________________________________________
<S> <C> <C>
Debt securities $ 76.9 $ 110.9
Equity securities 14.9 9.1
Mortgage loans 342.1 291.1
Real estate 188.0 245.6
_____________________
Total non-income producing assets $ 621.9 $ 656.7
____________________________________________________________
Non-income producing assets of
discontinued products
(included above) $ 248.0 $ -
____________________________________________________________
</TABLE>
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital losses allocable to experience rated
contractholders of $180.1 million, $59.7 million and $156.7 million for
the years ended December 31, 1993, 1992 and 1991 were deducted from net
realized capital gains (losses) as reflected on the Consolidated
Statements of Income and an offsetting amount is reflected on the
Consolidated Balance Sheets in policyholders' funds left with the
company. Provision for impairments which are other than temporary and
changes in the fair value of real estate subsequent to foreclosure
(prior to 1992, real estate write-downs) are included in net realized
capital gains or losses. Unrealized capital gains and losses on
available for sale investments, after deducting amounts allocable to
experience rated contractholders and discontinued products, and net of
related taxes, are reflected in shareholders' equity.
Net realized capital gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
__________________________________________________________________________________
<S> <C> <C> <C>
Debt securities $ 606.3 $ 315.1 $ 98.4
Equity securities 91.3 184.2 74.2
Mortgage loans (435.7) (358.5) (452.0)
Real estate (151.5) (43.9) (53.3)
Sales of subsidiaries (18.2) - 54.1
Other (2.4) 18.0 (3.5)
___________________________________
Pretax realized capital gains (losses) $ 89.8 $ 114.9 $(282.1)
__________________________________________________________________________________
After-tax realized capital gains (losses) $ 59.0 $ 78.6 $(187.4)
__________________________________________________________________________________
</TABLE>
<PAGE> 73
Notes to Financial Statements (continued)
6. Capital Gains and Losses on Investment Operations (continued)
Proceeds from sales of investments in debt securities held for
investment and available for sale during 1993, 1992 and 1991 were
$6,300.9 million, $3,862.1 million and $4,751.9 million, respectively.
Gross gains of $250.6 million, $262.3 million and $138.2 million and
gross losses of $30.1 million, $7.0 million and $67.9 million were
realized on those sales.
Changes in unrealized capital gains (losses), excluding changes in
unrealized capital gains (losses) related to experience rated
contractholders and discontinued products, for the periods were as
follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_________________________________________________________________________________
<S> <C> <C> <C>
Equity securities $ 94.2 $ 127.6 $ 154.9
Debt trading securities (134.8) 66.4 53.7
Debt securities available for sale 608.3 - -
Other 14.6 (51.8) (25.3)
____________________________________
582.3 142.2 183.3
Deferred federal income taxes 193.7 48.5 67.1
____________________________________
Net changes in unrealized capital gains
(losses) $ 388.6 $ 93.7 $ 116.2
_________________________________________________________________________________
</TABLE>
Changes in unrealized capital gains (losses) for the periods exclude
pretax changes in debt securities carried at amortized cost and at lower
of amortized cost or fair value. The unrecorded appreciation for debt
securities carried at amortized cost is the difference between estimated
market and carrying values, and amounted to approximately $.1 billion,
$1.7 billion, and $2.4 billion at December 31, 1993, 1992 and 1991,
respectively. Such unrecorded appreciation includes amounts allocable
to experience rated contractholders. The change in unrecorded
appreciation for 1993 was $(1.6) billion. This decrease resulted from
changes in carrying values and reclassifications of certain debt
securities related to the adoption of FAS No. 115. The change in
unrecorded appreciation was $(.7) billion and $1.8 billion in 1992 and
1991, respectively.
Shareholders' equity included the following unrealized capital gains
(losses)(net of amounts allocable to experience rated contractholders
and amounts related to discontinued products) at December 31:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
___________________________________________________________________________
<S> <C> <C> <C>
Equity securities:
Gross unrealized capital gains $ 455.2 $ 366.3 $ 278.8
Gross unrealized capital losses (34.4) (39.7) (79.8)
____________________________________
420.8 326.6 199.0
Debt trading securities:
Gross unrealized capital gains - 172.0 69.2
Gross unrealized capital losses - (37.2) (.8)
____________________________________
- 134.8 68.4
Debt securities available for sale:
Gross unrealized capital gains 671.1 - -
Gross unrealized capital losses (62.8) - -
____________________________________
608.3 - -
Foreign exchange and other, net (56.7) (71.3) (19.5)
Deferred federal income taxes 324.2 130.5 82.0
____________________________________
Net unrealized capital gains $ 648.2 $ 259.6 $ 165.9
___________________________________________________________________________
</TABLE>
<PAGE> 74
Notes to Financial Statements (continued)
7. Net Investment Income
Net investment income includes amounts allocable to experience rated
contractholders of $927 million, $1.1 billion and $1.2 billion for the
years ended December 31, 1993, 1992 and 1991, respectively. Interest
credited to contractholders is included in current and future benefits.
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
______________________________________________________________________________
<S> <C> <C> <C>
Debt securities $ 3,003.4 $ 2,948.8 $ 2,984.9
Equity securities 55.8 56.5 42.1
Short-term investments 55.3 76.9 106.6
Mortgage loans 1,586.8 1,885.5 2,185.0
Real estate 378.5 335.7 212.4
Policy loans 29.9 26.7 24.7
Other 160.2 52.7 113.8
Cash equivalents 76.7 134.6 195.8
_______________________________________
Gross investment income 5,346.6 5,517.4 5,865.3
Less investment expenses 427.6 448.4 350.8
_______________________________________
Net investment income $ 4,919.0 $ 5,069.0 $ 5,514.5
______________________________________________________________________________
</TABLE>
8. Dividend Restrictions and Shareholders' Equity
The amount of dividends that may be paid to shareholders in 1994 without
prior approval by the Insurance Commissioner of the State of Connecticut
is $433.7 million. Dividend payments by the domestic insurance
subsidiaries to Aetna Life and Casualty Company are subject to similar
restrictions in Connecticut and other states, and are limited in 1994 to
approximately $630.0 million in the aggregate. During 1993, these
subsidiaries paid dividends totaling $302.1 million to Aetna Life and
Casualty Company.
<PAGE> 75
Notes to Financial Statements (continued)
8. Dividend Restrictions and Shareholders' Equity (continued)
The following statement reconciles statutory net income to net income
determined in conformity with generally accepted accounting principles
("GAAP").
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
______________________________________________________________________________________________
<S> <C> <C> <C>
Statutory net income:
Life companies $ 87.7 $ 123.8 $ 436.1
Casualty-property companies (125.1) 688.0 278.3
Consolidating eliminations (3.3) 5.9 (30.5)
________________________________________
Subtotal (40.7) 817.7 683.9
Reserve for future losses on discontinued products (825.0) - -
Realized capital gains (losses) (171.6) (879.5) (267.1)
Adjustments to insurance reserve liabilities 344.5 159.5 (13.8)
Deferred federal income taxes 43.7 135.2 141.7
Cumulative effect of accounting changes 227.1 (112.5) -
Deferred policy acquisition costs 160.7 80.3 43.5
Severance and facilities charge (99.5) (53.5) 84.3
Postretirement benefits other than pensions (23.8) (39.0) -
Other, net 18.7 (52.2) (167.3)
________________________________________
Net income (loss) $ (365.9) $ 56.0 $ 505.2
______________________________________________________________________________________________
</TABLE>
The following statement reconciles statutory shareholders' equity with
shareholders' equity determined in conformity with GAAP.
<TABLE>
<CAPTION>
(Millions) 1993 1992
_____________________________________________________________________________
<S> <C> <C>
Statutory shareholders' equity:
Life companies $ 2,332.8 $ 2,780.9
Casualty-property companies 4,336.8 4,513.3
Consolidating eliminations (2,323.9) (2,781.6)
________________________
Subtotal 4,345.7 4,512.6
Reserve for future losses on discontinued products (825.0) -
Deferred policy acquisition costs 1,867.0 1,706.0
Market value adjustments (888.5) (1,030.2)
Adjustment to insurance reserve liabilities 795.1 454.5
Deferred federal income taxes 729.9 754.2
Guaranteed contracts investment reserve 600.0 450.0
Postretirement benefits other than pensions (648.3) (424.0)
Investment reserves 1,106.1 738.4
Non-admitted assets 211.4 211.3
Severance and facilities charge (219.2) (53.5)
Excess goodwill 16.8 13.4
Other, net (47.9) (94.4)
________________________
Shareholders' equity $ 7,043.1 $ 7,238.3
_____________________________________________________________________________
</TABLE>
<PAGE> 76
Notes to Financial Statements (continued)
9. Debt
<TABLE>
<CAPTION>
(Millions) 1993 1992
________________________________________________________________________
<S> <C> <C>
Long-term debt:
Domestic:
Eurodollar Notes, 9 1/2% due 1995 $ 100.4 $ 100.6
Notes, 8 5/8% due 1998 99.8 99.7
Notes, 6 3/8% due 2003 198.7 -
Debentures, 8 1/8% due 2007 - 200.0
Debentures, 6 3/4% due 2013 198.3 -
Eurodollar Notes, 7 3/4% due 2016 63.5 200.1
Debentures, 8% due 2017 198.6 198.2
Mortgage Notes and Other Notes, 3%-11 1/2%
due in varying amounts to 2018 56.7 96.0
Debentures, 7 1/4% due 2023 198.3 -
International:
Mortgage Notes, 6 1/2%-11 7/8% due in
varying amounts to 2006 45.7 61.0
______________________
Total $1,160.0 $ 955.6
________________________________________________________________________
</TABLE>
At December 31, 1993 $35.7 million of short-term borrowings were
outstanding. Total unused committed bank lines available to the company
at December 31, 1993 amounted to $820.0 million, including an $800.0
million long-term credit commitment established with a group of
worldwide banks. This $800.0 million commitment expires in July 1994.
Various interest rate options are available under this facility and any
borrowings mature in July 1997. The company pays quarterly commitment
and facility fees totaling approximately one-tenth of one percent per
annum. The terms of the commitment agreement require that the company
maintain net worth of at least $5.0 billion. The $800.0 million credit
facility also supports the company's commercial paper borrowing program.
During 1993, the company issued $200 million of 6 3/8% Notes due in
2003, $200 million of 6 3/4% Debentures due in 2013 and $200 million of
7 1/4% Debentures due in 2023. The proceeds were primarily used to
repay commercial paper borrowings, a significant portion of which was
incurred in connection with the retirement of debt discussed below. The
remaining proceeds were used for general corporate purposes. A total of
$550 million of securities remains available for sale under two
effective shelf registration statements.
During 1993, the company redeemed $200 million principal amount of its 8
1/8% Debentures whose scheduled maturity was 2007. The company
recognized an after-tax extraordinary loss on the debenture redemption
of $4.7 million (after taxes of $2.4 million). Additionally, $137
million of the company's 7 3/4% Eurodollar Notes due 2016 were redeemed
at par at the option of the holders thereof during 1993.
The 8% Debentures due 2017 are subject to various redemption options
beginning on January 15, 1997.
Aggregate maturities of long-term debt and sinking fund requirements for
1994 through 1998 are $32.2 million, $103.8 million, $10.9 million,
$12.9 million and $129.7 million, respectively, and $870.5 million
thereafter.
Total interest expense was $77.4 million, $87.1 million and $106.7
million in 1993, 1992 and 1991, respectively. The company paid interest
of $74.1 million, $94.9 million and $113.0 million in 1993, 1992 and
1991, respectively.
<PAGE> 77
Notes to Financial Statements (continued)
10. Federal and Foreign Income Taxes
As discussed in Note 1, the company adopted FAS No. 109 as of January 1,
1992, resulting in a cumulative effect benefit for continuing operations
of $272.5 million.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was
enacted which resulted in an increase in the federal corporate tax rate
from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA
resulted in an increase of $27.4 million in the company's deferred tax
asset. Future net income of the company will be adversely impacted by
the increased tax rate.
The Technical and Miscellaneous Revenue Act of 1988 included Section 847
which permits the designation of special estimated tax payments. The
effect of Section 847 is to permit the recognition of deferred tax
benefits associated with certain property-casualty losses. The 1991
provision for income taxes included $99.8 million of such benefits.
There were no such benefits included in the 1992 and 1993 provisions.
Included in the 1991 provision for income taxes is a benefit of $50.0
million resulting from a fourth quarter 1991 reversal of previously
established tax reserves based on a favorable court decision. This
benefit affected the Health and Life Insurance and Services segment
only.
Income tax expense (benefits) attributable to income (loss) from
continuing operations consists of:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_____________________________________________________________________________
<S> <C> <C> <C>
Current taxes (benefits):
Income - federal taxes $ 47.3 $ (18.1) $ 83.9
Income - foreign taxes 8.8 11.6 14.9
Realized capital gains (losses) 18.6 74.4 (16.3)
______________________________________
74.7 67.9 82.5
Deferred taxes (benefits):
Income - federal taxes (617.7) (147.4) (131.8)
Income - foreign taxes (1.3) 1.5 4.8
Realized capital gains (losses) 12.2 (38.1) (78.4)
______________________________________
(606.8) (184.0) (205.4)
______________________________________
Total $ (532.1) $ (116.1) $ (122.9)
_____________________________________________________________________________
</TABLE>
<PAGE> 78
Notes to Financial Statements (continued)
10. Federal and Foreign Income Taxes (continued)
Income tax expense (benefits)on income (loss) from continuing operations
was different from the amount computed by applying the federal income
tax rate to income (loss) before income tax expense (benefit) for the
following reasons:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_______________________________________________________________________________________
<S> <C> <C> <C>
Income (Loss) from U.S. operations $(1,211.9) $ (151.4) $ 123.3
Income (Loss) from non-U.S. operations 64.5 30.0 120.2
_________________________________________
Income (Loss) before taxes (1,147.4) (121.4) 243.5
Tax rate 35% 34% 34%
_________________________________________
Application of the tax rate (401.7) (41.3) 82.8
Tax effect of:
Tax-exempt interest (54.9) (68.6) (88.9)
Fresh start adjustments - - (59.6)
Foreign operations (46.9) 12.7 7.4
Excludable dividends (20.5) (12.8) (12.1)
Tax rate change on deferred assets
and liabilities (24.0) - -
Tax reserve reversal - - (50.0)
Goodwill 6.8 3.5 1.7
Other, net 9.1 (9.6) (4.2)
_________________________________________
Income tax benefits on income (loss) $ (532.1) $ (116.1) $ (122.9)
_______________________________________________________________________________________
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities under FAS No. 109 at December 31 are
presented below:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_______________________________________________________________
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 1,013.2 $ 1,105.4
Reserve for loss on
discontinued products 445.0 -
Reserve for severance and
facilities expenses 108.0 20.7
Impairment reserves 274.0 286.9
Other postretirement benefits 235.6 218.6
Net operating loss carryforward 129.9 52.7
Other 52.1 51.7
________________________
Total gross assets 2,257.8 1,736.0
________________________
Less valuation allowance 47.3 52.7
________________________
Assets net of valuation 2,210.5 1,683.3
_______________________________________________________________
Deferred tax liabilities:
Deferred policy acquisition costs 519.7 468.6
Net unrealized capital gains 331.3 135.8
Market discount 72.8 80.8
Other 3.8 25.0
________________________
Total gross liabilities 927.6 710.2
________________________
Net deferred tax asset $ 1,282.9 $ 973.1
_______________________________________________________________
</TABLE>
The valuation allowance relates to future tax benefits on foreign net
operating loss carryforwards of $47.3 million and $52.7 million for 1993
and 1992, respectively, the realization of which is uncertain.
<PAGE> 79
Notes to Financial Statements (continued)
10. Federal and Foreign Income Taxes (continued)
Management believes that it is more likely than not that the company
will realize the benefit of the net deferred tax asset. While there are
no assurances that this benefit will be realized, the company expects
sufficient taxable income in the future (requires $3.6 billion of future
taxable income) based on its historical record (average of approximately
$200.0 million from continuing operations over the past three years
excluding nonrecurring charges) and expected annual taxable savings
related to staff and expense reductions. The company has more than 15
years to generate sufficient taxable income to cover the reversal of its
temporary differences due to the long-term reversal pattern of these
differences. Additionally, the company has significant tax planning
strategies including, but not limited to, the conversion of tax-exempt
income to taxable income (approximately $160.0 million of potential
additional annual taxable income based on 1993 holdings) and the
presence of unrealized gains in the company's investments held for
investment of $146.4 million as of December 31, 1993. The deferred tax
asset includes $82.6 million related to the company's expected
utilization of its current U.S. net operating loss carryforward of
$236.0 million which expires in 2008.
The company generally has not recognized any deferred tax liabilities
attributable to the undistributed earnings of its controlled foreign
corporations because the company does not expect repatriation. Such
amounts are not material.
For the year ended December 31, 1991, deferred income tax expense
resulted from timing differences between the recognition of income and
expense for income tax and financial reporting purposes. The
significant components of deferred tax expense (benefit) attributable to
income from continuing operations were as follows:
<TABLE>
<CAPTION>
(Millions) 1991
______________________________________________
<S> <C>
Life reserve adjustments $ 6.5
Deferred policy acquisition costs 8.9
Property-casualty underwriting
adjustments (162.3)
Investment income and expenses 22.3
Realized capital losses (78.4)
Reorganization charge 27.9
Benefit plans (2.0)
Other, net (28.3)
______________________________________________
Total $(205.4)
______________________________________________
</TABLE>
The "Policyholders' Surplus Account," which arose under prior tax law,
is generally that portion of a life insurance company's statutory income
that has not been subject to taxation. As of December 31, 1983, no
further additions could be made to the Policyholders' Surplus Account
for tax return purposes under the Deficit Reduction Act of 1984. The
balance in such account was approximately $857.2 million at December 31,
1993. This amount would be taxed only under certain conditions. No
income taxes have been provided on this amount since management believes
the conditions under which such taxes would become payable are remote.
<PAGE> 80
Notes to Financial Statements (continued)
10. Federal and Foreign Income Taxes (continued)
The Internal Revenue Service (the "Service") has completed examination
of the consolidated federal income tax returns of Aetna Life and
Casualty and Affiliated Companies through 1986. Discussions are being
held with the Service with respect to proposed adjustments. However,
management believes there are adequate defenses against, or sufficient
reserves to provide for, such adjustments. The Service has commenced
its examination for the years 1987 through 1990.
The company made net federal income tax payments for continuing
operations of $101.6 million, $55.3 million and $229.9 million in 1993,
1992 and 1991, respectively.
11. Common Stock
At December 31, 1993 and 1992, 3,802,256 common shares were reserved for
issuance under the dividend reinvestment plan, 6,702,878 and 8,728,574
common shares were reserved for the stock option plans and 946,675
common shares were reserved for other benefit plans, respectively.
In 1993 and 1992, the company did not acquire any shares of its common
stock. In 1991, the company acquired 76,800 shares of its common stock
at an average price of $38.04 per share.
On October 27, 1989, the Board of Directors of Aetna Life and Casualty
Company adopted a Share Purchase Rights Plan. Pursuant to the Plan, a
dividend of one share purchase right (a "Right") was made payable for
each share of Aetna Life and Casualty Common Capital Stock ("Common
Stock") outstanding on November 7, 1989, and one Right will attach to
each share of Common Stock subsequently issued, prior to the time at
which the Rights become exercisable, expire or are redeemed.
The Rights trade with the Common Stock until they become exercisable.
The Rights become exercisable 10 days after: (i) a public announcement
that a person or group ("person") has acquired 20% or more of the
outstanding shares of Common Stock or, 10% or more of the outstanding
shares of Common Stock if such person is declared by the Board of
Directors to be an "adverse person" ("triggering acquisition"); or (ii)
a person commences a tender offer which, upon consummation, could result
in such person owning 30% or more of the Common Stock; or (iii), in
either event, such later date as the Board of Directors may determine.
Upon becoming exercisable, each Right will entitle the holder thereof
(the "Holder") to purchase one one-hundredth of a share of Aetna Life
and Casualty Company's Class B Voting Preferred Stock, Series A (a
"Fractional Preferred Share") at a price of $200 (the "Exercise Price").
Each Fractional Preferred Share has dividend, voting and liquidation
rights designed to make it approximately equal in value to one share of
Common Stock. Under certain circumstances, including a triggering
acquisition, each Right (other than Rights that were or are owned by the
acquirer) thereafter will entitle the Holder to purchase Common Stock
worth twice the Exercise Price. Under certain circumstances, including
the acquisition of Aetna Life and Casualty Company in a merger
(following a triggering acquisition), each Right thereafter will entitle
the Holder to purchase equity securities of the acquirer at a 50%
discount.
<PAGE> 81
Notes to Financial Statements (continued)
11. Common Stock(continued)
Under certain circumstances, Aetna Life and Casualty Company may redeem
all of the Rights at a price of $.01 per Right. The Rights will expire
on November 7, 1999, unless earlier redeemed. The Rights have no
dilutive effect on earnings per share until exercised. Aetna Life and
Casualty Company has authorized 2,500,000 Preferred Shares for issuance
upon exercise of the Rights.
12. Participating Policyholders' Interests
Under participating life insurance contracts issued by the company, the
policyholder is entitled to share in the earnings of such contracts.
This business is accounted for in the company's Consolidated Financial
Statements on a statutory basis since any adjustments to policy
acquisition costs and reserves on this business would have no effect on
the company's net income or shareholders' equity. Premiums and assets
allocable to the participating policyholders were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_______________________________________________________
<S> <C> <C> <C>
Premiums $ 52.4 $ 54.0 $ 55.6
_______________________________________________________
Assets $ 704.8 $ 686.1 $ 706.2
_______________________________________________________
</TABLE>
13. Benefit Plans
Pension Plans - The company has non-contributory defined benefit pension
plans covering substantially all employees and certain agents. The
plans provide pension benefits based on years of service and average
annual compensation (measured over sixty consecutive months of highest
earnings in a 120-month period). Contributions are determined by using
the Entry Age Normal Cost Method and, for qualified plans subject to
ERISA requirements, are limited to the amounts that are currently
deductible for tax reporting purposes.
Components of the net periodic pension income (cost) were as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
________________________________________________________________________
<S> <C> <C> <C>
Return on plan assets $ 178.7 $ 78.9 $ 391.0
Service cost - benefits earned
during the period (82.2) (82.3) (73.2)
Interest cost on projected
benefit obligation (169.3) (153.1) (136.8)
Net amortization and deferral 31.3 160.5 (204.7)
________________________________________________________________________
Net periodic pension income (cost) $ (41.5) $ 4.0 $ (23.7)
________________________________________________________________________
</TABLE>
As a result of restructuring activities, a curtailment gain of
approximately $28 million is reflected in net periodic pension cost for
the year ended December 31, 1992. Actions related to the 1993
severance and facilities charge did not result in a curtailment gain or
loss.
<PAGE> 82
Notes to Financial Statements (continued)
13. Benefit Plans (continued)
The measurement dates used to determine the funded status of the plans
for which assets exceeded accumulated benefits were September 30, 1993
and December 31, 1992. The change in measurement date had no effect on
1993 expense and had an immaterial impact on 1993 funded status. The
funded status of plans for which assets exceeded accumulated benefits
was as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_________________________________________________________________
<S> <C> <C>
Actuarial present value of vested
benefit obligation $ 1,868.8 $ 1,607.6
_________________________________________________________________
Actuarial present value of
accumulated benefit obligation $ 1,898.9 $ 1,644.5
_________________________________________________________________
Plan assets at fair value $ 2,259.0 $ 2,144.7
Actuarial present value of
projected benefit obligation 2,221.7 1,931.7
__________________________
Plan assets in excess of projected
benefit obligation 37.3 213.0
Unrecognized net (gain) loss 98.5 (51.2)
Unrecognized service cost - prior
period (7.7) 15.7
Unrecognized net asset at date of
adoption of FAS No. 87 (87.9) (116.8)
__________________________
Prepaid pension cost $ 40.2 $ 60.7
_________________________________________________________________
</TABLE>
At 1993 and 1992, non-funded plans had projected benefit obligations of
$163.8 million and $119.7 million, respectively. The accumulated
benefit obligations at 1993 and 1992 related to these plans was $127.6
million and $100.5 million, respectively, and the related accrued
pension cost was $89.7 million and $76.6 million, respectively.
The weighted average discount rate was 7.5% for 1993 and 8.0% for 1992
and 1991. A 9.0% expected long-term rate of return on plan assets was
used for each of 1993, 1992 and 1991. The rate of increase in future
compensation was 4.5% for 1993 and 5.0% for 1992 and 1991. The future
annual cost-of-living adjustment was 3.0% for 1993, 1992 and 1991.
All of the assets are held in trust and administered under an Immediate
Participation Guarantee Contract issued by Aetna Life Insurance Company.
Assets are held in both the general account of Aetna Life Insurance
Company and in various separate accounts.
Postretirement Benefits - In addition to providing pension benefits, the
company currently provides certain health care and life insurance
benefits for retired employees. A comprehensive medical and dental plan
is offered to all full-time employees retiring at age 50 with 15 years
of service or at age 65 with 10 years of service. Retirees are required
to contribute to the plans based on their years of service with the
company.
In January 1994, the company announced the modification of its
postretirement benefit plan to cap the portion of the cost paid by the
company relating to medical and dental benefits for individuals retiring
after March 1, 1994. This change is expected to produce reductions in
the net periodic postretirement benefit cost and in the accumulated
postretirement benefit obligation.
<PAGE> 83
Notes to Financial Statements (continued)
13. Benefit Plans (continued)
The impact of adopting FAS No. 106 in 1992 was a cumulative effect
charge of $385.0 million (after-tax) for continuing operations.
Adoption of FAS No. 106 does not affect the company's cash flows.
Components of the net periodic postretirement benefit cost were as
follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
_________________________________________________________
<S> <C> <C>
Service cost - benefits earned
during the period $ (19.0) $ (28.8)
Interest cost (42.9) (50.9)
Net amortization 11.7 -
Return on plan assets 3.1 2.9
_______________________
Net periodic postretirement
benefit cost $ (47.1) $ (76.8)
_________________________________________________________
</TABLE>
Prior to the adoption of FAS No. 106, the cost of postretirement
benefits was charged to operations as payments were made. The pretax
cost of postretirement health care and life insurance benefits for 1991
was $16.1 million.
The measurement dates used to determine the funded status of the
postretirement benefit plans were September 30, 1993 and December 31,
1992. The change in measurement date had no effect on 1993 expense and
had an immaterial impact on 1993 funded status. The funded status of
the plans was as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992
______________________________________________________________
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $234.6 $271.3
Fully eligible active employees 102.7 143.4
Active employees not eligible to
retire 229.8 268.4
__________________
Total 567.1 683.1
Plan assets at fair value 45.8 45.0
__________________
Accumulated postretirement benefit
obligation in excess of plan assets 521.3 638.1
Unrecognized net gain 139.2 -
__________________
Accrued postretirement benefit cost $660.5 $638.1
______________________________________________________________
</TABLE>
The weighted average discount rates were 7.5% and 8.0% for 1993 and
1992, respectively. The health care cost trend rate for the 1993
valuation decreased gradually from 12.5% for 1994 to 5.5% by the year
2005. For the 1992 valuation, the rates decreased gradually from 14.0%
for 1993 to 6.0% by the year 2005. Increasing the health care cost
trend rate by one percentage point would increase the accumulated
postretirement benefit obligation at 1993 by $92.5 million (pretax) and
would increase the net periodic postretirement benefit cost for 1993 by
$11.3 million (pretax).
<PAGE> 84
Notes to Financial Statements (continued)
13. Benefit Plans (continued)
It is the company's practice to fund amounts for postretirement life
insurance benefits to the extent the contribution is deductible for
federal income taxes. The plan assets are held in trust and
administered by Aetna Life Insurance Company. The assets are in the
general account of Aetna Life Insurance Company, and the expected rate
of return on the plan assets was 7% for 1993 and 1992.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions,
which may be invested in common stock of Aetna Life and Casualty Company
or certain other investments, are matched, up to 5% of compensation, by
the company. Pretax charges to operations for the incentive savings
plan were $58.9 million, $58.8 million and $55.2 million for 1993, 1992
and 1991, respectively. The Plan trustee held 5,996,806 shares,
6,925,145 shares and 6,747,151 shares of Aetna Life and Casualty
Company's common stock for Plan participants at the end of 1993, 1992
and 1991, respectively.
Stock Option Plans - Executive and middle management employees may be
granted options to purchase common stock of Aetna Life and Casualty
Company at the market price on the date of grant or, in connection with
certain business combinations, may be granted options to purchase common
stock on different terms. Certain options contain stock appreciation
rights permitting the employee to exercise those rights and receive the
excess of current market price over the option price in cash and/or
stock.
Transactions under the stock option plans are summarized below:
<TABLE>
<CAPTION>
Range of
Number Option Prices
of Shares Per Share
________________________________________________________________________
<S> <C> <C>
Outstanding at December 31, 1990 4,801,477 $29.50-$61.50
Granted 831,625 $37.75-$48.25
Exercised (29,997) $29.50-$46.50
Canceled or expired (73,764) $29.50-$61.50
________________________________________________________________________
Outstanding at December 31, 1991 5,529,341 $29.50-$61.50
Granted 912,675 $40.75-$45.63
Exercised (228,942) $29.50-$46.50
Canceled or expired (423,425) $29.50-$61.50
________________________________________________________________________
Outstanding at December 31, 1992 5,789,649 $29.50-$61.50
Granted 1,034,560 $46.75-$55.00
Exercised (2,025,696) $29.50-$61.50
Canceled or expired (188,990) $29.50-$61.50
________________________________________________________________________
Outstanding at December 31, 1993 4,609,523 $29.50-$61.50
________________________________________________________________________
Range of expiration dates 6/94 - 6/2003
________________________________________________________________________
Options exercisable at
December 31, 1993 3,614,903
________________________________________________________________________
Common shares available for grant
at December 31, 1993 2,093,355
________________________________________________________________________
</TABLE>
<PAGE> 85
Notes to Financial Statements (continued)
14. Segment Information (1)(2)(3)(4)(5)(6)(7)
Summarized financial information for the company's principal operations
was as follows:
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991
_______________________________________________________________________________
<S> <C> <C> <C>
Revenue:
Health and Life Insurance and
Services $ 6,477.3 $ 6,303.2 $ 6,116.4
Financial Services 3,492.8 3,545.1 3,710.1
Commercial Property-Casualty
Insurance and Services 4,138.3 4,271.5 4,600.7
Personal Property-Casualty 1,674.0 2,080.9 2,668.7
International 1,335.3 1,296.5 946.6
_____________________________________
Total revenue $17,117.7 $17,497.2 $18,042.5
_______________________________________________________________________________
Income (Loss) from continuing
operations before income taxes,
extraordinary item and cumulative
effect adjustments:
Health and Life Insurance and
Services $ 449.7 $ 420.6 $ 495.3
Financial Services (1,276.1) (61.7) (276.4)
Commercial Property-Casualty
Insurance and Services (264.2) (430.0) 52.8
Personal Property-Casualty (24.5) (72.4) (90.5)
International (32.3) 22.1 62.3
_____________________________________
Total income (loss) from continuing
operations before income taxes,
extraordinary item and
cumulative effect adjustments $(1,147.4) $ (121.4) $ 243.5
_______________________________________________________________________________
Net income (loss):
Health and Life Insurance and
Services $ 288.1 $ 280.6 $ 386.0
Financial Services (808.8) (17.2) (156.9)
Commercial Property-Casualty
Insurance and Services (115.9) (245.4) 139.5
Personal Property-Casualty (3.3) (36.2) (28.6)
International 24.6 12.9 26.4
_____________________________________
Income (loss) from continuing
operations before extraordinary
item and cumulative effect
adjustments (615.3) (5.3) 366.4
Discontinued operations, net of tax 27.0 173.8 138.8
_____________________________________
Income (loss) before extraordinary
item and cumulative effect
adjustments (588.3) 168.5 505.2
Extraordinary loss on
debenture redemption (4.7) - -
Cumulative effect adjustments 227.1 (112.5) -
_____________________________________
Net income (loss) $ (365.9) $ 56.0 $ 505.2
_______________________________________________________________________________
</TABLE>
<PAGE> 86
Notes to Financial Statements (continued)
14. Segment Information (1)(2)(3)(4)(5)(6)(7)(continued)
<TABLE>
<CAPTION>
(Millions) 1993 1992
_____________________________________________________________________
<S> <C> <C>
Assets:
Health and Life Insurance and Services $ 8,803.2 $ 8,379.2
Financial Services 64.263.0 58,324.1
Commercial Property-Casualty Insurance
and Services 17,737.1 18,177.1
Personal Property-Casualty 4,013.6 4,742.0
International 5,219.8 4,897.2
_________________________
Total assets $100,036.7 $ 94,519.6
_____________________________________________________________________
<FN>
(1) The 1993 results from continuing operations before extraordinary item and cumulative effect
adjustments include an after-tax loss on the discontinuance of fully guaranteed large case
pension products of $825.0 million ($1,270.0 million pretax). This loss affected the
Financial Services segment only.
(2) Assets at December 31, 1993 include $15.0 billion of assets attributable to discontinued
products. Discontinued products are included in the Financial Services segment.
(3) The 1993 results from continuing operations before extraordinary item and cumulative effect
adjustments were increased by $78.0 million ($120.0 million pretax) related to the current
year impact of discounting certain workers' compensation life table indemnity reserves.
This benefit affected the Commercial Property-Casualty segment only.
(4) The 1993 results from continuing operations before extraordinary item and cumulative effect
adjustments include a net benefit of $21.8 million related to a change in the federal
corporate tax rate from 34% to 35%. Of the $21.8 million benefit, $2.9 million reduced
Health and Life Insurance and Services results, $.6 million reduced Financial Services
results, $21.8 million increased Commercial Property-Casualty results, $2.9 million increased
Personal Property-Casualty results, and $.6 million increased International results.
(5) The 1993 and 1992 results reflect after-tax severance and facilities charges of $200.0
million ($308.0 million pretax) and $95.7 million ($145.0 million pretax), respectively. Of
the total 1993 charge, $57.5 million ($88.5 million pretax) was allocated to Health and Life
Insurance and Services, $33.9 million ($52.2 million pretax) to Financial Services, $69.9
million ($107.6 million pretax) to Commercial Property-Casualty, $30.7 million ($47.4 million
pretax) to Personal Property-Casualty and $8.0 million ($12.3 million pretax) to
International. Of the total 1992 charge, $35.7 million ($54.1 million pretax) was allocated
to Health and Life Insurance and Services, $3.7 million ($5.6 million pretax) to Financial
Services, $25.6 million ($38.8 million pretax) to Commercial Property-Casualty, $30.3 million
($46.0 million pretax) to Personal Property-Casualty and $.4 million ($.5 million pretax) to
International.
(6) The 1992 results from continuing operations before extraordinary item and cumulative effect
adjustments were reduced by $39.0 million ($59.2 million pretax), related to the current year
impact of adopting FAS No. 106. Of the total 1992 after-tax impact for continuing
operations, $18.8 million ($28.4 million pretax) was attributable to Health and Life
Insurance and Services, $2.7 million ($4.2 million pretax) to Financial Services, $11.5
million ($17.5 million pretax) to Commercial Property-Casualty, $5.5 million ($8.2 million
pretax) to Personal Property-Casualty, and $.5 million ($.9 million pretax) to International.
(7) The 1991 results from continuing operations before extraordinary item and cumulative effect
adjustments included a "fresh start" benefit of $59.6 million. Of the total 1991 "fresh
start" benefit for continuing operations, $48.9 million was attributable to Commercial
Property-Casualty and $10.7 million to Personal Property-Casualty. There were no "fresh
start" benefits in 1992 and 1993.
</TABLE>
<PAGE> 87
Notes to Financial Statements (continued)
15. Reinsurance
The company utilizes reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Reinsurance
permits recovery of a portion of losses from reinsurers, although it
does not discharge the primary liability of the company as direct
insurer of the risks reinsured. The company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of present reinsurers.
Prepaid reinsurance premiums were $.3 billion at December 31, 1993 and
1992, respectively. A summary of earned premiums for the years ended
December 31 follows:
Earned Premiums:
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
______________________________________________________________________________________________
1993
______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Life insurance $ 1,966.1 $ 78.0 $ 63.9 $ 1,952.0
Accident and health insurance 3,885.2 47.5 28.0 3,865.7
Property-casualty insurance 5,577.8 1,312.8 492.2 4,757.2
_______________________________________________________
Total earned premiums $ 11,429.1 $ 1,438.3 $ 584.1 $ 10,574.9
______________________________________________________________________________________________
1992
______________________________________________________________________________________________
Life insurance $ 2,044.4 $ 144.2 $ 52.6 $ 1,952.8
Accident and health insurance 3,708.5 53.6 25.1 3,680.0
Property-casualty insurance 6,153.4 1,530.4 538.1 5,161.1
_______________________________________________________
Total earned premiums $ 11,906.3 $ 1,728.2 $ 615.8 $ 10,793.9
______________________________________________________________________________________________
1991
______________________________________________________________________________________________
Life insurance $ 1,926.1 $ 188.3 $ 44.6 $ 1,782.4
Accident and health insurance 3,615.1 49.2 21.3 3,587.2
Property-casualty insurance 6,963.5 1,546.6 658.1 6,075.0
_______________________________________________________
Total earned premiums $ 12,504.7 $ 1,784.1 $ 724.0 $ 11,444.6
______________________________________________________________________________________________
</TABLE>
There is not a material difference in premiums on a written versus an
earned basis.
Ceded current and future benefits were $1.3 billion, $1.7 billion and
$1.3 billion for the years ended December 31, 1993, 1992 and 1991,
respectively.
A property-casualty subsidiary of the company acts as a servicing
carrier for several involuntary pools. This business is ceded
completely to the pools, and the company has no direct underwriting risk
associated with it. Reinsurance recoverables for this business were
approximately $1.9 billion, $2.0 billion and $2.2 billion in 1993, 1992
and 1991, respectively. The company also participates as a member in a
number of the involuntary pools, and as a result assumes its share of
premiums and losses associated with these pools.
<PAGE> 88
Notes to Financial Statements (continued)
16. Commitments and Contingent Liabilities
Off-Balance-Sheet Financial Instruments
The company utilizes financial instruments with off-balance-sheet risk
in the normal course of business in order to manage investment returns
and to align maturities, interest rates, currency rates and funds
availability with its obligations. Financial instruments used for such
purposes include futures and forward contracts, and swap agreements. In
order to meet the financing needs of its customers, the company also is
a party to financial guarantees and commitments to accept deposits,
extend credit and fund partnerships. All of these instruments involve,
to varying degrees, elements of market risk in excess of the amount
recognized in the Consolidated Balance Sheets. Market risk is the
possibility that future changes in market prices may make a financial
instrument less valuable. The amount of market risk related to forward
contracts to sell investments, interest rate and currency rate swaps,
and commitments to accept deposits is not material. Unless otherwise
noted, the company does not require collateral or other security to
support the financial instruments discussed below.
Foreign Exchange Forward Contracts
Foreign exchange forward contracts are agreements to exchange fixed
amounts of two different currencies at a specified future date and at a
specified price. The company enters into foreign exchange forward
contracts primarily as a hedge against foreign currency fluctuations.
Risk results from fluctuations in translation rates and the possibility
of non-performance by counterparties which could result in an unhedged
position. At December 31, 1993 and 1992, the company had contracts to
sell $875.4 million and $619.3 million and contracts to buy $26.9
million and $14.8 million of various foreign currencies. The contract
amounts of these instruments reflect the company's extent of involvement
in this particular type of financial instrument and do not represent the
company's risk of loss. The fair value of the foreign exchange forward
contacts at December 31, 1993 approximated the cost to the company of
acquiring such contracts.
Futures and Forward Contracts
Futures and forward contracts represent commitments to either purchase
or sell securities or money market instruments at a specified future
date and at a specified price or yield. The inability of counterparties
to perform under the terms of the contracts may result in a higher
replacement cost. Also, there is potential for change in the value of
the securities underlying the futures or forward contracts. At December
31, 1993 and 1992, the company had futures contracts to purchase $141.2
million and $641.9 million of U.S. Treasury securities. At December 31,
1993, the company had forward contracts to purchase investments of
$273.6 million. At December 31, 1992 the company had no significant
forward contracts. The contract amounts of these instruments reflect
the company's extent of involvement in this particular type of financial
instrument and do not represent the company's risk of loss. The fair
value of the futures and forward contracts at December 31, 1993
approximated the cost to the company of acquiring such contracts.
<PAGE> 89
Notes to Financial Statements (continued)
16. Commitments and Contingent Liabilities (continued)
Commitments
Commitments to extend credit are legally binding agreements to lend
moneys at a specified interest rate and within a specified time period.
Risk arises from the potential inability of counterparties to perform
under the terms of the contracts and from interest rate fluctuations.
The company's exposure to credit risk is minimized by the existence of
conditions within the commitment agreements which release the company
from its obligations in the event of a material adverse change in the
counterparty's financial condition. At December 31, 1993 and 1992, the
company had $130.2 million and $69.5 million, respectively, in
commitments to fund partnerships and $64.0 million and $8.7 million,
respectively, in commitments to fund commercial mortgage loans.
Financial Guarantees
The company no longer writes municipal bond insurance and such business
previously written by the company was reinsured with another company.
It is not practicable to estimate the fair value of the business that
has been ceded.
The Aetna Casualty and Surety Company, a subsidiary of Aetna Life and
Casualty Company, also was a writer of financial guarantees on
obligations secured by real estate, corporate debt obligations, and of
municipal and non-municipal tax-exempt entities through December 31,
1987, and ceased writing such guarantees as of January 1, 1988. The
aggregate net par value of financial guarantees outstanding at December
31, 1993 and 1992 was $930.3 million and $1.1 billion, respectively.
Future run-off of financial guarantees as of December 31, 1993 is
estimated to be $89.6 million for 1994, $233.0 million for 1995, $30.4
million for 1996, $171.4 million for 1997, $281.4 million for 1998 and
$124.5 million thereafter. It was not practicable to estimate a fair
value for the company's financial guarantees because the company no
longer writes such guarantees, there is no quoted market price for such
contracts, and it is not practicable to reliably estimate the timing and
amount of all future cash flows due to the unique nature of each of
these contracts.
Total reserves for the financial guarantee business, which include
reserves for defaults, probable losses not yet identified, and unearned
premiums, were $80.2 million and $74.6 million at December 31, 1993 and
1992, respectively. Premium income received from such guarantees is
recognized pro rata over the contract coverage period.
Reinsurance Agreement
In connection with the sale of Am Re (see Note 3), Am Re and the company
entered into a reinsurance agreement which provides that to the extent
Am Re incurred losses in 1991 and prior that are still outstanding at
January 1, 1992 in excess of $2.7 billion (or $362 million in excess of
Am Re's reserves as of December 31, 1991, adjusted for certain
reinsurance transactions), the company has an 80% participation in
payments on those losses up to a maximum payment by the company of $500
million. The company does not expect to, and has not yet been required
to make any payments under this agreement.
<PAGE> 90
Notes to Financial Statements (continued)
16. Commitments and Contingent Liabilities (continued)
Concentrations of Credit Risk
Disclosure of concentrations of credit risk for bonds and mortgage loans
is incorporated herein by reference to Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 33
through 42. There were no material concentrations of off-balance-sheet
financial instruments at December 31, 1993.
Leases
The company has entered into operating leases for office space and
certain computer, word processing and other equipment. Rental expenses
for these items were $267.4 million, $312.0 million and $305.1 million
for 1993, 1992 and 1991, respectively. Future net minimum payments
under non-cancelable leases as of December 31, 1993 are estimated to be
$197.5 million for 1994, $167.3 million for 1995, $136.0 million for
1996, $106.0 million for 1997, $78.5 million for 1998 and $732.6 million
thereafter.
Included in these future payments are $113.5 million and $410.4 million,
attributable to the next five and subsequent ten years, respectively, of
a subordinated master lease for office space. The company, as the major
sublessee, is obligated to pay $67.8 million for its own space during
the next six years.
Regulatory Environment
In March 1992, the California Insurance Commissioner ("Commissioner")
issued a notice of hearing to the company requiring that it show cause
why it should not be ordered to pay refunds with interest pursuant to
Proposition 103. Proposition 103 is a voter initiative adopted in
November 1988 which requires, among other things, certain premium
rollbacks or refunds by insurance companies. The Commissioner alleged
that the company's refund obligation was $110 million, plus 10% interest
from May 1989 (or $51 million as of December 31, 1993).
On January 13, 1994, the company entered into a stipulation with the
California Department of Insurance ("Department") under which the
company agreed to make refunds of $31 million, including interest, with
respect to certain California policies issued or renewed between
November 8, 1988 and November 7, 1989. The Department has agreed that
this refund, when finalized, shall constitute the company's complete and
entire rollback and refund obligation. Given applicable reserves, the
agreement with the Department will not materially affect the company's
earned premium revenue or net income.
<PAGE> 91
Notes to Financial Statements (continued)
16. Commitments and Contingent Liabilities (continued)
Asbestos and Environmental-Related Claims
Reserving for asbestos and environmental-related claims is subject to
significant uncertainties. Because of these significant uncertainties
and the likelihood that they will not be resolved in the near future,
management is unable to make a reasonable estimate as to the ultimate
amount of losses for all asbestos and environmental-related claims and
related litigation expenses and is unable to determine whether the
adverse effect of such losses will be material to the company's future
results, liquidity and/or capital resources. Reserves for asbestos and
environmental liabilities are evaluated by management regularly, and,
subject to the significant uncertainties mentioned above, adjustments
are made to such reserves as developing loss patterns and other
information appear to warrant.
Litigation
Beginning in 1988, the attorneys general of 20 states each filed
separate antitrust suits against The Aetna Casualty and Surety Company
("Aetna") and over 30 other insurers, reinsurers, trade associations and
brokers. The suits are on behalf of the states themselves and, in most
cases, alleged classes of their political subdivisions. Additionally,
20 class actions were filed in various courts on behalf of private
plaintiffs. The attorneys general suits and the private plaintiff
actions all were consolidated for pretrial proceedings in the United
States District Court for the Northern District of California ("U.S.
District Court").
All of the suits allege that the defendants violated various federal or
state antitrust laws (or laws related to business trade practices) by,
among other things, conspiring to restrict the terms and coverages of
commercial general liability insurance and also reinsurance. The state
suits seek civil penalties, unspecified damages and extensive injunctive
relief. The private suits seek unspecified treble damages and broad
injunctive relief.
In September 1989, the U.S. District Court entered an order granting the
motions of the defendants (including Aetna), dismissing with prejudice
all federal antitrust claims in all of the complaints before it. The
U.S. District Court declined to exercise jurisdiction over the state
claims in the attorneys general complaints.
<PAGE> 92
Notes to Financial Statements (continued)
16. Commitments and Contingent Liabilities (continued)
Litigation (continued)
After unsuccessfully attempting to have the federal claims reinstated
before the U.S. District Court, the 20 states and most of the private
plaintiffs then appealed the U.S. District Court's decision dismissing
the federal claims to the United States Court of Appeals for the Ninth
Circuit ("Court of Appeals"). In June 1991, the Court of Appeals
reversed the U.S. District Court's decision dismissing the federal
antitrust claims and remanded those claims to the U.S. District Court
for trial. The defendants subsequently filed a motion for rehearing; in
October 1991, the Court of Appeals denied this motion. In January 1992,
Aetna and several other defendants filed a petition for certiorari with
the Supreme Court of the United States ("Supreme Court"), seeking review
of the Court of Appeals' decision. On October 5, 1992, the Supreme
Court granted the defendants' petition.
On June 28, 1993, the Supreme Court issued its decision returning the
suit to the Court of Appeals for further proceedings consistent with the
standards articulated by the Supreme Court. The Supreme Court held
unanimously that Aetna and the other defendant insurers did not forfeit
their otherwise available McCarran-Ferguson Act immunity when they acted
with reinsurers to produce acceptable policy terms. The Supreme Court
also held that Aetna and the other defendant insurers could lose their
immunity under the "boycott" exception to the McCarran exemption only if
the plaintiffs could prove that the defendant insurers attempted to
coerce acceptance of insurance policy terms by means of refusals to deal
in separate and unrelated transactions. On October 7, 1993, the Court
of Appeals remanded the case to the U.S. District Court for further
proceedings. In an upcoming status conference, the court will set a
case management plan outlining future conduct of the litigation.
Aetna is continuously involved in numerous other lawsuits arising, for
the most part, in the ordinary course of its business operations either
as a liability insurer defending third-party claims brought against its
insureds or as an insurer defending coverage claims brought against
itself, including lawsuits related to issues of policy coverage and
judicial interpretation. One such area of coverage litigation involves
legal liability for asbestos and environmental-related claims. These
lawsuits and other factors make reserving for asbestos and
environmental-related claims subject to significant uncertainties.
While the ultimate outcome of the litigation described herein cannot be
determined at this time, management does not believe it likely that such
litigation, net of reserves established therefor and giving effect to
reinsurance, will result in judgments for amounts material to the
financial condition of the company, although it may affect results of
operations in future periods. Litigation related to asbestos and
environmental claims is subject to significant uncertainties; therefore
management is unable to determine whether the effects on operations in
future periods will be material.
<PAGE> 93
Independent Auditors' Report
The Shareholders and Board of Directors
Aetna Life and Casualty Company:
We have audited the consolidated balance sheets of Aetna Life and
Casualty Company and Subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended December
31, 1993. 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, the aforementioned consolidated financial statements
present fairly, in all material respects, the financial position of
Aetna Life and Casualty Company and Subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for
each of years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the company changed its methods of accounting for certain investments in
debt and equity securities, reinsurance of short-duration and long-
duration contracts, postemployment benefits, workers' compensation life
table indemnity reserves and retrospectively rated reinsurance
contracts. In 1992, the company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
KPMG PEAT MARWICK
Hartford, Connecticut
February 8, 1994
<PAGE> 94
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
(Millions, except per share data) First Second Third Fourth
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
1993 (1)(2)(3)(4)(5)(6)(7)(8)
_____________________________________________________________________________________________________
Total revenue $ 4,294.1 $ 4,326.5 $ 4,302.9 $ 4,194.2
_____________________________________________________________________________________________________
Income (Loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect adjustments $ 191.3 $ 151.1 $ 285.2 $ (1,775.0)
Federal and foreign income taxes (benefits) 52.0 .3 59.6 (644.0)
____________________________________________________
Income (Loss) from continuing operations
before extraordinary item and cumulative
effect adjustments 139.3 150.8 225.6 (1,131.0)
Discontinued operations, net of tax 27.0 - - -
____________________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments 166.3 150.8 225.6 (1,131.0)
Extraordinary loss on debenture redemption - (4.7) - -
Cumulative effect adjustments 227.8 - - (.7)
____________________________________________________
Net income (loss) $ 394.1 $ 146.1 $ 225.6 $ (1,131.7)
_____________________________________________________________________________________________________
Proforma amounts assuming the discounting of
workers' compensation life table indemnity
reserves is applied retroactively:
Income (Loss) from continuing operations $ 139.3 $ 150.8 $ 225.6 $ (1,131.0)
Net income (loss) $ 144.1 $ 146.1 $ 225.6 $ (1,131.7)
_____________________________________________________________________________________________________
Proforma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (loss) from continuing operations $ 139.3 $ 150.8 $ 225.6 $ (1,131.0)
Net income (loss) $ 367.8 $ 146.1 $ 225.6 $ (1,131.7)
_____________________________________________________________________________________________________
Per Share Results:
Income (Loss) from continuing operations
before extraordinary item and cumulative
effect adjustments $ 1.26 $ 1.36 $ 2.03 $ (10.09)
Discontinued operations, net of tax .25 - - -
____________________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments 1.51 1.36 2.03 (10.09)
Extraordinary loss on debenture redemption - (.04) - -
Cumulative effect adjustments 2.06 - - (.01)
____________________________________________________
Net income (loss) $ 3.57 $ 1.32 $ 2.03 $ (10.10)
_____________________________________________________________________________________________________
Proforma amounts assuming the discounting of
workers' compensation life table indemnity
reserves is applied retroactively:
Income (Loss) from continuing operations $ 1.26 $ 1.36 $ 2.03 $ (10.09)
Net income (loss) $ 1.31 $ 1.32 $ 2.03 $ (10.10)
_____________________________________________________________________________________________________
Proforma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (loss) from continuing operations $ 1.26 $ 1.36 $ 2.03 $ (10.09)
Net income (loss) $ 3.33 $ 1.32 $ 2.03 $ (10.10)
_____________________________________________________________________________________________________
Common Stock Data:
Dividends Declared $ .69 $ .69 $ .69 $ .69
Common Stock Prices, High 53.00 55.75 60.00 65.88
Common Stock Prices, Low 44.00 48.63 54.25 58.63
_____________________________________________________________________________________________________
<FN>
The sum of quarterly earnings per share amounts does not necessarily equal the full year's amount,
since they are calculated independently.
Common stock prices are as reported on the NYSE-Composite Tape.
See Notes to Financial Statements.
(1) The 1993 net loss includes net capital losses from additions to reserves for mortgage loans and real
estate and real estate write-downs, after taxes and after gains and losses allocated to experience
rated pension contractholders, of $70.3 million, $94.8 million, $79.2 million and $173.3 million for
the first, second, third and fourth quarters of 1993, respectively.
(2) First quarter 1993 net income includes a charge of $48.5 million related to the
cumulative effect of adopting FAS No. 112, Employers' Accounting for Postemployment Benefits.
(3) First quarter 1993 net income includes a benefit of $26.3 million related to the cumulative
effect of the change in accounting for retrospectively rated reinsurance contracts.
(4) Third quarter 1993 results from continuing operations before extraordinary item and cumulative
effect adjustments include a net benefit of $21.8 million related to a change in the federal
corporate tax rate from 34% to 35%.
(5) First quarter 1993 net income includes a benefit of $250.0 million related to the cumulative effect
of adopting discounting of workers' compensation life table indemnity reserves. The current year
impact of this change was an increase to after-tax results of $78.0 million in the fourth quarter
of 1993. The current year impact did not have an effect on results for the first three quarters
of 1993. Fourth quarter 1993 results include an after-tax charge of $259.0 million for reserve
additions for certain workers' compensation exposures.
(6) The 1993 fourth quarter results reflect a loss of $825.0 million ($1.3 billion pretax) on the
discontinuance of fully guaranteed large case pension products.
(7) Fourth quarter 1993 results reflect an after-tax severance and facilities charge of $200.0 million
($308.0 million pretax).
(8) Fourth quarter 1993 net loss includes a charge of $.7 million related to the cumulative effect
of adopting FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.
</TABLE>
<PAGE> 95
Quarterly Data (Unaudited) - (continued)
<TABLE>
<CAPTION>
(Millions, except per share data) First Second Third Fourth
____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
1992 (1)(2)(3)(4)(5)
____________________________________________________________________________________________________
Total revenue $ 4,516.7 $ 4,273.3 $ 4,409.2 $ 4.298.0
____________________________________________________________________________________________________
Income (Loss) from continuing operations
before income taxes and cumulative effect
adjustments $ 201.3 $ (141.1) $ 136.1 $ (317.7)
Federal and foreign income taxes (benefits) 46.9 (68.0) 30.8 (125.8)
___________________________________________________
Income (Loss) from continuing operations
before cumulative effect adjustments 154.4 (73.1) 105.3 (191.9)
Discontinued operations, net of tax 76.8 27.9 69.1 -
___________________________________________________
Income (Loss) before cumulative effect
adjustments 231.2 (45.2) 174.4 (191.9)
Cumulative effect adjustments (112.5) - - -
___________________________________________________
Net income (loss) $ 118.7 $ (45.2) $ 174.4 $ (191.9)
____________________________________________________________________________________________________
Proforma amounts assuming the discounting of
workers' compensation life table indemnity
reserves is applied retroactively:
Income (Loss) from continuing operations $ 149.0 $ (62.3) $ 103.7 $ (193.8)
Net income (loss) $ 113.3 $ (34.4) $ 172.8 $ (193.8)
____________________________________________________________________________________________________
Proforma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (Loss) from continuing operations $ 156.5 $ (64.6) $ 69.8 $ (188.4)
Net income (loss) $ 120.8 $ (36.7) $ 138.9 $ (188.4)
____________________________________________________________________________________________________
Per Share Results:
Income (Loss) from continuing operations
before cumulative effect adjustments $ 1.40 $ (.66) $ .95 $ (1.74)
Discontinued operations, net of tax .69 .25 .64 -
___________________________________________________
Income (Loss) before cumulative effect
adjustments 2.09 (.41) 1.59 (1.74)
Cumulative effect adjustments (1.02) - - -
___________________________________________________
Net income (loss) $ 1.07 $ (.41) $ 1.59 $ (1.74)
____________________________________________________________________________________________________
Proforma amounts assuming the discounting of
workers' compensation life table indemnity
reserves is applied retroactively:
Income (Loss) from continuing operations $ 1.35 $ (.56) $ .94 $ (1.76)
Net income (loss) $ 1.03 $ (.31) $ 1.57 $ (1.76)
____________________________________________________________________________________________________
Proforma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (loss) from continuing operations $ 1.43 $ (.59) $ .62 $ (1.71)
Net income (loss) $ 1.10 $ (.34) $ 1.26 $ (1.71)
____________________________________________________________________________________________________
Common Stock Data:
Dividends Declared $ .69 $ .69 $ .69 $ .69
Common Stock Prices, High 46.63 44.00 44.63 48.63
Common Stock Prices, Low 41.13 39.38 38.00 41.38
____________________________________________________________________________________________________
<FN>
Earnings per share calculations are based on results of stand-alone quarters.
Common stock prices are as reported on the NYSE-Composite Tape.
See Notes to Financial Statements.
(1) The 1992 net income includes net capital losses from additions to reserves for mortgage loans
and real estate and real estate write-downs, after taxes and after gains and losses allocated
to experience rated pension contractholders, of $41.4 million, $104.9 million, $52.4 million
and $81.5 million for the first, second, third and fourth quarters of 1992, respectively.
(2) First quarter 1992 net income includes a charge of $385.0 million and a benefit of $272.5
million related to the cumulative effects of adopting FAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and FAS No. 109, Accounting for Income Taxes,
respectively. The results from continuing operations before cumulative effect adjustments
for the quarters of 1992 have been restated to reflect the current year impact of adopting
FAS No. 106 and FAS No. 109. The impact of adopting FAS No. 106 was a reduction to after-tax
results of $9.9 million, $10.0 million, $9.6 million and $9.5 million for the first, second,
third and fourth quarters of 1992, respectively. The impact of adopting FAS No. 109 was a
decrease to results of $12.0 million, $12.1 million, $11.8 million and $11.9 million, for the
first, second, third and fourth quarters of 1992, respectively.
(3) Fourth quarter 1992 results include an after-tax charge of $180.0 million for reserve additions
for certain asbestos and environmental exposures.
(4) Third quarter 1992 results reflect $65.4 million of after-tax losses related to Hurricane Andrew.
Of this amount, $53.4 million was attributable to continuing operations and $12.0 million to
discontinued operations.
(5) Second quarter 1992 results reflect an after-tax reorganization charge of $95.7 million
($145.0 million pretax) related primarily to severance and benefit costs of expense and staff
reduction actions.
</TABLE>
<PAGE> 96
Appendix to Exhibit 13
The following information, which is presented in tabular form in this
exhibit, is presented in the form of pie charts in the printed 1993
annual report to shareholders of Aetna Life and Casualty Company:
<TABLE>
<CAPTION>
Page No. in this Exhibit Description
________________________ ______________________________________________________
<S> <C>
32 Invested Assets of Life Companies
32 Invested Assets of Property-Casualty Companies
33 Bond Quality Ratings
33 Bond Investments by Market Sector
40 Problem Mortgage Loans by Property Type
40 Geographic Distribution of Problem Mortgage Loans
40 Restructured Mortgage Loans by Property Type
40 Geographic Distribution of Restructured Mortgage Loans
42 Property Held for Sale by Property Type
42 Geographic Distribution of Property Held for Sale
</TABLE>
<PAGE> 1
By-Laws
Aetna Life and Casualty Company
Hartford, Connecticut
Article I
Shareholders' Meetings
Section 1. The Annual Meeting of the Shareholders of the Company shall
be held at such time and place as the Board of Directors may prescribe.
Section 2. At any meeting of the shareholders, only such business may
be conducted as shall have been properly brought before the meeting and
as shall have been determined to be lawful and appropriate for
consideration by shareholders at the meeting. To be properly brought
before a meeting, the business must be (a) specified in the notice of
meeting, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or the Chairman, or (c) otherwise
properly brought before the meeting by a shareholder. For business to
be properly brought before a meeting by a shareholder pursuant to clause
(c) above, the shareholder must have given written notice of such
shareholder's intent to present such business, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of
the Company not later than 90 days prior to the date such meeting is to
be held; provided, however, notice by the shareholder shall be timely in
any event if received not later than the close of business on the 10th
day following the day on which public disclosure of the date of the
meeting was made. Such shareholder's notice shall set forth as to each
matter the shareholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b) the name
and address, as they appear on the Company's books, of such shareholder,
(c) the class and number of shares of capital stock of the Company which
are beneficially owned by such shareholder, and (d) any material
interest of such shareholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at a
meeting except in accordance with the procedures set forth in this
Section 2. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the procedures prescribed
herein, or that business was not lawful or appropriate for consideration
by shareholders at the meeting, and if the chairman of the meeting
should so determine, the chairman of the meeting shall so declare to the
meeting and any such business not properly brought before the meeting
shall not be transacted at that meeting.
<PAGE> 2
Section 3. Nomination of persons for election to the Board of Directors
of the Company may be made by the Board of Directors or by any
shareholder of the Company entitled to vote for the election of
Directors. Any shareholder entitled to vote for the election of
Directors at a meeting may nominate persons for the election of
Directors only if written notice of such shareholder's intent to make
such nomination is given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the Company not later
than 90 days prior to the date such meeting is to be held; provided,
however, that notice by the shareholder shall be timely in any event if
received not later than the close of business on the 10th day following
the day on which public disclosure of the date of the meeting was made.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a
Director, (i) the name, age, business address and residence address of
such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of capital stock of the Company
which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected) and (b) as to the
shareholder giving the notice, (i) the name and address, as they appear
on the Company's books, of such shareholder and, (ii) the class and
number of shares of capital stock of the Company which are beneficially
owned by such shareholder. The chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination
was not made in accordance with the procedures herein prescribed and, if
the chairman of the meeting should so determine, the chairman shall so
declare to the meeting and the defective nomination shall be
disregarded.
Section 4. Special meetings of the shareholders may be called by the
Board, the Chairman or the President. Each such meeting shall be held
on the date and at the hour specified in the call for the meeting and,
unless another place within or without the State of Connecticut has been
specified in any such call by the Board or the Chairman, at the home
office of the Company in the City of Hartford.
Section 5. The quorum for each meeting of shareholders shall consist of
a majority of the voting power of shares entitled to vote at such
meeting.
Section 6. The order of and the rules for conducting business at all
meetings of the shareholders shall be determined by the chairman of the
meeting.
<PAGE> 3
Article II
Directors
Section 1. The Board of Directors shall consist of not less than three
and not more than twenty-one Directors, and the number of directorships
at any time within such minimum and maximum range shall be the number
fixed by vote of the Shareholders or Directors or, in the absence
thereof, shall be the number of Directors elected at the preceding
Annual Meeting of Shareholders. If a vacancy in the Board of Directors
is created by an increase in the number of directorships, it may be
filled for the unexpired term by action of the Shareholders or by the
concurring vote of Directors holding a majority of the directorships,
which number of directorships shall be the number prior to the vote on
the increase. All other vacancies in the Board shall be filled in the
manner provided by law.
Section 2. Regular meetings of the Board shall be held at such place
and on such day and hour at such periodic intervals as the Board may
from time to time designate. Notice of such regular meetings need not
be given, but the Secretary shall notify each Director by mail of the
action of the Board designating or changing the place, period, day, or
hour of such regular meetings.
Section 3. Special meetings of the Board shall be held at the call of
the Chairman, the President or not less than one-third of the Directors
then in office.
Section 4. A quorum shall consist of a majority of the Directors at the
time in office, but not less than two Directors nor less than one-third
of the number of Directors provided for by Article II, Section 1.
Section 5. The Board shall fix the compensation of each Director and of
each member of a committee appointed by the Board pursuant to Article
III.
Article III
Committees Of The Board
Section 1. There shall be an Executive Committee consisting of not less
than three Directors, including the Chairman, who shall be designated by
the affirmative vote of Directors holding a majority of the
directorships, at a meeting at which a quorum is present. The Committee
may advise with and aid the officers of the Company on matters
concerning its interests and the management of its business, and
generally perform such duties and exercise such powers as may be
directed or delegated by the Board from time to time. During the
intervals between meetings of the Board, the Committee shall possess and
may exercise all of the authority of the Board in the management and
direction of the business, property and affairs of the Company, subject
to such limitations as the Board may from time to time impose.
<PAGE> 4
Section 2. There shall be an Investment Committee consisting of no
fewer than three Directors, including the Chairman, which Directors
shall be designated by the affirmative vote of Directors holding a
majority of the directorships, at a meeting at which a quorum is
present. The Committee shall review the investment policies and
programs of the Company and may direct the sale of such securities and
other property of the Company, except real property owned and occupied
by the Company for the conduct of its business, as it may deem best, and
direct the investment of the funds of the Company (including the
incurrence of indebtedness and other liabilities in connection
therewith) in such amounts and in such securities or other property as
the Committee shall consider for the best interest of the Company. The
Committee may perform such other duties and exercise such other powers
as may be directed or delegated by the Board from time to time.
Section 3. From time to time the Board, by the affirmative vote of
Directors holding a majority of the directorships, at a meeting at which
a quorum is present, (a) may provide for such other committees as the
Board deems necessary or appropriate to carry out such of its functions
and responsibilities or to advise it on such matters as may be specified
in such vote; (b) may alter or amend the functions or responsibilities
of any such committee theretofore established; and (c) may designate two
or more Directors to constitute any such committee.
Section 4. The Board, by the affirmative vote of Directors holding a
majority of the directorships, at a meeting at which a quorum is
present, may designate any member of a committee as chairman of that
committee, may appoint any officer of the Company (or his designate) as
recorder of that committee, and may designate or provide for the
designation of one or more Directors as alternate members of that
committee who may replace any absent or disqualified member at any
meeting of that committee upon such notice and in such manner as may be
provided in the vote designating such alternate members. Each committee
shall meet at the call of its chairman, the Chairman, the President, the
Secretary, or any two members of the committee. The presence of a
majority of the members of a committee shall be necessary to constitute
a quorum. Regular minutes of the proceedings of each committee shall be
kept in a book provided for that purpose, and all actions of each
committee shall be reported to the Board. The members of each committee
of the Board shall continue in office for such term as may be provided
in the vote designating them as members (which term shall not exceed
their term of office as Directors) and until their successors are duly
designated, unless sooner discharged.
<PAGE> 5
Article IV
Officers
Section 1. There shall be a Chairman elected by the Board of Directors
from their own number and a President and a Secretary appointed by the
Board. The Board may also appoint one or more Vice Chairmen, Executive
Vice Presidents and Senior Vice Presidents. The Board shall fix, or
authorize any officer or officers to fix, the compensation of any such
officer. In addition, the Board may appoint, and fix the compensation
of, and may authorize any officer or officers to appoint, and to fix the
compensation of, such additional officers as the Board or such
authorized officer or officers deem necessary for the proper conduct of
the business of the Company.
Section 2. The Chairman shall be the chief executive officer of the
Company unless the Board vests such position in another officer. The
chief executive officer shall be responsible under the direction of the
Board for the general supervision, management, and control of the
affairs and property of the Company. The Chairman shall serve as an ex
officio member of all committees appointed by the Board except as may be
otherwise provided in these By-Laws or in the vote appointing a
committee. The Chairman shall preside at all meetings of the
shareholders, the Board and all committees appointed by the Board of
which he is a member except as may be otherwise provided in the vote
appointing a committee. The Chairman, and the chief executive officer
if they are not the same person, shall have such other authority and
responsibility and perform such other duties as may from time to time be
delegated by the Board.
Section 3. Officers appointed pursuant to Section 1 of this Article IV
shall be subject to the direction of and shall have such authority and
perform such duties as may be assigned from time to time by the Board of
Directors or the chief executive officer.
Article V
Corporate Seal
Section 1. The corporate seal of the Company consists of the corporate
name "Aetna Life and Casualty Company" in a circle, and the words
"Hartford, Conn." within the circle.
Section 2. The corporate seal shall be in the custody of the Secretary
and shall be affixed by him or, with the approval of the Chairman, or
President, by his delegate to documents required to be executed under
the seal of the Company. Duplicate seals may be in the possession of
such other officers of the Company, and affixed to such documents, as
the Board of Directors, or officers acting under its authorization, may
from time to time determine necessary or desirable.
<PAGE> 6
Article VI
Amendment Of By-Laws
These By-Laws may be rescinded or amended
(a) by an affirmative vote of the holders of a majority of the voting
power of shares entitled to vote thereon at a meeting of the
shareholders in the call for which written notice of such proposed
action shall have been given, or,
(b) by vote of a majority of the number of Directors provided for by
Article II, Section 1, at any meeting of the Board upon written notice
to each Director of the action proposed to be taken.
<PAGE> 1
AETNA LIFE AND CASUALTY COMPANY
1986 MANAGEMENT INCENTIVE PLAN
AS AMENDED EFFECTIVE FEBRUARY 25, 1994
Article 1
Purpose
The purpose of this Plan is to provide a general incentive for
designated key executive employees of the Companies in order to improve
operating results of the Companies and to reward for the accomplishment
of financial and strategic objectives of the Companies.
Article 2
Definitions
2.1 "Aetna" means Aetna Life and Casualty Company.
2.2 "Award" means the amount, expressed in dollars, which is granted to
a Participant.
2.3 "Board" means the Board of Directors of Aetna.
2.4 "Committee" means the Committee on Compensation and Organization of
the Board or any successor thereto.
2.5 "Common Stock" means the Common Capital Stock, without par value,
of Aetna.
2.6 "Companies" means one or more of Aetna, any of Aetna's affiliated
companies, and any other entity as to which (a) Aetna or any of Aetna's
affiliated companies holds or is seeking to acquire an ownership
interest, and (b) has been included in the Plan by the Committee.
2.7 "Deferral Period" means the period of time during which an Award or
any portion thereof is being deferred (a) in such bookkeeping account as
shall be determined by the Committee in accordance with the terms of the
Plan or (b) pursuant to a Timely Election made by the Participant,
unless such period is terminated earlier by action of the Committee
taken pursuant to Section 6.3. For purposes of Section 6.1 the
mandatory Deferral Period shall end on such date as determined by the
Committee or the taking of action by the Committee in accordance with
Section 6.3, whichever is the first to occur.
2.8 "Disability" means the occurrence of an event which would entitle a
Participant to the payment of disability income under a specific long-
term disability income plan approved by the Companies and under which
the Participant is enrolled, as such plan may be amended from time to
time.
2.9 "Participant" means certain key executive employees of the
Companies as designated by the Committee pursuant to Article 4.
<PAGE> 2
2.10 "Performance Year:" means the year for which a Participant's
contribution to the Companies will be evaluated pursuant to Article 5
for purposes of deciding whether such Participant will receive an Award.
2.11 "Plan" means this 1986 Management Incentive Plan.
2.12 "Retirement" means the retirement of the Participant from active
service with the Companies at or after the age at which full pension
benefits are provided under a specific retirement plan approved by the
Companies and under which the Participant is enrolled, as such plan may
be amended from time to time. If a Participant terminates his
employment prior to reaching such age, "Retirement" shall be deemed to
have occurred, for purposes of Section 6.2 only, when such Participant
reaches such age.
2.13 "Stock Unit" means a unit of interest having at all times a value
equal to the market value of one share of Common stock (as determined
pursuant to Section 7 hereof).
2.14 "Stock Unit Account" means the account maintained for any
Participant to reflect Stock Units credited to the Participant under the
Plan.
2.15 "Timely Election" means an election made in accordance with
Section 6.4 hereof to exercise one or more of the deferred payment
options provided under the Plan.
Article 3
Administration of the Plan
3.1 The Plan shall be administered by the Committee. The Committee
shall have the responsibility of construing and interpreting the Plan
and of establishing and amending such rules and regulations as it deems
necessary or desirable for the proper administration of the Plan. Any
decision or action taken or to be taken by the Committee, arising out of
or in connection with the construction, administration, interpretation
and effect of the Plan and of its rules and regulations, shall, to the
fullest extent permitted by law, be within its absolute discretion and
shall be conclusive and binding upon all Participants and any person
claiming under or through any Participant.
3.2 Any member of the Board who is an officer of the Companies shall be
without vote on (a) any Award for such member, (b) any proposed
amendment to the Plan, or (c) any other matter which affects such
member's individual interest under the Plan; and such member's presence
shall not be counted in determining whether a quorum is present at any
meeting at which a vote involving the Plan or individual rights
thereunder is taken.
Article 4
Determination of Participants
4.1 The Committee shall designate as a Participant in the Plan any
executive employee of the Companies who, in the opinion of the
Committee, is in a position to have a direct and significant impact on
the financial or strategic objectives of the Companies.
4.2 Directors who are not employees of the Companies shall not be
eligible to participate in the Plan.
<PAGE> 3
Article 5
Determination of Awards
5.1 The Committee shall determine which Participants are to be granted
Awards and the amount of each Award, subject to approval of each Award
by the Board; provided, however, that, unless otherwise determined by
the Committee, no Award shall exceed 80% of the salary of such
Participant, subject to any limitation which may be imposed by law. An
Award shall be deemed "granted" hereunder on the date such Award is
approved by the Board.
5.2 In making its determinations, the Committee shall give primary
consideration to the degree to which the Participant has met defined
objectives and materially contributed to the overall results of the
Companies for that Performance Year. To assist it in making these
determinations, the Committee will be furnished with specific
recommendations for Awards from the Chairman of Aetna (except with
respect to the Chairman's own Award) and may consider such other advice
and recommendations as it deems appropriate.
Article 6
Payment of Awards
6.1 For each Award, the Committee may provide that a certain percentage
be mandatorily deferred for the Deferral period. The percentage of the
mandatory deferral shall be such percent as determined by the Committee.
The percentage of each Award so deferred shall be placed in such
bookkeeping account as determined by the Committee, and, at the end of
the mandatory Deferral period, the value of the account shall be payable
in cash, except to the extent that the Participant has made a Timely
Election to place all or a portion of such deferral payment under one or
more of the further deferral options set forth in Section 6.2, in which
case such further deferral payment (except to the extent deferred under
a Stock Unit Account) shall increase from the end of the mandatory
Deferral Period to the date or dates on which the further deferred
payment is made, according to a formula to be determined from time to
time by the Board.
6.2 The percentage of each Award not deferred pursuant to Section 6.1
shall be paid in cash within a reasonable period of time after the date
such Award is granted except to the extent that the participant has made
a Timely Election to place all or a portion of the Award under one or
more of the deferral options set forth below or such other deferral
option as shall be determined from time to time by the Committee.
(a) Deferred cash paid in installments over a period of three years,
the first such installment to be paid one year from the date the
Award is granted.
(b) Deferred cash paid: (i) in a lump sum at Retirement; (ii) in a
lump sum in January of the year immediately following the year of
Retirement; or (iii) in installments over either a five-year or a
ten-year period commencing with Retirement or in January of the
year immediately following the year of Retirement.
<PAGE> 4
(c) Deferral under a Stock Unit Account, the value of such Account to
be payable in a cash lump sum (i) at the end of five years from
the date the Award is granted, (ii) at Retirement, (iii) in
January of the year immediately following the year of Retirement;
or (iv) in cash installments over either a five-year or ten-year
period commencing with Retirement or in January of the year
immediately following the year of Retirement.
Cash payments deferred pursuant to any of the above options (except to
the extent deferred under a Stock Unit Account) shall increase from the
date the award is granted to the date or dates on which the Award is
paid according to a formula to be determined from time to time by the
Board.
6.3 The Committee may accelerate payment of all or a portion of any
Award deferred in accordance with Sections 6.1 and 6.2 hereof whenever,
following the death, Disability, Retirement or other termination of
employment of a Participant, it determines that circumstances warrant
such action. The Committee may also, in its sole discretion, accelerate
payment of all or a portion of any Award deferred in accordance with
Sections 6.1 and 6.2 hereof if a Participant incurs financial hardship
due to an unforeseeable emergency beyond the Participant's control.
6.4 In order to elect one or more of the deferred payment options
offered in Section 6.2 hereof, the Participant must file a properly
executed election with the Companies on a form and at a place prescribed
by the Committee for such purpose prior to rendering any services in the
Performance Year for which the Award is based. Elections made under the
Management Incentive Plan (MIP) to defer awards to be granted under MIP
for the 1986 performance year shall be operative and binding under the
Plan to defer Awards to be granted for the 1986 Performance Year, for
employees whose eligibility was transferred from MIP to the Plan, except
that elections under MIP to receive Common Stock shall be paid in cash
under the Plan.
6.5 The amount of each Award placed in a Stock Unit Account pursuant to
Section 6.1 or 6.2 hereof shall be used to credit a number of whole and
fractional Stock Units equal to the number of whole and fractional
shares of Common Stock such amount could have purchased on the date such
Award was granted. Thereafter, during the Deferral Period, an amount
equal to any cash dividends which are declared on the shares of Common
Stock represented by the Stock Units shall be used on the record date
for such dividends to credit as many additional whole and fractional
Stock Units as the number of whole and fractional shares of Common Stock
such amount could have purchased on such record date.
In the event of any recapitalization of Aetna involving the Common Stock
which has the immediate effect of increasing or decreasing the value of
the Common Stock, the Committee shall make such adjustment to each Stock
Unit Account as the Committee, in the exercise of its sole discretion,
shall deem necessary in order to make the aggregate value of each Stock
Unit Account immediately after such recapitalization approximately equal
to its value immediately preceding such recapitalization. At the end of
the Deferral period, the Stock Units shall be converted into cash by
multiplying the number of Stock Units by the then market value of the
Common Stock.
6.6 Upon the occurrence of any of the events enumerated below prior to
the end of the mandatory Deferral Period, that percentage of the Award
subject to mandatory deferral in accordance with Section 6.1 shall be
totally forfeited, unless the Committee, in its sole discretion, makes a
determination that the Award is warranted under the particular
circumstances.
<PAGE> 5
(a) The Participant's employment with the Companies is terminated for
cause.
(b) The Participant shall engage in any activity or conduct which, in
the opinion of the Board, is inimical to the best interest of the
Companies.
(c) The Participant voluntarily terminates employment for a reason
other than death, Disability or Retirement.
6.7 The percentage of an Award not subject to mandatory deferral in
accordance with Section 6.1 hereof, once granted, shall not be subject
to forfeiture regardless of the method of payment chosen by the
Participant.
Article 7
Valuation of Common Stock
Whenever in the administration of the Plan it is necessary to determine
the market value of the Common Stock, such value shall be the closing
price on the New York Stock Exchange on the nearest trading day
preceding the day on which such valuation is determined or, if no shares
were sold on such day, on the next preceding day on which there was such
a sale.
Article 8
Amendment and Termination of Plan
The Board may amend, suspend, reinstate or terminate the Plan, in whole
or in part; provided, however, that no such action shall adversely
affect any right or obligation with respect to any Award theretofore
made except as may result from the application of Section 6.6 hereof.
Article 9
Miscellaneous Provisions
9.1 All rights and interests of Participants under the Plan (including
the right to payment of unpaid portions of Awards) shall be
nontransferable other than by will or by the laws of descent and
distribution; provided, however, that the Participant may designate in a
written notice to the Committee a beneficiary or beneficiaries to be
paid, in the event of the Participant's death, all or a portion of any
Award granted but not yet paid, including any Award deferred in
accordance with Sections 6.1 and 6.2 hereof unpaid at the time of the
Participant's death, and, by notifying the Committee in writing, may
from time to time add or change beneficiary designations, which
beneficiary designations will be honored by the Committee to the extent
permitted by the law of the jurisdiction governing the disposition of
deferred Awards under the Plan.
9.2 None of the Companies shall be required to establish any special or
separate fund or to make any other segregation of assets to assure the
payment of any Award, and no trust is or shall be established in
connection with this Plan.
<PAGE> 6
9.3 Nothing contained in the Plan shall create any contractual rights
to an Award in any Participant until such Award is granted as provided
for in Section 5.1 hereof.
9.4 Nothing contained in this Plan shall create any rights of
employment in any Participant or in any way affect the right and power
of the Companies to discharge any Participant or otherwise terminate the
Participant's employment at any time with or without cause or to change
the terms of employment in any way.
9.5 Any expenses incurred in administering the Plan shall be borne by
the Companies.
9.6 The Companies shall have the right to deduct from all cash payments
made under this Plan any Federal, state or local taxes required by law
to be withheld with respect to such cash payments.
9.7 This Plan and all rights thereunder shall be construed in
accordance with and governed by the laws of the State of Connecticut.
Article 10
Effective Date of Plan
This Plan shall become effective immediately upon its approval by the
Board.
APPROVED BY BOARD OF DIRECTORS OF
AETNA LIFE AND CASUALTY COMPANY
NOVEMBER 21, 1986, AS AMENDED
EFFECTIVE FEBRUARY 25, 1994.
<PAGE> 1
December 10, 1993
Mr. David A. Kocher
35 Blue Ridge
Simsbury, CT 06089
Dear Dave:
The purpose of this letter is to set out the agreement that we have
reached as a result of our discussions regarding the cessation of your
full-time, active service as Group Executive of Aetna Life and Casualty
Company and its affiliates (collectively, the "Company"). We have
agreed that the last day of such service will be February 28, 1994.
This agreement is subject to the approval of the Company's Board of
Directors.
On March 1, 1994 you will begin a period of salary continuation at the
rate of $440,000.00 per year (your current annual base compensation).
Your other benefits will be as described in Attachment A of this letter
(which is a part of this agreement).
On September 25, 1995, the period of salary continuation payments (i.e.,
82 weeks) will cease. Your salary continuation payments will be made on
a bi-weekly basis provided, however, that the payments for September 1,
1995 through September 25, 1995, will be made in a lump sum on or about
August 31, 1995. Your status thereafter will be that of a retired
employee, eligible to participate in any continuing benefits then
generally made available by the Company to other similarly situated
employees. However, for pension benefit calculation purposes, you will
be treated as if you were 55 years of age and as though you had 35 years
of credited service.
During the first 13 weeks of the salary continuation period, you will be
eligible to participate in all normal Company benefit programs. For the
remaining period of salary continuation, you will be eligible to
continue in such programs other than sick pay, long-term disability, ISP
loans and vacation day accrual (see Attachment A).
In lieu of eligibility in Aetna's incentive compensation programs,
including annual bonus and long-term incentive (PUP or its proposed
replacement), we agree to pay you the sum of $275,000.00 subject to
applicable withholding and taxes, on or about May 27, 1994.
<PAGE> 2
We have also agreed that in the event of your death prior to September
1, 1995, any and all obligations of the Company under this agreement
shall continue and any remaining payments shall be made to your spouse.
We have also agreed that in exchange for the extension of salary
continuation payments equivalent in value to a period of 17 weeks of
your regular rate of compensation beyond the period for which you would
otherwise be eligible under current Company plans and policies (i.e., 65
weeks) and for the additional age and service credited for pension
benefit calculation purposes:
you (for yourself and any other person claiming or deriving a right
from you) forever release and discharge Aetna Life and Casualty
Company and its affiliates (and the directors, employees and agents of
Aetna Life and Casualty Company and its affiliates) from any and all
liability, claims, demands and causes of action (by whatever name
called and whether known or unknown) which you had, have, or may have,
arising out of:
(i) your employment with the Company;
(ii) the cessation of such employment; or
(iii) any act, omission, occurrence or other matter related to such
employment or cessation of employment,
up to and including the effective date of this agreement. This release
includes, but is not limited to, claims under the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act, any other claims under federal, state or local law,
and claims for attorney's fees, costs and the like.
In consideration of the payments and other benefits provided by the
Company under this agreement, you promise that:
a) you will cooperate with all reasonable requests made by the Company,
its subsidiaries or counsel, for assistance, including making yourself
available for interviews with Company counsel regarding matters within
the scope of or related to your duties while at the Company;
b) you will not, for yourself or any other person or entity, directly
or indirectly, divulge, communicate or in any way make use of any
confidential, or proprietary information acquired in the performance of
your service for the Company without the prior written consent of an
appropriate Company officer;
<PAGE> 3
c) you will not, without the prior written consent of an appropriate
Company officer (which shall not be unreasonably withheld) for a period
of one year following the date of this agreement, enter the employ of,
work with, or perform service for any person or entity which is in
direct competition with the Company; and
d) you will not disclose to any person or entity the terms and
conditions of, or any information acquired in connection with, this
agreement, without the prior written consent of an appropriate Company
officer, other than your legal, financial or career advisors and the
members of your immediate family, if they agree to maintain
confidentiality.
You acknowledge that you:
a) have been advised to consult an attorney before signing this
agreement and that you have had the opportunity to consult with an
attorney of your choice;
b) have had the opportunity to consider, for at least 45 days, this
agreement and the information provided by the Company as to the group of
employees to whom it has offered and with whom it has individually
negotiated similar agreements (as of the date indicated on such
information), any eligibility factors and time limits that were applied,
the job titles, and ages of such employees and the ages of employees in
your job class with whom the Company has not negotiated; and
c) have read this agreement in its entirety, understand its terms and
knowingly and voluntarily consent to its terms and conditions.
The agreement will become effective on the eighth day following the date
you sign it. You may revoke this agreement at any time prior to its
effective date by giving written notice of revocation to me.
AETNA LIFE
AND CASUALTY COMPANY
Date: 12/31/93 By /s/ Ronald E. Compton
________________________ ______________________________
Ronald E. Compton
Chairman
Date: 12/31/93 /s/ David A. Kocher
________________________ ______________________________
David A. Kocher
<PAGE> 4
ATTACHMENT A
Salary Continuation As per second and third paragraphs of letter.
___________________
Stock Options During salary continuation: exercises governed
_____________
by rules for active employees. Thereafter: by
rules for retired employees, as then in effect.
MIP Not eligible.
___
PUP Not eligible.
___
Executive Life Continues during salary continuation provided,
______________
however, that the Split Dollar Agreement may be
terminated at any time. It should be noted that
this arrangement is under review. One of the
options under consideration is termination. In
the event of such termination, no further
premium will be paid by the Company. At the
earlier of the end of salary continuation or the
termination of the Split Dollar Agreement, Aetna
may withdraw its contribution and the policy may
be continued thereafter upon payment of full
premium, if any, without Company contribution.
Nothing contained herein shall limit the
Company's rights as outlined in the Split Dollar
Agreement.
Medical/Dental Eligible for participation in active employee
______________
plan during salary continuation period.
Eligible for participation in retiree plan, as
then in effect, thereafter.
Retirement Plan/Spousal
Death Benefit Accruals under retirement plan (and its spousal
_______________________
death benefit) continue during salary
continuation. On September 1, 1995, eligible to
commence pension benefits. Pension benefit to
be calculated on the basis of 35 years of
credited service and as though you were 55 years
of age resulting in a single life pension benefit
of $16,895.84 per month ($15,797.61 on a 50% joint
annuity basis) beginning on September 1, 1995.
ISP Active participation may continue during salary
___
continuation period, provided, however, that
such continuation is allowed by law. Normal
retiree options, as then in effect, thereafter.
Outplacement To be provided by the Company.
____________
Sick Pay and Long-Term
Disability Ineligible after expiration of first 13 weeks of
______________________
salary continuation.
Vacation Lump sum payment for accrued but unused vacation
________
days (up to a maximum of 25 days) on or about
May 27, 1994.
<PAGE> 1
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
(Millions) 1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations........... $(1,147.4) $ (121.4) $ 243.5 $ 459.6 $ 663.8
Add back fixed charges........... 171.0 194.3 221.5 229.0 211.6
Minority interest................ 7.0 8.6 5.9 4.9 (1.9)
_________ _________ _________ _________ _________
Income (loss) as adjusted..... $ (969.4) $ 81.5 $ 470.9 $ 693.5 $ 873.5
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Fixed charges:
Interest on indebtedness....... $ 77.4 $ 81.4 $ 110.9 $ 119.9 $ 113.2
Portion of rents representative
of interest factor............ 93.6 112.9 110.6 109.1 98.4
_________ _________ _________ _________ _________
Total fixed charges........... $ 171.0 $ 194.3 $ 221.5 $ 229.0 $ 211.6
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Preferred stock dividend
requirements.................... - - - - $ 3.9
_________ _________ _________ _________ _________
Total combined fixed charges
and preferred stock dividend
requirements.................... $ 171.0 $ 194.3 $ 221.5 $ 229.0 $ 215.5
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Ratio of earnings to fixed
charges......................... (5.67) 0.42 2.13 3.03 4.13
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Ratio of earnings to combined
fixed charges and preferred
stock dividends................. (5.67) 0.42 2.13 3.03 4.05
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
</TABLE>
<PAGE> 1
The Board of Directors
Aetna Life and Casualty Company:
We have audited the consolidated balance sheets of Aetna Life and
Casualty Company and Subsidiaries (the "company") as of December 31,
1993 and 1992, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-
year period ended December 31, 1993, and have reported thereon under
date of February 8, 1994. The aforementioned consolidated financial
statements and our audit report thereon are incorporated by reference in
the company's Form 10-K for the year ended December 31, 1993. As stated
in Note 1, the company changed its accounting policy for reporting
reserves for workers' compensation life table indemnity claims to a
discounted basis using statutory approved rates of 5% for voluntary
business and 3.5% for involuntary business. The company states that the
newly adopted accounting principle is preferable in the circumstances
because this change more appropriately reflects the economic value of
the company's obligations and improves the matching of revenues and
expenses. In accordance with your request, we have reviewed and
discussed with company officials the circumstances and business judgment
and planning upon which the decision to make this change in the method
of accounting was based.
With regard to the aforementioned accounting change, authoritative
criteria have not been established for evaluating the preferability of
one acceptable method of accounting over another acceptable method.
However, for purposes of the company's compliance with the requirements
of the Securities and Exchange Commission, we are furnishing this
letter.
Based on our review and discussion, with reliance on management's
business judgment and planning, we concur that the newly adopted method
of accounting is preferable in the company's circumstances.
Very truly yours,
KPMG PEAT MARWICK
Hartford, Connecticut
February 8, 1994
<PAGE> 1
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation Ownership (1)
____________________________________ ______________ _____________________________________________
<S> <C> <C>
Aetna Life and Casualty Company CT -
Aetna Life Insurance Company CT 100% owned by Aetna Life and Casualty Company
The Standard Fire Insurance Company CT 100% owned by Aetna Life and Casualty Company
The Aetna Casualty and Surety
Company CT 100% owned by Aetna Life and Casualty Company
Aetna Life Insurance Company of
Illinois IL 100% owned by Aetna Life and Casualty Company
Aetna Life Insurance and Annuity
Company CT 100% owned by Aetna Life and Casualty Company
Aetna Re-Insurance Company, (U.K.)
Ltd. United Kingdom 100% owned by Aetna Life and Casualty Company
Terra Nova Insurance Company, Ltd. United Kingdom 30% owned by Aetna Life and Casualty Company
Aetna International (N.Z.) Limited New Zealand 100% owned by Aetna Life and Casualty Company
Aetna Canada Holdings Limited Canada 100% owned by Aetna Life and Casualty Company
Aetna International Inc. CT 100% owned by Aetna Life and Casualty Company
AHP Holdings, Inc. CT 100% owned by Aetna Life Insurance Company
Aetna Casualty Company CT 100% owned by Aetna Life Insurance Company
Aetna Life & Casualty (Bermuda) Ltd. Bermuda 100% owned by Aetna Life Insurance Company
Human Affairs International,
Incorporated UT 100% owned by Aetna Life Insurance Company
The Automobile Insurance Company 100% owned by The Standard Fire Insurance
Of Hartford, Connecticut CT Company
Aetna Personal Security Insurance 100% owned by The Standard Fire Insurance
Company CT Company
Aetna Insurance Company of Illinois IL 100% owned by The Standard Fire Insurance
Company
Aetna Insurance Company CT 100% owned by The Standard Fire Insurance
Company
Aetna Investment Advisers Fund, Inc. MD 100% owned by Aetna Life Insurance
and Annuity Company
Aetna Variable Encore Fund MA 100% owned by Aetna Life Insurance
and Annuity Company
Aetna Variable Fund MA 86% owned by Aetna Life Insurance
and Annuity Company
Aetna Income Shares MA 99% owned by Aetna Life Insurance
and Annuity Company
Aetna Insurance Company of America CT 100% owned by Aetna Life Insurance
and Annuity Company
Aetna Life Insurance Company of 100% owned by Aetna Canada Holdings
Canada Canada Limited
Aetna Life Insurance Company of
America CT 100% owned by Aetna International Inc.
Aetna Health Management, Inc. TX 100% owned by AHP Holdings, Inc.
Aetna Health Plans of Texas, Inc. TX 100% owned by AHP Holdings, Inc.
Aetna Health Plans of Ohio, Inc. OH 100% owned by AHP Holdings, Inc.
Aetna Health Plans of the
Mid-Atlantic, Inc. VA 100% owned by AHP Holdings, Inc.
Aetna Health Plans of Florida, Inc. FL 96% owned by AHP Holdings, Inc.
Healthways, Inc. AZ 20% owned by AHP Holdings, Inc.
Aetna Health Plans of Illinois, Inc. IL 100% owned by AHP Holdings, Inc.
Partners Health Plan of
Pennsylvania, Inc. PA 81% owned by AHP Holdings, Inc.
Aetna Health Plans of Central and
Eastern Pennsylvania, Inc. PA 100% owned by AHP Holdings, Inc.
<FN>
(1) Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation Ownership (1)
_____________________________________ ______________ __________________________________________
<S> <C> <C>
Aetna Health Plans of Georgia, Inc. GA 100% owned by AHP Holdings, Inc.
Aetna Health Plans of Louisiana, Inc. LA 100% owned by AHP Holdings, Inc.
Aetna Dental Care of Texas, Inc. TX 100% owned by AHP Holdings, Inc.
Saguaro Health Plan, Inc. AZ 100% owned by AHP Holdings, Inc.
Med Southwest, Inc. TX 55% owned by AHP Holdings, Inc.
Human Affairs International of 100% owned by Human Affairs
California CA International, Incorporated
Aetna National Accounts U.K. Ltd. United Kingdom 100% owned by The Aetna Casualty
and Surety Company
Aetna Casualty Company of Connecticut CT 100% owned by The Aetna Casualty
and Surety Company
Aetna Excess and Surplus Lines 100% owned by The Aetna Casualty
Company CT and Surety Company
Aetna Lloyds of Texas Insurance 100% owned by The Aetna Casualty
Company TX and Surety Company
Aetna Casualty & Surety Company 100% owned by The Aetna Casualty
of Illinois IL and Surety Company
Aetna Casualty & Surety Company of 100% owned by The Aetna Casualty
Canada Canada and Surety Company
Aetna Casualty & Surety Company of 100% owned by The Aetna Casualty
America CT and Surety Company
Executive Re, Inc. CT 21% owned by The Aetna Casualty
and Surety Company
Farmington Casualty Company CT 100% owned by The Aetna Casualty
and Surety Company
Chelsea Insurance Company, Ltd. Cayman Islands 100% owned by The Aetna Casualty
and Surety Company
Aetna Commercial Insurance Company CT 100% owned by The Aetna Casualty
and Surety Company
Partners Acquisition Company, Inc. DE 100% owned by Aetna Health Management,
Inc.
PHPSNE Parent Corporation DE 55% owned by AHP Holdings, Inc.
Aetna Health Plans of San Diego, Inc. CA 80% owned by AHP Holdings, Inc.
Aetna Health Plans of Tennessee, Inc. TN 100% owned by AHP Holdings, Inc.
Healthways Systems, Inc. DE 100% owned by AHP Holdings, Inc.
Aetna Health Plan of Arizona, Inc. AZ 100% owned by Healthways, Inc.
Aetna Health Plans of Western 100% owned by Partners Health Plan of
Pennsylvania, Inc. PA Pennsylvania, Inc.
Southwest Physicians Life Insurance
Company TX 100% owned by Med Southwest, Inc.
Southwest Health Plan, Inc. TX 100% owned by Med Southwest, Inc.
Executive Re Indemnity, Inc. DE 100% owned by Executive Re, Inc.
Aetna Health Plans of California, 100% owned by Partners Acquisition
Inc. CA Company, Inc.
Aetna Health Plans of Southern
New England, Inc. CT 100% owned by PHPSNE Parent Corporation
Aetna Health Plans of New York, Inc. NY 100% owned by Healthways Systems, Inc.
Aetna Health Plans of New Jersey, Inc. NJ 100% owned by Healthways Systems, Inc.
Executive Re Specialty Insurance
Company CT 100% owned by Executive Re Indemnity, Inc.
<FN>
(1) Percentages are rounded to the nearest whole percent and are based on ownership of voting rights.
</TABLE>
<PAGE> 1
Consent of Independent Auditors
The Board of Directors
Aetna Life and Casualty Company:
We consent to incorporation by reference in the Registration Statements
(No. 33-12993 on Form S-3, No. 33-49543 on Form S-3, No. 33-50427 on
Form S-3, No. 2-91514 on Form S-8 and No. 2-73911 on Form S-8) of Aetna
Life and Casualty Company of our reports dated February 8, 1994,
relating to the consolidated balance sheets of Aetna Life and Casualty
Company and Subsidiaries as of December 31, 1993 and 1992 and the
related consolidated statements of income, shareholders' equity, and
cash flows and related schedules for each of the years in the three-year
period ended December 31, 1993, which reports appear in or are
incorporated by reference in the December 31, 1993 annual report on Form
10-K of Aetna Life and Casualty Company.
Our reports refer to changes in 1993 in the Company's accounting for
certain investments in debt and equity securities, reinsurance of short-
duration and long-duration contracts, postemployment benefits, workers'
compensation life table indemnity reserves and retrospectively rated
reinsurance contracts and to changes in 1992 in the Company's accounting
for income taxes and postretirement benefits other than pensions.
By KPMG PEAT MARWICK
_________________________
(Signature)
KPMG Peat Marwick
Hartford, Connecticut
March 18, 1994
