<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, 1994
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
9 1/2% Cumulative Monthly Income New York Stock Exchange
Preferred Securities, Series A
(issued by a subsidiary)
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.
[X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of February 28, 1995 was
$6,056,533,552.
As of February 28, 1995, 112,698,701 shares of the registrant's
Common Capital Stock without par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 annual report to shareholders
(the "Annual Report"). (Parts I, II and IV)
Portions of the registrant's proxy statement filed on or about
March 17, 1995 (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. Aetna Health Plans 4
2. Large Case Pensions 7
3. Aetna Life Insurance & Annuity 9
4. Property-Casualty 12
5. Reserves Related to Property-Casualty Operations 17
6. International 21
7. Corporate 22
8. General Account Investments 22
a. Investments Related to Life, Health, Annuity and
Pension Operations 22
b. Investments Related to Property-Casualty
Operations 25
9. 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 42
Signatures 57
<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, 1993. Based on 1993 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 health 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 1994 was derived from domestic sources.
The company's reportable segments have been changed to better
reflect the way the businesses are managed and prior years'
results have been restated to conform to the new segments. The
new reportable segments are Aetna Health Plans, Large Case
Pensions, Aetna Life Insurance & Annuity, Property-Casualty,
International and Corporate. The principal products included in
such segments (other than Corporate) are:
Aetna Health Plans:
Health care
Group insurance
Specialty health
Large Case Pensions:
Group retirement and other savings products
Aetna Life Insurance & Annuity:
Individual life
Retirement and other savings and investment products
(including individual and group annuities)
Financial and administrative services
Mutual funds
Property-Casualty:
Automobile
Fidelity and surety
Fire and allied lines
General liability
Homeowners
Marine
Multiple peril
Workers' compensation
International:
Life insurance and financial services
<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 15 to the
Financial Statements, which is incorporated herein by reference to 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 to the Selected Financial Data in the Annual Report.
Certain reclassifications have been made to 1993 and 1992 financial
information to conform to 1994 presentation.
C. Description of Business Segments
1. Aetna Health Plans
Principal Products
__________________
Group health products and services are offered through two business
units, health care and specialty health, of the Aetna Health Plans
segment ("AHP"). These products and services are marketed primarily
to employers for the benefit of employees and their dependents. The
health care business unit provides managed care and traditional
indemnity health care plans. The specialty health business unit
provides behavioral health, pharmacy, dental and occupational managed
care plans. Plans may be insured, whereby Aetna assumes all or a
portion of health care cost and utilization risk, or self-funded,
whereby employers assume all or a significant portion of such risks.
AHP also provides administrative and claim services and, in many
cases, partial insurance protection, for an appropriate fee or premium
charge.
Group insurance consists of group life, disability and long-term care
insurance plans and is marketed in the same manner as group health
products and services. Group life insurance consists principally of
renewable term coverage, the amounts of which frequently are linked to
individual employee wage levels. The company also offers group
universal life and whole life products. Group disability insurance
includes coverage for disabled employees' income replacement benefits.
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 negotiated contracts with health care
providers, development and implementation of guidelines for
appropriate utilization of health care resources and working with
health care providers to review treatment patterns in order to improve
consistency and quality, are designed to enable managed care companies
and their customers to control medical costs more effectively.
Beginning in 1993, the company, in an effort to further contain health
care costs and to improve quality and access, initiated a program to
acquire or develop ownership or management interests in primary care
physician practices. AHP expects to invest substantial amounts in
acquisition or development of physician practices and in other
programs which the company believes will improve its ability to
control health care costs and enhance quality.
<PAGE> 5
The company offers a broad spectrum of traditional indemnity and
managed care 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 strong HMO-style medical
management with an option to seek health care outside of the
provider network; and health maintenance organizations ("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. As previously indicated, in 1993, the company began
to develop and manage primary care physician practices as a means
of increasing network access and overall product integration. As
of year-end 1994, the company owned and managed 21 physician
practices in six cities.
At year-end 1994, Aetna operated various types of managed care
networks in approximately 229 Standard Metropolitan Statistical
Areas with enrollment of approximately 7 million. The number of
members covered under all arrangements, including traditional
health plans, was approximately 16 million at December 31, 1994.
AHP units continue to develop a wide range of products and
services tailored to help employers manage their employee benefit
plan costs effectively.
The company ceased selling individual health insurance products in
mid-1990 and transferred this business to another company in 1991.
For additional information regarding products offered by AHP, see
Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") - Aetna Health Plans in the Annual
Report.
The following table summarizes group health and group life and
disability premiums for the years indicated:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Group health (1)........... $4,456.0 $3,553.3 $3,387.6 $3,257.5 $2,905.9
Group life and
disability (2)............ 1,155.5 1,147.3 1,199.1 1,209.8 1,284.2
________ ________ ________ ________ ________
Total.................. $5,611.5 $4,700.6 $4,586.7 $4,467.3 $4,190.1
________ ________ ________ ________ ________
________ ________ ________ ________ ________
<FN>
(1) Includes managed health care.
(2) Decrease in 1993 premiums reflects increased refunds on retrospectively rated
policies due to favorable experience.
</TABLE>
<PAGE> 6
Competition
___________
The markets for AHP 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, some large employers have moved to
totally self-funded and self-administered benefit plans.
Competition largely is based upon product features and prices and,
in the case of managed health care plans, upon the quality of
services provided, the geographic scope of the provider networks
and the medical specialties available in such networks. Based on
1993 written premiums, Aetna is one of the largest insurance
company providers of group health and life benefits in the United
States.
Method of Distribution
______________________
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.
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. 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 long
term disability products, reserves are established for (i) lives
currently in payment status (using standard industry morbidity and
interest rate assumptions), (ii) lives who have not satisfied the
waiting period (using a percentage of premiums based on Aetna's
experience) and (iii) claims that have been incurred but not
reported. 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. Health care and group life claim
reserves are based on factors derived from past experience.
Reserves for most of these products reflect retrospective
experience rating, except for smaller group insurance cases and
HMOs, which generally are not retrospectively experience rated.
Reinsurance
___________
Aetna utilizes a variety of reinsurance agreements with non-
affiliated insurers to share insurance risks on health care and
group 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.
For additional information on reinsurance, see Note 16 of Notes to
Financial Statements in the Annual Report.
<PAGE> 7
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)
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Sales and additions......... $ 13,496 $ 22,781 $ 30,131 $ 37,876 $ 51,900
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Terminations: (1)
Lapses ................... $ 18,850 $ 22,991 $ 26,087 $ 17,522 $ 15,707
All other terminations.... 6,096 6,864 2,235 3,036 23,476
________ ________ ________ ________ ________
Total................... $ 24,946 $ 29,855 $ 28,322 $ 20,558 $ 39,183
________ ________ ________ ________ ________
________ ________ ________ ________ ________
In force, end of year....... $288,546 $299,996 $307,070 $305,261 $287,943
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Number of policies and
contracts in force, end of
year: (2)
Group life contracts...... 23,268 24,440 24,496 25,737 26,061
Group conversion
policies (3)............. 37,513 38,431 39,567 40,370 41,207
<FN>
(1) The increases in 1993 and 1992 terminations resulted primarily from the non-renewal
and termination of certain large contracts in each year.
(2) Due to the diversity of coverages and size of covered groups, 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>
2. Large Case Pensions
Principal Products
__________________
Business units in the Large Case Pensions segment manage a variety
of retirement and other savings products (including pension and
annuity products), and offer investment management advisory
services to non-pension customers. 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 Large Case Pensions,
see MD&A - Large Case Pensions in the Annual Report.)
The majority of Large Case Pensions' products that 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. Large Case
Pensions 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.
In January 1994, the company announced its decision to discontinue
the sale of its fully guaranteed large case pension products.
(For additional information, see MD&A - Large Case Pensions in the
Annual Report.)
<PAGE> 8
At December 31, assets under management, including Separate
Accounts, were $46.3 billion in 1994, $52.8 billion in 1993, $53.4
billion in 1992, $52.8 billion in 1991, and $50.6 billion in 1990.
Under Financial Accounting Standard No. 115 ("FAS 115"), assets
under management at December 31, 1994 and 1993 included net
unrealized gains (losses) of approximately $(540.0) million and
$750.0 million, respectively.
The following table summarizes premiums and deposits for the years
indicated:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Premiums................ $ 234.4 $ 185.9 $ 204.2 $ 292.4 $ 597.0
Deposits (1)............ 2,121.5 3,207.2 3,553.1 4,357.8 5,716.2
_________ _________ _________ _________ _________
Total................. $ 2,355.9 $ 3,393.1 $ 3,757.3 $ 4,650.2 $ 6,313.2
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Under Financial Accounting Standard No. 97 ("FAS 97"), certain deposits
are not included in premiums or revenue.
</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.
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.
Reserves
________
As a result of discontinuing fully guaranteed large case pension
products, the company established a reserve that represents the
present value of anticipated net cash flow shortfalls as the
liabilities from such products 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.
<PAGE> 9
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, plus/less net realized capital gains/losses
(which the company seeks to recover through credited rates) and
net unrealized capital gains/losses.
3. Aetna Life Insurance & Annuity
Principal Products
__________________
Business units in the Aetna Life Insurance & Annuity segment
("ALIAC") market a variety of life insurance, retirement and other
savings and investment products (including individual and group
annuities) financial and administrative services and mutual funds
to individuals, pension plans, small businesses and employer-
sponsored groups. ALIAC's universal life product accounted for
approximately 89% of individual life sales in 1994. (For
additional information regarding the products offered by ALIAC,
see MD&A - Aetna Life Insurance & Annuity in the Annual Report.)
Life insurance products typically require high costs to acquire
business. Retention, an important driver of profitability, is
encouraged through product features. For example, the company's
universal and interest-sensitive whole life insurance contracts
typically impose a surrender charge on policyholder balances
withdrawn within 7 to 20 years of the contract's inception or for
variable life within 10 years. The period of time and level of
the charge 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. To further encourage retention,
life insurance agents are typically paid renewal commissions or
service fees.
Product retention is also a key driver of profitability for
annuity products. To encourage product retention, annuity
contracts typically impose a surrender charge on policyholder
balances withdrawn in the first 5 to 7 years after deposit. The
period of time and level of the charge vary by product. In
addition, a new approach being incorporated into recent variable
contracts with fixed interest account investment options allows
contractholders to receive of an incremental interest rate if
withdrawals from the fixed account are spread over a period of
five years. Further, more favorable credited rates and policy
loan terms may be offered after policies have been in force for
more than 10 years. Existing tax penalties on annuity
distributions prior to age 59-1/2 provide an additional
disincentive to premature surrenders of annuity balances, but do
not impede transfers of those balances to other insurance
carriers.
<PAGE> 10
Certain of the ALIAC life insurance and annuity products allow for
customers to borrow against their policies. At December 31, 1994,
approximately 23% of outstanding policy loans were on individual
annuity policies and had fixed interest rates ranging from 1% to
3%. Approximately 72% of outstanding policy loans at December 31,
1994 were on individual life policies and had fixed interest rates
ranging from 5% to 8%. The remaining 5% of outstanding policy
loans had variable interest rates averaging 8% at December 31,
1994. Investment income from policy loans was $23 million for the
year ended December 31, 1994.
The company's variable products (variable universal life, variable
life and variable annuity contracts) utilize Separate Accounts to
provide contractholders with a vehicle for investments under which
the contractholders assume the investment risks as well as the
benefit of favorable performance. Assets held under these
products are invested, as designated by the contractholder or
participant under a contract, in Separate Accounts which in turn
invest in shares of mutual funds that are managed by ALIAC or
other selected mutual funds that are not managed by ALIAC. ALIAC
is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to these variable life and annuity
contracts. ALIAC also receives fees for serving as investment
advisor, providing shareholder services, and promoting sales.
Various investment advisory services also are offered through a
number of affiliates that are registered investment advisors.
At December 31, assets under management, including Separate
Accounts, were $19.4 billion in 1994, $18.2 billion in 1993, $15.0
billion in 1992, $13.2 billion in 1991 and $10.9 billion in 1990.
Under FAS 115, assets under management at December 31, 1994 and
1993 included net unrealized gains (losses) of approximately
$(390.0) million and $750.0 million, respectively.
The following table summarizes premiums and deposits for the years
indicated:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Premiums................ $ 168.3 $ 125.7 $ 111.9 $ 174.5 $ 272.9
Deposits (1)............ 3,375.7 2,797.6 1,937.3 1,871.0 1,645.6
_________ _________ _________ _________ _________
$ 3,544.0 $ 2,923.3 $ 2,049.2 $ 2,045.5 $ 1,918.5
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
</TABLE>
Competition
___________
The markets for individual life insurance products are highly
competitive among insurance companies. Competition largely is
based upon product features and prices.
In the retirement and other savings and investment products
markets, competition arises from other insurance companies, banks,
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 or sponsor.
<PAGE> 11
Method of Distribution
______________________
Individual life insurance products are marketed by independent
agents and brokers, career agents and registered representatives
of selected broker-dealers.
Retirement products are sold through pension professionals, stock
brokers and third party administrators who work closely with
salaried field office employees. Annuity products and mutual
funds are distributed primarily through dedicated career agents
and registered life brokers.
Reserves
________
Reserves for universal life and interest-sensitive whole life
products (which are all experience rated) are equal to cumulative
deposits less withdrawals and charges plus credited interest
thereon, plus/less net realized capital gains/losses (which ALIAC
reflects through credited rates on an amortized basis). These
reserves also reflect unrealized capital gains/losses related to
FAS No. 115. Reserves for all other fixed individual life
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.
Reserves for limited payment contracts (immediate annuities with
life contingent payout) 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. Reserves for investment contracts
(deferred annuities and immediate annuities without life
contingent payouts) are equal to cumulative deposits plus credited
interest less charges thereon. Reserves for experience rated
contracts reflect cumulative deposits, less withdrawals and
charges, plus credited interest thereon, plus/less net realized
capital gains/losses (which ALIAC reflects through credited rates
on an amortized basis). These reserves also reflect unrealized
capital gains/losses related to FAS No. 115.
The above-indicated reserves are computed amounts that, with
additions from premiums and deposits to be received, and with
interest on such reserves compounded annually at assumed rates,
are expected to be sufficient to meet the company's policy
obligations at their maturities or in the event of an insured's
death, retirement or other withdrawal requests.
Reinsurance
___________
ALIAC retains no more than $10 million of risk per individual life
insured. Amounts in excess of the retention limit are reinsured
with unaffiliated companies.
For additional information on reinsurance, see Note 16 of Notes to
Financial Statements in the Annual Report.
<PAGE> 12
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:
<TABLE>
<CAPTION>
(Amounts in millions, except number of policies and average size of policies in force)
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Sales and additions:
Permanent:
Non-participating....... $ 3,348 $ 2,656 $ 3,107 $ 2,930 $ 3,836
Participating........... - - - - 1
Term:
Non-participating....... 595 247 92 114 142
Participating........... 1,800 1,851 761 1,222 1,921
________ ________ ________ ________ ________
Total.................. $ 5,743 $ 4,754 $ 3,960 $ 4,266 $ 5,900
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Terminations:
Surrenders and conversions $ 1,494 $ 1,692 $ 2,004 $ 1,976 $ 1,930
Lapses.................... 1,973 2,151 2,372 2,752 2,953
Other .................... 306 321 371 358 402
________ ________ ________ ________ ________
Total.................. $ 3,773 $ 4,164 $ 4,747 $ 5,086 $ 5,285
________ ________ ________ ________ ________
________ ________ ________ ________ ________
In force, end of year:
Permanent................. $ 31,879 $ 31,139 $ 31,270 $ 31,263 $ 31,981
Term...................... 10,853 9,623 8,902 9,696 9,798
________ ________ ________ ________ ________
Total.................. $ 42,732 $ 40,762 $ 40,172 $ 40,959 $ 41,779
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Number of policies in force,
end of year:
Non-participating......... 551,381 569,322 580,846 605,233 626,420
Participating............. 120,967 127,319 135,440 146,308 157,309
________ ________ ________ ________ ________
Total.................. 672,348 696,641 716,286 751,541 783,729
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Average size of policies in
force, end of year:
Non-participating......... $ 61,121 $ 56,639 $ 55,281 $ 52,983 $ 53,194
Participating............. 74,658 66,887 59,528 60,775 60,124
</TABLE>
4. Property-Casualty
Principal Products
__________________
The business units in the Property-Casualty segment provide most
types of commercial and personal property-casualty insurance,
bonds, and insurance-related services for businesses, government
units and associations and individuals.
Commercial and personal coverages accounted for 70% and 30%,
respectively, of Aetna's 1994 property-casualty net written
premiums. Commercial 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. Personal coverages
include auto and homeowners insurance. (For additional
information regarding the products offered by Property-Casualty,
see MD&A - Property-Casualty in the Annual Report.)
<PAGE> 13
Approximately 87% of Aetna's 1994 net property-casualty business
written 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 property-
casualty risks 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.
The following table sets forth the premium revenue, underwriting
results and net investment income, fees and other income and net
realized capital gains of Property-Casualty for the years
indicated:
<TABLE>
<CAPTION>
(Dollar amounts in millions) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Statutory:
Net written premiums..... $ 4,400.5 $ 4,517.0 $ 4,916.3 $ 5,810.6 $ 6,290.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Premiums earned.......... $ 4,321.9 $ 4,656.2 $ 5,046.9 $ 5,973.0 $ 6,403.2
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Loss ratios.............. 87.5% 90.1% 92.5% 83.7% 83.3%
Expense ratios........... 35.2 34.4 32.9 30.7 29.2
_________ _________ _________ _________ _________
Combined ratios:
Before policyholder
dividends.............. 122.7% 124.5% 125.4% 114.4% 112.5%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
After policyholder
dividends.............. 123.3% 125.2% 126.1% 115.4% 113.4%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
After policyholder
dividends, adjusted
for discounting........ 123.3% 116.4% (1) 126.1% 115.4% 113.4%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
GAAP: (2)
Net written premiums..... $ 4,431.2 $ 4,465.2 $ 4,916.3 $ 5,810.6 $ 6,290.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Premiums earned.......... $ 4,390.8 $ 4,653.2 $ 5,076.3 $ 6,010.4 $ 6,447.2
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Adjusted underwriting
loss (pretax) (3)....... $ (795.2) $ (989.8) $(1,291.6) $ (850.3) $ (821.1)
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Net investment income,
fees and other income
and net realized
capital gains........... $ 948.1 $ 1,247.7 $ 1,437.2 $ 1,323.3 $ 1,389.9
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Loss ratios.............. 84.9% 89.6% 93.0% 83.7% 83.0%
Expense ratios........... 32.2 32.3 32.7 30.4 29.3
Combined ratios:
Before policyholder
dividends.............. 117.1% 121.9% 125.7% 114.1% 112.3%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
After policyholder
dividends.............. 117.7% 122.5% 126.4% 115.0% 113.3%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
After policyholder
dividends, adjusted for
discounting............ 117.7% 113.6% (1) 126.4% 115.0% 113.3%
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Has 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.
(3) 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>
<PAGE> 14
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 the establishment of a reserve for severance and
facilities charges, deferred policy acquisition costs and pre-1992
salvage and subrogation) to underwriting results.
The following table sets forth for major domestic Property-
Casualty coverages for the years indicated (a) the percentage of
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>
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
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....... 15.6% 111.6 17.7% 119.3 17.1% 127.7 18.3% 133.0 17.9% 131.4
Property damage..... 5.7 95.9 6.5 70.0 6.5 81.2 7.2 101.8 7.1 101.8
Auto physical damage.. 8.2 99.4 9.2 91.8 9.6 94.9 11.8 90.3 12.7 93.6
Fidelity and surety... 3.8 80.4 3.7 92.9 3.0 91.8 3.0 99.4 2.9 100.1
Fire and allied lines. 4.7 116.5 4.3 123.7 3.2 127.0 3.2 127.0 3.0 95.3
General liability..... 12.4 177.9 12.4 150.5 13.2 166.8 11.0 118.7 11.3 107.7
Homeowners............ 9.0 136.1 9.1 124.0 7.9 132.6 8.8 112.4 9.6 108.0
Marine................ 3.1 97.0 3.0 94.1 2.6 90.6 2.3 105.6 2.4 95.3
Multiple peril........ 18.5 112.0 17.2 115.6 15.0 115.2 12.2 110.0 11.4 108.1
Workers' compensation. 17.5 117.1 17.9 171.1 20.8 138.2 21.2 120.0 20.7 125.8
Other (1)............. 1.5 N/M* (1.0) N/M* 1.1 N/M* 1.0 N/M* 1.0 N/M*
_____ _____ _____ _____ _____
Total before
policyholders'
dividends.......... 100.0% 122.7 100.0% 124.5 100.0% 125.4 100.0% 114.4 100.0% 112.5
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Total after
policyholders'
dividends.......... 123.3 125.2 126.1 115.4 113.4
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
Total after
policyholders'
dividends, adjusted
for discounting.... 123.3 116.4 (2) 126.1 115.4 113.4
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
<FN>
(1) Net written premiums in 1993 reflect a refund of $115 million related to a
Texas Catastrophe Insurance Association reinsurance contract.
(2) Has been adjusted for the cumulative effect benefit of discounting of workers'
compensation life table indemnity reserves ($250.0 million, after-tax).
* Not meaningful.
</TABLE>
<PAGE> 15
The following table summarizes Property-Casualty statutory net
written premiums for the years indicated:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Auto liability:
Bodily injury............... $ 685.9 $ 798.9 $ 841.6 $1,061.0 $ 1,126.0
Property damage............. 251.1 295.1 322.0 420.1 448.0
Auto physical damage......... 359.6 414.3 472.1 686.2 800.3
Fidelity and surety.......... 169.3 166.8 146.9 174.4 184.9
Fire and allied lines........ 206.0 192.6 156.4 186.2 191.1
General liability............ 544.2 560.6 647.4 641.7 710.8
Homeowners................... 394.9 412.7 389.5 509.0 604.6
Marine....................... 137.7 134.0 125.8 135.6 150.2
Multiple peril............... 815.3 776.1 738.0 707.5 717.4
Workers' compensation........ 768.8 808.4 1,021.4 1,231.3 1,298.3
Other (1).................... 67.7 (42.5) 55.2 57.6 59.2
________ ________ ________ ________ ________
Total..................... $4,400.5 $4,517.0 $4,916.3 $5,810.6 $6,290.8
________ ________ ________ ________ ________
________ ________ ________ ________ ________
_____________________
<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
Property-Casualty direct written premiums in various jurisdictions
for the years indicated:
GEOGRAPHIC DISTRIBUTION OF DIRECT WRITTEN PREMIUMS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
California (1,2)........ 7.8% 9.2% 9.6% 9.2% 9.4%
Connecticut............. 5.9 5.8 6.0 6.0 5.9
Florida................. 5.4 4.7 4.1 4.1 4.5
Georgia................. 1.6 1.6 1.7 2.1 2.1
Illinois................ 2.8 2.8 2.7 2.7 2.6
Louisiana............... 1.0 1.2 2.1 2.5 2.3
Massachusetts (3)....... 5.4 6.2 7.5 8.3 8.1
New Jersey.............. 5.6 5.1 4.4 3.9 3.4
New York................ 17.9 17.7 17.4 16.8 16.1
North Carolina.......... 3.4 3.4 3.0 3.1 3.2
Ohio.................... 2.2 2.0 1.7 1.7 1.9
Pennsylvania............ 7.5 7.6 7.3 7.0 6.6
Tennessee............... 2.0 2.2 2.0 1.9 1.8
Texas................... 5.9 4.9 4.9 6.0 6.3
Virginia................ 2.8 2.7 2.7 2.6 3.4
All other (4)........... 22.8 22.9 22.9 22.1 22.4
_____ _____ _____ _____ _____
Total................ 100.0% 100.0% 100.0% 100.0% 100.0%
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
_____________________
<FN>
(1) The reduction in direct written premiums in 1994 primarily reflects a
$30.7 million settlement with the California Department of Insurance
related to Proposition 103, which settlement did not have a material
effect on earnings as a result of reserves previously established.
(2) In 1993, the company withdrew from the California personal automobile
insurance market and in 1994, reduced its exposure in certain commercial
property-casualty lines.
(3) 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.
(4) All other jurisdictions, none of which accounted for more than 2% in
any year.
</TABLE>
<PAGE> 16
Competition
___________
Property-casualty insurance is highly competitive in the areas of
price, service, agent relationships and, in the case of personal
property-casualty business, method of distribution (i.e., use of
independent agents, captive agents and/or employees). There are
approximately 3,900 property-casualty insurance companies in the
United States. Of those companies, approximately 900 operate in
all or most states and write the vast majority of the business
while over 2,300 offer one or more personal property-casualty
products similar to those marketed by Aetna. 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 1993 written premiums, Aetna is one
of the largest underwriters of commercial and personal property-
casualty coverages in the United States.
Method of Distribution
______________________
Aetna's property-casualty coverages are sold through approximately
4,500 independent agents and brokers supervised and serviced by 22
district offices with over 70 other points of service throughout
the country.
Reserves
________
See Reserves Related to Property-Casualty Operations on pages 17
through 20.
Reinsurance
___________
Approximately one-third 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 90% of specified
property losses between $150 million and $400 million. The
company also has in place for 1995 an aggregate excess of loss
arrangement with respect to all of its property-casualty lines for
accident year 1995, providing up to additional net protection of
approximately $250 million.
For additional information on reinsurance, see MD&A - Property-
Casualty Reserves and Note 16 of Notes to Financial Statements in
the Annual Report.
<PAGE> 17
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 (other
than fidelity and surety bonds beginning in 1995) 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.
5. Reserves Related to Property-Casualty Operations
Aetna establishes reserve liabilities designed to reflect
estimates of the ultimate cost, to the extent reasonably
estimable, 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
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
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.
For additional information on property-casualty reserves, including
reserves for environmental-related claims, workers' compensation
claims (including discounting) and asbestos-related claims, see
MD&A - Property Casualty Reserves in the Annual Report.
<PAGE> 18
The following represents changes in aggregate reserves, net of
reinsurance, for the combined property-casualty experience: (1,2)
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Net unpaid claims and claim adjustment
expenses, net of discount, at
beginning of year.................... $11,438 $11,747 $11,407
Incurred claims and claim
adjustment expenses:
Provision for insured events of
the current year................... 3,631 3,724 4,407
Increases in provision for insured
events of prior years.............. 252 574 (3) 466
Cumulative effect of discounting.... - (514) -
_______ _______ _______
Total incurred claims and claim
adjustment expenses.................. 3,883 3,784 4,873
_______ _______ _______
Payments:
Claims and claim adjustment expenses
attributable to insured events of
the current year................... 1,375 1,204 1,560
Claims and claim adjustment expenses
attributable to insured events of
prior years........................ 2,783 2,889 2,973
_______ _______ _______
Total payments........................ 4,158 4,093 4,533
_______ _______ _______
Net unpaid claims and claim
adjustment expenses, net of discount,
at end of the year................... 11,163 11,438 11,747
Reinsurance recoverables, end of year. 4,629 4,410 4,233
Deductible amounts recoverable from
policyholders, end of year (4)....... 352 - -
_______ _______ _______
Gross unpaid claims and claim
adjustment expenses, at end of year... $16,144 $15,848 $15,980
_______ _______ _______
_______ _______ _______
<FN>
(1) Accident and health business is excluded.
(2) Includes International.
(3) Includes increases in provision for insured events of prior years of $674 million,
offset by the current year effect of the change in accounting to report workers'
compensation life table indemnity claims on a discounted basis of $(100) million
related to the provision for insured events of prior years.
(4) FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts,
was adopted in 1994.
</TABLE>
<PAGE> 19
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"), for the property-casualty unpaid claims and claim
adjustment expenses: (1)
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Statutory unpaid claims and
claim adjustment expenses.......... $11,009 $11,253 $11,541
Adjustments:
Subsidiary operations (2)......... 154 185 206
Reinsurance recoverables (3)...... 4,629 4,410 4,233
Deductible amounts recoverable
from policyholders (4)........... 352 - -
_______ _______ _______
GAAP unpaid claims and
claim adjustment expenses.......... $16,144 $15,848 $15,980
_______ _______ _______
_______ _______ _______
<FN>
(1) Accident and health business is excluded.
(2) These operations are accounted for on an equity basis for statutory purposes.
(3) FAS 113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, requires reporting claim liabilities gross of
reinsurance recoverables.
(4) Information presented gross in 1994 due to the adoption of FASB Interpretation
No. 39, Offsetting of Amounts Related to Certain Contracts, which requires reporting
claim liabilities gross of deductible amounts recoverable from policyholders.
</TABLE>
The following reserve runoff table represents Aetna's combined
property-casualty loss and loss expense experience, net of
reinsurance recoverables and deductible amounts recoverable from
policyholders. 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 1994; 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 (i) workers' compensation claims;
(ii) environmental-related liability risks; and (iii) asbestos and
other product liability risks.
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> 20
<TABLE>
<CAPTION>
Year Ended 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
(Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid
claims and claim
adjustment expenses net
of discount (1)........ $5,948 $6,560 $7,503 $8,708 $9,843 $10,557 $11,064 $11,407 $11,747 $11,438 $11,163
Paid (cumulative) as of:
End of year.............. 0 0 0 0 0 0 0 0 0 0 0
One year later........... 1,844 2,067 2,180 2,552 3,134 3,069 3,080 2,973 2,889 2,783
Two years later.......... 3,055 3,372 3,727 4,547 4,955 4,994 5,133 5,116 4,890
Three years later........ 3,936 4,436 5,179 5,797 6,250 6,404 6,735 6,603
Four years later......... 4,669 5,504 6,065 6,682 7,212 7,578 7,789
Five years later......... 5,493 6,118 6,692 7,354 8,048 8,340
Six years later.......... 5,942 6,571 7,197 7,991 8,584
Seven years later........ 6,290 6,955 7,705 8,376
Eight years later........ 6,597 7,375 8,002
Nine years later......... 6,959 7,639
Ten years later.......... 7,183
Net liability reestimated as of:
End of year.............. 5,948 6,560 7,503 8,708 9,843 10,557 11,064 11,407 11,747 12,072 11,807
One year later........... 6,013 6,778 7,746 9,022 10,015 10,644 11,109 11,873 12,421 12,311
Two years later.......... 6,272 7,056 8,188 9,312 10,203 10,791 11,737 12,677 12,741
Three years later........ 6,531 7,536 8,539 9,547 10,457 11,376 12,578 13,068
Four years later......... 6,926 7,910 8,813 9,808 10,985 12,090 13,038
Five years later......... 7,291 8,156 9,084 10,319 11,624 12,643
Six years later.......... 7,515 8,422 9,577 10,860 12,169
Seven years later........ 7,778 8,907 10,089 11,419
Eight years later........ 8,250 9,398 10,652
Nine years later......... 8,707 9,964
Ten years later.......... 9,248
Effect of discounting:
1993..................... (235) (274) (317) (362) (417) (473) (528) (577) (614) (634)
1994..................... (216) (256) (299) (343) (397) (453) (512) (563) (596) (621) (644)
Net liability reestimated,
net of discounting: (1)
1993..................... 8,472 9,124 9,772 10,498 11,207 11,617 12,050 12,100 11,807 11,438
1994..................... 9,032 9,708 10,353 11,076 11,772 12,190 12,526 12,505 12,145 11,690 11,163
Redundancy (Deficiency)....(3,084)(3,148)(2,850)(2,368)(1,929) (1,633) (1,462) (1,098) (398) (252) 0
Change in redundancy
(deficiency)............. N/A (64) 298 482 439 296 171 364 700 146 252
Gross liability,
end of year (2,3)........ $15,980 $15,848 $16,144
Reinsurance recoverables... 4,233 4,410 4,629
Deductible amounts
recoverable from
policyholders............ - - 352
_______ _______ _______
Net liability,
end of year.............. $11,747 $11,438 $11,163
_______ _______ _______
_______ _______ _______
Gross reestimated
liability-latest (2)..... $16,701 $16,237
Reestimated
recoverable-latest....... 4,556 4,547
_______ _______
Net reestimated
liability-latest......... $12,145 $11,690
_______ _______
_______ _______
Gross cumulative deficiency $ (721)$ (389)
_______ _______
_______ _______
<FN>
(1) The reestimated liability at December 31, 1993 includes $574 million related to development
in workers' compensation reserves in the fourth quarter of 1993. This affected the reestimated
liability by reserve year as follows: $574 million in 1992; $565 million in 1991; $534 million
in 1990; $484 million in 1989; $433 million in 1988; $396 million in 1987; $372 million in 1986;
$346 million in 1985; and $308 million in 1984.
(2) Information presented gross in 1994 and 1993 due to the adoption of FAS No. 113, Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts in 1993. Adoption of
FAS No. 113 had no impact on the 1993 net loss.
(3) Information presented gross in 1994 due to the adoption of FASB Interpretation No. 39, Offsetting
of Amounts Related to Certain Contracts, which requires reporting claim liabilities gross of
deductible amounts recoverable from policyholders.
</TABLE>
<PAGE> 21
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,
Mexico, Taiwan, Chile, Malaysia, Hong Kong, New Zealand, Peru,
Argentina and Korea. (For additional information regarding the
products offered by International, see MD&A - International in the
Annual Report.) As part of the company's decision to realign its
segments (please see "Organization of Business" on page 3), United
Kingdom reinsurance operations, previously included within
International, are now reflected in the Property-Casualty segment.
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, foreign currency fluctuations and
the potential for restrictive capital regulations. Despite these
risks, management believes that its operations are sufficiently
maturing and, therefore, such risks are not substantial 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) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Premiums.......................... $ 887.1 $ 909.5 $ 814.8 $ 500.0 $ 415.9
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Net investment income, other
income and net realized capital
gains/losses..................... $ 409.9 $ 369.8 $ 387.6 $ 390.2 $ 257.0
________ ________ ________ ________ ________
________ ________ ________ ________ ________
Life insurance in force, end
of year......................... $ 45,126 $ 44,186 $ 37,172 $ 30,083 $ 21,238
________ ________ ________ ________ ________
________ ________ ________ ________ ________
</TABLE>
Premium reduction in 1994 resulted from the company's 1994 change
in its accounting for an affiliate from the consolidated basis of
accounting to the equity basis of accounting (recorded premiums
were $79 million and $136 million in 1994 and 1993, respectively)
which was substantially offset by growth in the Pacific Rim
operations.
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.
<PAGE> 22
7. Corporate
The Corporate segment includes interest expense and other
corporate net expenses, which are not directly related to the
company's business segments. Other corporate net expenses include
operating expenses such as corporate staff areas, advertising and
contributions, and net investment income.
8. General Account 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. The company's investment objective is to fund policyholder
and certain corporate liabilities in a manner which enhances
shareholder and contractholder value, subject to appropriate risk
constraints. It is the company's intention that this investment
objective be met by a mix of investments which matches the
characteristics of the liabilities they support; diversifies the
types of investment risks in its portfolios by interest rate,
liquidity, credit and equity price risk; and achieves asset
diversification by investment type, industry, issuer and
geographic location. The company regularly projects duration and
cash flow characteristics of its liabilities and makes appropriate
adjustments in the portfolios of assets which support the
liabilities. Using financial modeling and other techniques, the
company regularly evaluates the appropriateness of the investments
relative to the company's management-approved investment
guidelines and the business objectives of the portfolios. The
company also utilizes futures and forward contracts, swap
agreements and certain debt instruments with derivative
characteristics in order to manage investment returns and to align
maturities, interest rates, currency rates and funds availability
with its obligations. (See Note 18 of Notes to Financial
Statements in the Annual Report for a discussion of the company's
hedging activities.)
See MD&A - General Account 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 health care, group life and disability, individual
life, 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.
<PAGE> 23
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) 1994 (2,3) 1993 (2,3) 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Debt securities:
Bonds:
United States Government and
government agencies and
authorities.................. $ 4,214.4 $ 4,800.8 $ 2,318.7 $ 1,443.1 $ 585.7
States, municipalities and
political subdivisions....... 276.3 157.8 171.7 247.6 123.4
Foreign(4)..................... 846.1 2,538.5 846.5 1,410.6 1,526.9
Public utilities............... 1,944.1 2,046.1 1,615.3 2,079.9 2,518.3
Financial...................... 3,999.7 3,643.0 2,188.6 2,477.3 2,985.7
Transportation/Capital goods... 2,234.4 1,950.8 1,728.6 2,285.2 2,650.9
Mortgage-backed securities..... 5,433.1 8,735.5 10,117.4 8,208.3 7,132.1
Other loan-backed securities... 1,331.8 49.1 - - -
Food and fiber................. 597.8 708.5 652.5 750.4 857.7
Natural resources and services 686.8 842.0 600.4 738.5 800.0
All other corporate bonds...... 4,165.0 3,033.6 3,037.5 2,816.1 2,765.1
_________ _________ _________ _________ _________
Total bonds.................. 25,729.5 28,505.7 23,277.2 22,457.0 21,945.8
Redeemable preferred stocks...... 3.2 1.3 1.8 3.3 1.6
_________ _________ _________ _________ _________
Total debt securities........ 25,732.7 28,507.0 23,279.0 22,460.3 21,947.4
_________ _________ _________ _________ _________
Equity securities:
Common stocks.................. 277.4 210.5 108.8 101.1 73.2
Non-redeemable preferred stocks 92.3 101.0 107.8 158.3 147.4
_________ _________ _________ _________ _________
Total equity securities...... 369.7 311.5 216.6 259.4 220.6
_________ _________ _________ _________ _________
Short-term investments........... 261.8 413.5 838.7 73.3 883.1
Mortgage loans................... 9,742.9 12,331.2 15,203.0 17,507.0 19,499.2
Real estate (5).................. 1,162.2 944.1 1,116.3 1,022.2 728.7
Policy loans..................... 481.3 448.3 427.4 414.2 404.1
Other............................ 319.3 242.3 319.9 229.4 593.8
_________ _________ _________ _________ _________
Total investments............ $38,069.9 $43,197.9 $41,400.9 $41,965.8 $44,276.9
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Cash and cash equivalents.......... $ 2,158.4 $ 1,232.5 $ 1,516.3 $ 2,231.3 $ 1,037.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Accrued investment income.......... $ 552.9 $ 529.7 $ 523.6 $ 575.8 $ 630.4
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Excludes International, Separate Accounts and investments in affiliates.
(2) The majority of debt securities are carried at fair value in 1994 and 1993 due to the
adoption of FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
at December 31, 1993.
(3) Includes $11.9 billion and $14.7 billion of assets supporting discontinued products in
1994 and 1993, respectively.
(4) "Foreign" includes foreign governments, foreign political subdivisions, foreign public
utilities and all other bonds of foreign issuers.
(5) Includes acquisition of real estate through foreclosures (including in-substance
foreclosures in 1994) of mortgage loans.
</TABLE>
<PAGE> 24
Mortgage-backed securities at December 31, 1994, 1993 and 1992
included the following categories of collateralized mortgage
obligations: (1)
<TABLE>
<CAPTION>
(Millions)
Amortized Cost Fair Value Yield (2)
______________ __________ _____
<S> <C> <C> <C>
1994
Sequentials.................... $ 775.7 $ 765.3 9.4%
Planned Amortization Class..... 1,971.9 1,831.2 8.1
Interest Only.................. 21.1 38.7 27.9
Principal Only................. 56.0 61.3 11.8
Z-Tranches..................... 300.6 271.0 9.1
Other.......................... 124.5 123.8 8.6
________ ________
Total........................ $3,249.8 $3,091.3 8.7
________ ________
________ ________
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
________ ________
________ ________
<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, disability, 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:
1994............... $3,327.7 8.1% $ (50.8) $ (821.3)
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)
<FN>
(1) Excludes International, Separate Accounts and investments in affiliates.
(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, disability, 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 in all years and discontinued products in 1994 and 1993.
</TABLE>
<PAGE> 25
b. Investments Related to Property-Casualty Operations
The investment strategies for assets related to 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) 1994 (2) 1993 (2) 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Debt Securities:
Bonds:
United States Government
and government agencies
and authorities............... $ 3,417.5 $ 3,341.9 $ 895.7 $ 828.2 $ 622.9
States, municipalities and
political subdivisions........ 1,408.1 2,086.9 2,210.0 2,953.1 4,114.4
Foreign(3)...................... 161.2 757.2 533.0 597.8 431.4
Public utilities................ 520.3 717.3 676.3 455.9 293.3
Financial....................... 536.1 1,280.0 708.6 946.3 768.1
Transportation/Capital goods.... 616.3 215.9 290.3 256.2 225.1
Mortgage-backed securities...... 1,273.6 1,453.5 3,029.5 2,561.7 2,009.9
Other loan-backed securities.... 317.5 - - - -
Food and fiber.................. 141.9 218.3 213.9 169.8 122.3
Natural resources and services.. 282.1 279.6 334.3 268.6 166.6
All other corporate bonds....... 863.9 636.8 602.9 287.0 217.3
_________ _________ _________ _________ _________
Total bonds................. 9,538.5 10,987.4 9,494.5 9,324.6 8,971.3
Redeemable preferred stocks..... 71.1 92.3 162.8 140.5 166.0
_________ _________ _________ _________ _________
Total debt securities....... 9,609.6 11,079.7 9,657.3 9,465.1 9,137.3
_________ _________ _________ _________ _________
Equity securities:
Common stocks..................... 1,038.5 1,169.5 1,015.0 645.9 484.2
Non-redeemable preferred stocks... 17.3 7.2 7.8 14.4 21.0
_________ _________ _________ _________ _________
Total equity securities..... 1,055.8 1,176.7 1,022.8 660.3 505.2
_________ _________ _________ _________ _________
Short-term investments.............. 113.2 235.8 506.8 479.2 720.1
Mortgage loans...................... 1,453.7 1,834.1 2,126.0 2,303.8 2,629.7
Real estate (4)..................... 267.6 314.8 344.6 317.0 240.3
Other............................... 389.3 295.7 258.9 490.0 331.8
_________ _________ _________ _________ _________
Total investments........... $12,889.2 $14,936.8 $13,916.4 $13,715.4 $13,564.4
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Cash and cash equivalents........... $ 699.5 $ (11.0) $ 597.1 $ 382.4 $ 471.3
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Accrued investment income........... $ 179.6 $ 206.8 $ 192.7 $ 201.6 $ 209.2
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
<FN>
(1) Excludes International and investments in affiliates.
(2) The majority of debt securities are carried at fair value in 1994 and 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.
(4) Includes acquisition of real estate through foreclosures (including in-substance
foreclosures in 1994) of mortgage loans.
</TABLE>
<PAGE> 26
Mortgage-backed securities at December 31, 1994, 1993 and 1992
included the following categories of collateralized mortgage
obligations: (1)
<TABLE>
<CAPTION>
(Millions)
Amortized Cost Fair Value Yield (2)
______________ __________ _____
<S> <C> <C> <C>
1994
Sequentials.................... $ 169.4 $ 148.3 8.8%
Planned Amortization Class..... 143.5 129.8 9.1
________ ________
Total........................ $ 312.9 $ 278.1 8.9
________ ________
________ ________
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
________ ________
________ ________
<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:
1994............... $ 842.5 6.5% $ (8.4) $ (914.1)
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)
<FN>
(1) Excludes International and investments in affiliates.
(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. Intercompany transactions between life, health, disability, annuity and
pension operations and property-casualty operations have not been eliminated.
</TABLE>
<PAGE> 27
9. 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, 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, 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.
Legislative proposals to change the health insurance system have
been prominent at both the state and national levels. (For
additional discussion, see MD&A - Aetna Health Plans 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 and operations 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 auto and property insurance and workers'
compensation coverage, 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.
<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 and 1992 were $17 million and $49 million,
respectively. There were no such charges in 1994. The level of
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. In addition, there have been some legislative
efforts to limit or repeal the tax offset provisions, although
these efforts have, for the most part, been unsuccessful.
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.
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 usual 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 usual 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 1993, two of
Aetna Life and Casualty Company's significant subsidiaries had more
than two IRIS ratios that were outside of the NAIC usual ranges, as
discussed below.
Aetna Life Insurance Company ("ALIC") fell outside the usual ranges
in 1993 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 Gross Change in
Capital and Surplus Ratio which is calculated by dividing the change
in capital and surplus between the prior and the current year by the
prior year capital and surplus; (iii) the Adequacy of Investment
Income Ratio which compares investment income to credited interest;
and (iv) the Real Estate and Total Mortgage Loans to Cash and
Invested Assets Ratio which measures the relative size of the real
estate and mortgage loan portfolios. The regulators were satisfied,
after analysis, that ALIC did not warrant special attention.
<PAGE> 30
In 1993, The Aetna Casualty and Surety Company ("AC&S") fell outside
of the usual 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; (iii) the Ratio of Liabilities to Liquid Assets
which measures the liquidity of a company; and (iv) the Two-Year
Reserve Development to Surplus Ratio which measures the change in
prior years' estimates calculated as a percentage of policyholders'
surplus two years previous. Significant additions to prior years'
losses for asbestos bodily injury and environmental liability claims
and the redeployment of capital by Aetna Life and Casualty Company
from another of its subsidiaries to AC&S caused certain of the ratios
described above to fall outside of the usual 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 the NAIC
usual ranges for 1994.
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) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 4.60 (a) .42 (b) 2.13 3.03
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends 4.60 (a) .42 (b) 2.13 3.03
<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) and
includes the dividends paid to preferred shareholders of a
subsidiary. (See Note 11 of Notes to Financial Statements in the
Annual Report.) For the years ended December 31, 1994, 1993, 1992,
1991 and 1990 there was no preferred stock outstanding. As a result,
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 40,900 domestic employees at December 31,
1994.
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 1994. 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 15
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 vacated 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 and certain present and former officers and directors
thereof.
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 Life and Casualty Company common stock
at artificially inflated prices. The suit seeks certification of
the class and 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 answered the complaint, denying all substantive averments,
and the parties engaged in substantial discovery. On August 29,
1994, the District Court granted the defendants' motion for
summary judgment and on September 8, 1994, entered a final
judgment in favor of all defendants. The plaintiff has filed an
appeal from that judgment to the United States Court of Appeals
for the Second Circuit. Aetna believes that the suit is supported
neither as a matter of fact nor as a matter of law and, with the
other defendants, will continue to contest vigorously the
litigation.
<PAGE> 33
In Re: Attorneys General Antitrust Litigation
The description of this litigation is contained in Note 19 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 environmental and
asbestos-related claims. These lawsuits and other factors make
reserving for these 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, such litigation (other than
that related to environmental and asbestos-related claims, which
is subject to significant uncertainties), net of reserves
established therefor and giving effect to reinsurance probable of
recovery, is not expected to result in judgments for amounts
material to the financial condition of the company, although it
may adversely affect results of operations in future periods. The
company is expected to be affected adversely in the future by
losses for environmental and asbestos-related claims and related
litigation expenses and such effect could be material to the
company's future results, liquidity and/or capital resources.
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 62 (1)
Richard L. Huber Vice Chairman for
Strategy and Finance 58 (2)
Zoe Baird Senior Vice President and
General Counsel 42 (3)
Gary G. Benanav Executive Vice President,
Property/Casualty** 49 (4)
Mary Ann Champlin Senior Vice President,
Human Resources 47 (5)
Daniel P. Kearney Executive Vice President,
Investments/Financial
Services** 55 (6)
James W. McLane Executive Vice President,
Health/Group Life** 56 (7)
Vanda B. McMurtry Senior Vice President,
Federal Government Relations 45 (8)
Robert E. Broatch Senior Vice President,
Finance, and Corporate
Controller 46 (9)
Brian E. Scott Vice President and
Senior Corporate Actuary 58 (10)
<FN>
* As of March 1, 1995.
** Executive Vice Presidents, in conjunction with certain other senior
officers, are responsible for assisting the Chairman and Vice 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 businesses:
Mr. Benanav -- property-casualty and international;
Mr. Kearney -- investments, large case pensions and ALIAC;
Mr. McLane -- Aetna Health Plans.
</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)
Mr. Huber has served in his current position since February 1995.
From September 1994 to February 1995, he served as President and
Chief Operating Officer of Grupo Wasserstein Perella. From 1990
to September 1994, he served as Vice Chairman of Continental Bank.
From 1988 to 1990, he served as Executive Vice President and Head
of Capital Markets and Foreign Exchange Sector, Chase Manhattan
Bank.
(3)
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.
(4)
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.
(5)
Mrs. 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.
(6)
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.
(7)
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.
<PAGE> 36
(8)
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.
(9)
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.
(10)
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 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 28, 1995,
there were 25,429 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 1994 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" in the
Proxy Statement is incorporated herein by reference.
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" in
the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information under the caption "Certain Transactions and
Relationships" in the Proxy Statement is incorporated herein by
reference.
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 42.
<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 company's 1992 Form 10-K,
filed on March 17, 1993 (the "1992 Form 10-K").
By-Laws of Aetna Life and Casualty Company, incorporated by
reference to the company's 1993 Form 10-K filed on March 18, 1994
(the "1993 Form 10-K").
(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 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 company's Registration
Statement on Form S-3 (File No. 33-50427).
Conformed copy of 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.
Conformed copy of Summary of Rights to Purchase Preferred Stock,
incorporated herein by reference to the 1992 Form 10-K.
Conformed copy of Written Action dated as of November 15, 1994,
establishing the terms of Series A Preferred Securities of Aetna
Capital L.L.C., incorporated herein by reference to the company's
Form 8-K filed on November 22, 1994.
Conformed copy of Subordinated Indenture dated as of November 1,
1994, between the company and The First National Bank of Chicago,
as Trustee, incorporated herein by reference to the company's Form
8-K filed on November 22, 1994.
Conformed copy of Payment and Guarantee Agreement dated November
22, 1994, of the company with respect to Aetna Capital L.L.C.,
incorporated herein by reference to the company's Form 8-K filed
on November 22, 1994.
(10) Material contracts.
The 1984 Stock Option Plan 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. **
<PAGE> 40
Aetna Life and Casualty Company's 1986 Management Incentive Plan,
as amended effective February 25, 1994, incorporated herein by
reference to the 1993 Form 10-K. **
Aetna Life and Casualty Company Directors' Deferred Compensation
Plan, incorporated herein by reference to the 1992 Form 10-K. **
Aetna Life and Casualty Company 1994 Non-Employee Director
Deferred Stock Plan, incorporated herein by reference to the
company's 1994 proxy statement, filed on March 18, 1994 (the "1994
Proxy Statement"). **
Aetna Life and Casualty Company 1994 Stock Incentive Plan,
incorporated herein by reference to the 1994 Proxy Statement. **
Letter Agreement, dated December 18, 1993, between Aetna Life and
Casualty Company and David A. Kocher, incorporated herein by
reference to the 1993 Form 10-K. **
Letter Agreement, dated September 20, 1994, between Aetna Life and
Casualty Company and Patrick W. Kenny, incorporated by reference
to the company's Form 10-Q filed on October 28, 1994. **
The Aetna Life and Casualty Company 1990 Non-Employee Director
Deferred Stock Plan, incorporated herein by reference to the 1992
Form 10-K. **
$500,000,000 Short-Term Credit Agreement dated as of July 27, 1994
among Aetna Life and Casualty Company, the banks listed on the
signature pages thereof, Morgan Guaranty Trust Company of New
York, as Managing Agent, Deutsche Bank AG, as Co-Arranger, and The
Chase Manhattan Bank, N.A., Citibank, N.A., and Credit Suisse, as
Co-Agents, incorporated by reference to the company's Form 10-Q
filed on August 15, 1994 (the "1994 Second Quarter Form 10-Q").
$500,000,000 Medium-Term Credit Agreement dated as of July 27, 1994
among Aetna Life and Casualty Company, the banks listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York,
as Managing Agent, Deutsche Bank AG, as Co-Arranger, and The Chase
Manhattan Bank, N.A., Citibank, N.A., and Credit Suisse, as Co-
Agents, incorporated by reference to the 1994 Second Quarter Form
10-Q.
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 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 company's independent
auditors, and unaudited Quarterly Data from the Annual Report.
<PAGE> 41
(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.
(24) Powers of attorney.
(27) Financial data schedule.
(28) Information from reports furnished to state insurance
regulatory authorities.
1994 Consolidated Schedule P of Annual Statements provided to
state regulatory authorities. ***
(b) Reports on Form 8-K
The company filed a report on Form 8-K filed on October 4, 1994,
relating to the lowering, by certain of the rating agencies, of
the senior debt and commercial paper ratings of Aetna Life and
Casualty Company and the claims paying ratings of certain of its
subsidiaries.
The company filed a report on Form 8-K filed on November 7, 1994,
relating to the lowering by A.M. Best of the claims paying rating
of The Aetna Casualty and Surety Company.
The company filed a report on Form 8-K filed on November 14, 1994,
relating to the lowering by Duff & Phelps of the claims paying
ratings of certain of Aetna Life and Casualty Company's
subsidiaries.
The company filed a report on Form 8-K filed on November 22, 1994,
relating to a pricing agreement with certain underwriters to offer
and sell $275 million of Aetna Capital L.L.C.'s, a subsidiary of
the company, 9 1/2% Cumulative Monthly Income Preferred
Securities, Series A guaranteed by the company.
* 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.
** Management contract or compensatory plan or arrangement.
*** Filed under cover of Form SE.
<PAGE> 42
INDEX TO FINANCIAL STATEMENT SCHEDULES
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
Page
____
Independent Auditors' Report........................ 43
I Summary of Investments - Other than
Investments in Affiliates as
of December 31, 1994.......................... 44
III Condensed Financial Information of the
Registrant as of December 31, 1994 and
1993 and for the years ended December 31,
1994, 1993 and 1992........................... 45
V Supplementary Insurance Information as of
and for the years ended December 31, 1994,
1993 and 1992................................. 51
VIII Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1994, 1993
and 1992...................................... 54
IX Short-term Borrowings for the years ended
December 31, 1994, 1993 and 1992.............. 55
X Supplemental Information Concerning
Property-Casualty Operations for the years
ended December 31, 1994, 1993 and 1992........ 56
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 Annual Report. Columns omitted from schedules filed have
been omitted because the information is not applicable.
Certain reclassifications have been made to 1993 and 1992
financial information to conform to 1994 presentation.
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
____________________________
The Shareholders and Board of Directors
Aetna Life and Casualty Company:
Under date of February 7, 1995, we reported on the consolidated
balance sheets of Aetna Life and Casualty Company and Subsidiaries
as of December 31, 1994 and 1993, 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,
1994, as contained in the 1994 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 1994. 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 /s/ KPMG Peat Marwick LLP
__________________________
(Signature)
KPMG Peat Marwick LLP
Hartford, Connecticut
February 7, 1995
<PAGE> 44
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE I
Summary of Investments - Other than Investments in Affiliates
As of December 31, 1994
<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............. $ 8,321.5 $ 7,652.8 $ 7,652.8
States, municipalities and
political subdivisions...... 2,000.3 1,933.9 1,941.7
Foreign (1)................... 1,739.2 1,685.5 1,685.5
Public utilities.............. 2,821.0 2,630.8 2,628.3
Financial..................... 4,776.5 4,567.8 4,675.7
Transportation/Capital goods.. 2,993.0 2,992.8 2,883.3
Mortgage-backed securities.... 7,065.2 6,759.9 6,772.8
Other loan-backed securities.. 1,706.1 1,649.4 1,649.4
Food and fiber................ 801.5 767.1 739.9
Natural resources and services 1,038.1 1,038.1 1,037.9
All other corporate bonds..... 5,640.9 5,342.3 5,362.7
_________ _________ _________
Total bonds................. 38,903.3 37,020.4 37,030.0
Redeemable preferred stocks..... 81.7 81.5 81.5
_________ _________ _________
Total debt securities....... 38,985.0 $37,101.9 37,111.5
_________ _________ _________
_________
Equity securities:
Common stocks:
Public utilities.............. 84.6 $ 83.6 83.6
Banks, trust and insurance
companies................... 86.1 178.4 178.4
Industrial, miscellaneous
and all other............... 1,074.7 1,282.1 1,282.1
_________ _________ _________
Total common stocks......... 1,245.4 1,544.1 1,544.1
Non-redeemable preferred
stocks........................ 107.7 111.5 111.5
_________ _________ _________
Total equity securities..... 1,353.1 $ 1,655.6 1,655.6
_________ _________ _________
_________
Short-term investments............. 450.4 450.4
Mortgage loans..................... 11,843.6 11,843.6
Real estate........................ 1,545.7 1,545.7
Policy loans....................... 533.8 533.8
Other.............................. 936.8 (2) 1,152.7 (3)
_________ _________
Total investments........... $55,648.4 $54,293.3
_________ _________
_________ _________
________________________
<FN>
* See Notes 1 and 5 of Notes to Financial Statements in the company's
1994 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 $215.9 million.
(3) Includes investments in affiliates of $215.9 million.
</TABLE>
<PAGE> 45
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,
1994 1993 1992
____ ____ ____
(Millions)
<S> <C> <C> <C>
Premiums............................... $ - $ 1.3 $ .9
Net investment income (expense)........ (7.9) (7.9) (18.2)
Net realized capital gains (losses).... (7.9) (22.1) 5.7
_______ _______ ________
Total revenue................... (15.8) (28.7) (11.6)
Current and future benefits............ - .8 .2
Operating expenses..................... 31.8 43.1 30.3
Severance and facilities charge........ - 50.3 22.1
Interest expense....................... 92.5 70.1 76.9
_______ _______ ________
Total benefits and expenses..... 124.3 164.3 129.5
_______ _______ ________
Insurance operating losses before
federal income taxes and equity
in earnings of affiliates............. (140.1) (193.0) (141.1)
Federal income tax benefits:
Current.............................. (23.3) (53.4) (35.5)
Deferred............................. (29.4) (45.6) (15.7)
Equity in earnings (losses) of
affiliates............................ 554.9 (521.3) 84.6
_______ _______ ________
Income (Loss) from continuing
operations before extraordinary item
and cumulative effect adjustments..... 467.5 (615.3) (5.3)
Discontinued operations, net of tax:
Income from operations............... - - 86.8
Gain on sale......................... - 27.0 38.1
Cumulative effect adjustments........ - - 48.9
_______ _______ ________
Income (Loss) before extraordinary item
and cumulative effect adjustments for
continuing operations................. 467.5 (588.3) 168.5
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)....................... $ 467.5 $(365.9) $ 56.0
_______ _______ ________
_______ _______ ________
________________________
<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> 46
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,
1994 1993
____ ____
(Millions, except share data)
<S> <C> <C>
ASSETS
Investments:
Debt securities, available for sale
at fair value (cost of $3.8)........... $ 3.8 $ -
Equity securities, at market
(cost $18.3 and $5.6)................. 14.8 1.6
Short-term investments.................. 22.5 83.3
Other................................... 10.9 10.5
Investments in affiliates:
Insurance and financial services
companies........................... 6,815.8 7,916.4
International insurance and
financial services companies........ 644.6 636.4
________ _________
Total investments................. 7,512.4 8,648.2
Cash and cash equivalents.................. - 5.8
Premiums due and other receivables......... 2.5 2.5
Due from affiliates........................ 179.3 165.5
Accrued investment income.................. 1.6 1.3
Deferred federal income taxes.............. 306.6 263.8
Other assets............................... 32.8 39.4
________ _________
Total assets...................... $8,035.2 $ 9,126.5
________ _________
________ _________
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance reserve liabilities........... $ .6 $ .5
Dividends payable to shareholders....... 77.7 77.4
Long-term debt.......................... 1,058.2 1,057.6
Other liabilities....................... 127.2 154.6
Liability for postretirement
benefits other than pensions........... 624.1 638.9
Due to affiliates....................... 513.1 149.0
Federal income taxes payable............ 131.3 5.4
________ _________
Total liabilities................. 2,532.2 2,083.4
________ _________
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 112,657,758 and 112,200,567
outstanding).......................... 1,419.2 1,422.0
Net unrealized capital gains (losses)... (1,071.5) 648.2
Retained earnings....................... 5,259.6 5,103.3
Treasury stock, at cost................. (104.3) (130.4)
Total shareholders' equity.......... 5,503.0 7,043.1
________ _________
Total............................. $8,035.2 $ 9,126.5
________ _________
________ _________
________________________
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE> 47
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, 1994 Common Capital Retained Treasury
(Millions, except share data) Total Stock Gains (Losses) Earnings Stock
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
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)
___________________________________________________________________________________________________________
Net income.............................. 467.5 467.5
Net change in unrealized capital gains
and losses............................ (1,719.7) (1,719.7)
Common stock issued for benefit plans
(457,191 shares)...................... 26.1 26.1
Loss on issuance of treasury stock...... (2.8) (2.8)
Common stock dividends declared......... (311.2) (311.2)
______________________________________________________________
Balances at December 31, 1994 $ 5,503.0 $ 1,419.2 $(1,071.5) (1) $ 5,259.6 $ (104.3)
___________________________________________________________________________________________________________
<FN>
See Notes to Condensed Financial Statements.
(1) Excludes unrealized capital gains and losses attributable to assets supporting
discontinued products and to assets supporting experience rated contracts.
</TABLE>
<PAGE> 48
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,
1994 1993 1992
(Millions) ____ ____ ____
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................. $ 467.5 $(365.9) $ 56.0
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)
Cumulative effect of discontinued operations - - (48.9)
(Increase) Decrease in premiums due and
other receivables.......................... (12.3) 5.0 (41.7)
(Increase) Decrease in accrued investment
income..................................... (0.3) 0.3 (3.1)
Depreciation and amortization............... 0.1 - 0.1
Increase (Decrease) in federal income taxes 83.1 (58.6) 73.3
Net (decrease) increase in other assets
and other liabilities...................... (19.7) 38.3 110.2
Increase in insurance reserve
liabilities................................ 0.1 0.1 0.3
Equity in (earnings) losses of affiliates... (554.9) 521.3 (84.6)
Gain on sale of subsidiaries................ - (15.0) (38.1)
Net realized capital (gains) losses......... 7.9 22.1 (5.7)
Amortization of net investment discounts.... (0.2) (0.2) (0.2)
Other, net.................................. (90.6) (118.2) 65.8
_______ _______ _______
Net cash (used for) provided by
operating activities..................... (119.3) (220.2) 109.1
_______ _______ _______
Cash Flows from Investing Activities:
Proceeds from sales of:
Equity securities............................. 1.1 - -
Short-term investments........................ 1,200.3 1,591.3 2,479.8
Cost of investments in:
Debt securities available for sale............ (3.8) - -
Equity securities............................. (21.8) (26.3) (2.9)
Short-term investments........................ (1,139.6) (1,591.5) (2,538.6)
Real estate................................... (1.0) (0.5) (1.8)
Proceeds from disposal of subsidiaries.......... - 93.1 -
Investment in and advances from subsidiaries.... 13.4 (631.3) 220.4
Dividends received from affiliates.............. - 302.1 250.0
Other, net...................................... 4.0 366.0 (72.9)
_______ _______ _______
Net cash provided by investing activities..... 52.6 102.9 334.0
_______ _______ _______
Cash Flows from Financing Activities:
Issuance of long-term debt.................... .6 600.0 -
Issuance of subordinated debentures
to affiliates............................... 348.1 - -
Stock issued under benefit plans.............. 23.3 90.8 8.2
Repayment of long-term debt................... - (347.2) (69.9)
Dividends paid to shareholders................ (311.2) (308.7) (304.1)
_______ _______ _______
Net cash (used for) provided by
financing activities....................... 60.8 34.9 (365.8)
_______ _______ _______
Effect of exchange rate on cash
and cash equivalents............................ 0.1 - -
_______ _______ _______
Net (decrease) increase in cash and
cash equivalents................................ (5.8) (82.4) 77.3
Cash and cash equivalents, beginning of year..... 5.8 88.2 10.9
_______ _______ _______
Cash and cash equivalents, end of year........... $ - $ 5.8 $ 88.2
_______ _______ _______
_______ _______ _______
Supplemental disclosure of cash flow
information:
Interest paid............................... $ 90.6 $ 64.2 $ 83.2
_______ _______ _______
_______ _______ _______
Income taxes received, net.................. $ 150.3 $ 56.7 $ 40.6
_______ _______ _______
_______ _______ _______
________________________
<FN>
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE> 49
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 Annual Report. Certain reclassifications have been
made to 1993 and 1992 financial information to conform to 1994
presentation.
1. Long-Term Debt
<TABLE>
<CAPTION>
(Millions) 1994 1993
____ ____
<S> <C> <C>
Long-term debt:
Eurodollar Notes, 9 1/2% due 1995.. $ 100.2 $ 100.4
Notes, 8 5/8% due 1998............. 99.8 99.8
Notes, 6 3/8% due 2003............. 198.9 198.7
Debentures, 6 3/4% due 2013........ 198.4 198.3
Eurodollar Notes, 7 3/4% due 2016.. 63.5 63.5
Debentures, 8% due 2017............ 199.1 198.6
Debentures, 7 1/4% due 2023........ 198.3 198.3
________ ________
$1,058.2 $1,057.6
________ ________
________ ________
</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 1995 to 1999 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,
1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Consolidated subsidiaries..... - $302.1 $250.0
</TABLE>
See Note 8 to the Consolidated Financial Statements in the Annual
Report for a description of dividend restrictions from the
consolidated insurance subsidiaries to the company.
3. Due to Affiliates
See Note 11 to the Consolidated Financial Statements in the Annual
Report for a description of amounts due to Aetna Capital L.L.C., a
subsidiary of the company.
<PAGE> 50
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE III
Condensed Financial Information
AETNA LIFE AND CASUALTY COMPANY
Notes to Condensed Financial Statements (Continued)
4. Accounting Changes
See Note 1 to the Consolidated Financial Statements in the Annual
Report for a description of accounting changes.
5. Discontinued Products
See Note 2 to the Consolidated Financial Statements in the Annual
Report for a description of discontinued products.
6. Sales of Subsidiaries
See Note 3 to the Consolidated Financial Statements in the Annual
Report for a description of the sales of subsidiaries.
7. Severance and Facilities Charge
See Note 4 to the Consolidated Financial Statements in the Annual
Report for a description of the severance and facilities charges.
8. Federal and Foreign Income Taxes
See Note 10 to the Consolidated Financial Statements in the Annual
Report for a description of federal and foreign income taxes.
9. Litigation
See Note 19 to the Consolidated Financial Statements in the Annual
Report for a description of the Attorneys General Antitrust
litigation.
<PAGE> 51
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
SCHEDULE V
Supplementary Insurance Information
As of and for the year ended December 31, 1994
<TABLE>
<CAPTION>
Deferred Unpaid Policyholders'
policy Future claims funds left
acquisition policy and claim Unearned with the Premium
Segment costs benefits expenses premiums company revenue
_______ ___________ _________ _________ _________ ___________ _________
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Aetna Health Plans..........$ 74.2 $ 2,487.4 $ 1,204.5 (1) $ 137.5 $ 682.1 $ 5,611.5
Large Case Pensions......... - 9,916.9 1.5 - 12,548.7 234.4
Aetna Life Insurance
& Annuity.................. 1,147.3 3,281.8 25.3 - 9,106.2 168.3
Property-Casualty........... 316.0 - 16,192.9 1,425.9 46.7 4,390.8
International............... 477.2 2,293.1 54.1 41.5 839.4 887.1
Corporate................... - - - - - -
_________ _________ _________ _________ _________ _________
Total....................$ 2,014.7 $17,979.2 $17,478.3 $ 1,604.9 $23,223.1 $11,292.1
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
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>
Aetna Health Plans............. $ 351.6 $ 1,176.0 $ 4,755.1 $ - $ 1,845.9 $ 83.8
Large Case Pensions............ 2,017.4 103.4 2,175.9 - 98.2 -
Aetna Life Insurance
& Annuity..................... 958.7 277.2 914.4 37.1 217.7 -
Property-Casualty.............. 832.1 116.0 3,746.8 647.2 914.1 4,467.1
International.................. 308.4 101.5 782.7 65.7 349.8 39.5
Corporate...................... (4.7) (5.0) 22.2 - 293.6 -
_________ _________ _________ _________ _________ _________
Total..................... $ 4,463.5 $ 1,769.1 $12,397.1 $ 750.0 $ 3,719.3 $ 4,590.4
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
<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, 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>
Aetna Health Plans..........$ 73.5 $ 2,513.8 $ 1,228.0 (1) $ 129.7 $ 697.2 $ 4,700.6
Large Case Pensions......... - 10,027.0 1.2 - 16,318.5 185.9
Aetna Life Insurance
& Annuity.................. 1,042.4 3,075.6 15.4 - 9,207.2 125.7
Property-Casualty........... 329.6 16.9 15,771.5 1,332.5 51.2 4,653.2
International............... 421.5 1,964.3 96.1 40.0 1,318.1 909.5
Corporate................... - - - - - -
_________ _________ _________ _________ _________ _________
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>
Aetna Health Plans............. $ 376.3 $ 1,029.1 $ 3,989.3 $ - $ 1,701.8 $ 67.0
Large Case Pensions............ 2,327.7 52.4 2,428.1 - 142.1 -
Aetna Life Insurance
& Annuity..................... 962.4 270.3 870.9 38.5 275.7 -
Property-Casualty.............. 952.4 295.3 4,214.7 646.2 1,172.7 4,464.7
International.................. 311.6 58.2 860.1 51.7 365.3 114.1
Corporate...................... (11.4) 4.5 28.8 - 295.2 -
_________ _________ _________ _________ _________ _________
Total..................... $ 4,919.0 $ 1,709.8 $12,391.9 $ 736.4 $ 3,952.8 $ 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> 53
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>
Aetna Health Plans..........$ 57.0 $ 2,543.0 $ 1,074.0 (1) $ 107.6 $ 644.8 $ 4,586.7
Large Case Pensions......... 1.8 8,741.6 1.8 - 17,595.4 204.2
Aetna Life Insurance
& Annuity.................. 961.6 2,867.4 34.0 - 7,502.1 111.9
Property-Casualty........... 328.6 .2 15,923.0 1,335.0 61.0 5,076.3
International............... 357.0 1,838.2 89.4 45.6 1,466.9 814.8
Corporate................... - - - - - -
_________ _________ _________ _________ _________ _________
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>
Aetna Health Plans............. $ 388.2 $ 957.2 $ 3,793.1 $ - $ 1,727.0 $ 59.8
Large Case Pensions............ 2,560.4 (13.3) 2,697.7 - 107.7 -
Aetna Life Insurance
& Annuity..................... 884.3 245.6 821.3 32.7 240.7 -
Property-Casualty.............. 1,016.5 420.7 4,772.2 725.9 1,282.3 4,916.3
International.................. 278.5 109.1 732.3 41.6 385.6 72.3
Corporate...................... (58.9) _ 16.2 32.3 - _ 327.4 -
_________ _________ _________ _________ _________ _________
Total..................... $ 5,069.0 $ 1,735.5 $12,848.9 $ 800.2 $ 4,070.7 $ 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> 54
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>
1994
____
Asset valuation reserves:
Debt securities........... $ 102.8 $ 2.7 $ 14.7 $ (120.2) $ -
Mortgage loans............ 1,308.3 103.3 197.9 (825.4) 784.1
Equity securities......... 10.6 - - (10.6) -
Real estate............... 267.7 (1.2) 24.2 (145.0) 145.7
Other..................... 6.0 - - - 6.0
_________ _________ _________ _________ _________
$ 1,695.4 $ 104.8 $ 236.8 $(1,101.2) $ 935.8
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
1993
____
Asset valuation reserves:
Debt securities........... $ 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............... 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:
Debt securities........... $ 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............... - 53.6 22.6 (7.4) 68.8
Other..................... 131.6 - - (125.6) (4) 6.0
_________ _________ _________ _________ _________
$ 1,052.9 $ 415.6 $ 134.9 $ (345.3) $ 1,258.1
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
________________________
<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
and discontinued products for which a corresponding reduction was included in Policyholders'
Funds Left with the Company in the Consolidated Balance Sheets and the reserve for future
losses, respectively.
(3) Reduction in reserves is primarily a result of related asset write-downs
(including foreclosures of real estate) and sales.
(4) Primarily related to oil and gas properties. During 1992, the majority of
the oil and gas properties were sold.
</TABLE>
<PAGE> 55
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>
1994
____
Commercial paper.......... $ - -% $383.5 $177.3 4.6%
Bank notes................ 13.6 11.0 21.1 19.2 9.0
Other..................... 10.3 0.8 143.8 23.4 2.3
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
________________________
<FN>
* Method of computation - daily weighted average based upon respective time outstanding
and the amount of borrowings.
</TABLE>
<PAGE> 56
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>
1994 Consolidated
property-
casualty
entities $ 316 $11,163 $ 644 (3) $ 1,426 $ 4,391
1993 Consolidated
property-
casualty
entities $ 330 $11,438 $ 634 (3) $ 1,333 $ 4,653
1992 Consolidated
property-
casualty
entities $ 329 $11,747 $ - $ 1,335 $ 5,076
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>
1994 Consolidated
property-
casualty
entities $ 832 $ 3,631 $ 252 $ 647 $ 4,158 $ 4,467
1993 Consolidated
property-
casualty
entities $ 952 $ 3,724 $ 60 $ 646 $ 4,093 $ 4,465
1992 Consolidated
property-
casualty
entities $ 1,017 $ 4,407 $ 466 $ 726 $ 4,533 $ 4,916
<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> 57
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 17, 1995
AETNA LIFE AND CASUALTY COMPANY
(Registrant)
By /s/ 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 17, 1995.
Signature Title
*
________________________ Chairman, President and Director
Ronald E. Compton (Principal Executive Officer)
*
________________________
Wallace Barnes Director
*
________________________
John F. Donahue Director
*
________________________
William H. Donaldson Director
*
________________________
Barbara Hackman Franklin Director
*
________________________
Earl G. Graves Director
*
________________________
Gerald Greenwald Director
*
________________________
Michael H. Jordan Director
*
________________________
Jack D. Kuehler Director
*
________________________
Frank R. O'Keefe, Jr. Director
*
________________________
David M. Roderick Director
*
________________________
Richard L. Huber Vice Chairman for
Strategy and Finance
(Principal Financial Officer)
/s/ Robert E. Broatch
________________________
Robert E. Broatch Senior Vice President, Finance, and
Corporate Controller (Controller)
* By /s/ Robert E. Broatch
________________________
Robert E. Broatch
(Attorney-in-Fact)
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
______ ______________________ ______
<S> <C> <C>
(12) Statement re computation of ratios. Electronic
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. Electronic
Selected Financial Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations, Consolidated
Financial Statements and the report of the company's
independent auditors, and unaudited Quarterly Data from the Annual
Report.
(21) Subsidiaries of the registrant. Electronic
A listing of subsidiaries of Aetna Life and Casualty Company.
(23) Consents of experts and counsel. Electronic
Consent of Independent Auditors to Incorporation by Reference in
the Registration Statements on Form S-3 and Form S-8.
(24) Powers of Attorney. Electronic
(27) Financial Data Schedule. Electronic
(28) Information from reports furnished to state insurance regulatory P
authorities. Paper
1994 Consolidated Schedule P of Annual Statements provided to
state regulatory authorities.
</TABLE>
<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) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations........... $ 658.3 $ (1,147.4) $ (121.4) $ 243.5 $ 459.6
Add back fixed charges........... 186.1 171.0 194.3 221.5 229.0
Minority interest................ 11.4 7.0 8.6 5.9 4.9
_________ _________ _________ _________ _________
Income (loss) as adjusted..... $ 855.8 $ (969.4) $ 81.5 $ 470.9 $ 693.5
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Fixed charges:
Interest on indebtedness....... $ 98.6 $ 77.4 $ 81.4 $ 110.9 $ 119.9
Portion of rents representative
of interest factor............ 87.5 93.6 112.9 110.6 109.1
_________ _________ _________ _________ _________
Total fixed charges........... $ 186.1 $ 171.0 $ 194.3 $ 221.5 $ 229.0
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Preferred stock dividend
requirements.................... - - - - -
_________ _________ _________ _________ _________
Total combined fixed charges
and preferred stock dividend
requirements.................... $ 186.1 $ 171.0 $ 194.3 $ 221.5 $ 229.0
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Ratio of earnings to fixed
charges......................... 4.60 (5.67) 0.42 2.13 3.03
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
Ratio of earnings to combined
fixed charges and preferred
stock dividends................. 4.60 (5.67) 0.42 2.13 3.03
_________ _________ _________ _________ _________
_________ _________ _________ _________ _________
</TABLE>
<PAGE> 1
Selected Financial Data (1)
<TABLE>
<CAPTION>
(Millions, except per share data) 1994 1993 1992 1991 1990
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
Revenue:
Premiums:
Aetna Health Plans $ 5,611.5 $ 4,700.6 $ 4,586.7 $ 4,467.3 $ 4,190.1
Large Case Pensions 234.4 185.9 204.2 292.4 597.0
Aetna Life Insurance & Annuity 168.3 125.7 111.9 174.5 272.9
Property-Casualty 4,390.8 4,653.2 5,076.3 6,010.4 6,447.2
International 887.1 909.5 814.8 500.0 415.9
__________________________________________________________
Total premiums 11,292.1 10,574.9 10,793.9 11,444.6 11,923.1
_____________________________________________________________________________________________________
Net Investment Income, Fees and Other
Income, and Net Realized Capital Gains
and Losses:
Aetna Health Plans 1,527.6 1,405.4 1,345.4 1,124.2 1,086.8
Large Case Pensions 2,120.8 2,380.1 2,547.1 2,730.6 3,069.9
Aetna Life Insurance & Annuity 1,235.9 1,232.7 1,129.9 1,041.3 973.2
Property-Casualty 948.1 1,247.7 1,437.2 1,323.3 1,389.9
International 409.9 369.8 387.6 390.2 257.0
Corporate: Other (9.7) (6.9) (42.7) (11.7) (.7)
Federated Investors - - - - -
__________________________________________________________
Total net investment income, fees
and other income, and net realized
capital gains and losses 6,232.6 6,628.8 6,804.5 6,597.9 6,776.1
_____________________________________________________________________________________________________
Total Revenue $ 17,524.7 $ 17,203.7 $ 17,598.4 $ 18,042.5 $ 18,699.2
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________
Income (Loss) from Continuing Operations
before Extraordinary Item and
Cumulative Effect Adjustments:
Aetna Health Plans $ 341.7 $ 272.2 $ 274.3 $ 382.6 $ 288.3
Large Case Pensions 54.4 (822.3) (17.3) (167.0) 1.1
Aetna Life Insurance & Annuity 159.1 111.4 99.0 115.8 85.5
Property-Casualty 58.1 (13.0) (106.3) 225.3 355.6
International 71.2 55.0 25.1 38.2 (48.2)
Corporate: Interest (60.5) (44.7) (50.9) (65.0) (73.8)
Other (156.5) (173.9) (229.2) (163.5) (127.9)
Federated Investors - - - - -
_____________________________________________________________________________________________________
Income (Loss) from Continuing
Operations before Extraordinary Item and
Cumulative Effect Adjustments 467.5 (615.3) (5.3) 366.4 480.6
_____________________________________________________________________________________________________
Income from Discontinued Operations - 27.0 173.8 138.8 133.5
_____________________________________________________________________________________________________
Cumulative Effect Adjustments - 227.1 (112.5) - -
_____________________________________________________________________________________________________
Net Income (Loss) $ 467.5 $ (365.9) $ 56.0 $ 505.2 $ 614.1
_____________________________________________________________________________________________________
Net Realized Capital Gains (Losses),
Net of Tax (included above) (42.6) 59.0 78.6 (187.4) (79.2)
_____________________________________________________________________________________________________
Total Assets (2) 94,172.5 100,036.7 94,519.6 91,987.6 89,300.7
_____________________________________________________________________________________________________
Total Long-Term Debt 1,114.7 1,160.0 955.6 1,019.6 1,010.3
_____________________________________________________________________________________________________
Minority Interest in Preferred Securities
of Subsidiary 275.0 - - - -
_____________________________________________________________________________________________________
Redeemable Preferred Stock,
Net of Treasury Shares - - - - -
_____________________________________________________________________________________________________
Shareholders' Equity 5,503.0 7,043.1 7,238.3 7,384.5 7,072.4
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________
Per Common Share Data:
Income (Loss) from Continuing Operations
before Extraordinary Item and
Cumulative Effect Adjustments $ 4.14 $ (5.54) $ (.05) $ 3.33 $ 4.32
Income (Loss) from Discontinued
Operations - .24 1.58 1.26 1.20
Cumulative Effect Adjustments for
Continuing Operations - 2.05 (1.02) - -
Net Income (Loss) 4.14 (3.29) .51 4.59 5.52
Dividends Declared 2.76 2.76 2.76 2.76 2.76
Shareholders' Equity 48.85 62.77 65.64 67.09 64.23
Market Price at Year End 47.13 60.38 46.50 44.00 39.00
_____________________________________________________________________________________________________
<FN>
See Notes to Financial Statements and Management's Discussion and Analysis for significant events
affecting the comparability of current year results with 1993 and 1992 results.
(1) In 1994, the company changed its external reporting segments to better align the segments
with the way the businesses are managed. Prior periods have been restated to reflect the change.
(2) Total assets at December 31, 1994 and 1993 include $12.4 billion and $15.2 billion, respectively,
of assets attributable to discontinued fully guaranteed large case pension products.
</TABLE>
<PAGE> 2
Selected Financial Data (1)
<TABLE>
<CAPTION>
(Millions, except per share data) 1989 1988 1987 1986 1985 1984
____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Premiums:
Aetna Health Plans $ 3,730.7 $ 2,770.1 $ 2,562.8 $ 2,893.5 $ 2,556.0 $ 2,708.4
Large Case Pensions 1,303.8 855.3 1,767.5 1,130.2 410.9 182.2
Aetna Life Insurance & Annuity 302.0 286.7 270.0 253.1 242.3 269.3
Property-Casualty 6,785.6 6,782.6 6,444.9 5,801.3 4,679.6 4,013.7
International 310.5 389.1 421.8 343.1 372.7 387.6
_______________________________________________________________
Total premiums 12,432.6 11,083.8 11,467.0 10,421.2 8,261.5 7,561.2
___________________________________________________________________________________________________________
Net Investment Income, Fees and Other
Income, and Net Realized Capital Gains
and Losses:
Aetna Health Plans 920.8 703.9 564.4 663.2 660.1 549.5
Large Case Pensions 3,162.5 3,083.7 2,884.7 2,917.9 2,709.3 2,300.9
Aetna Life Insurance & Annuity 865.5 715.0 631.7 593.4 475.6 400.0
Property-Casualty 1,349.3 1,076.5 1,047.7 903.6 739.5 585.1
International 258.8 244.7 277.2 200.5 133.1 153.7
Corporate: Other (17.1) 17.6 15.4 (79.3) (13.7) (30.5)
Federated Investors 240.3 193.5 209.2 180.6 149.3 109.1
________________________________________________________________
Total net investment income, fees
and other income, and net realized
capital gains and losses 6,780.1 6,034.9 5,630.3 5,379.9 4,853.2 4,067.8
___________________________________________________________________________________________________________
Total Revenue $19,212.7 $17,118.7 $17,097.3 $15,801.1 $13,114.7 $11,629.0
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments:
Aetna Health Plans $ 254.8 $ 152.4 $ 182.1 $ 277.6 $ 289.5 $ 233.9
Large Case Pensions 107.0 125.1 83.8 185.9 144.2 94.8
Aetna Life Insurance & Annuity 67.7 82.6 61.7 112.6 72.8 101.1
Property-Casualty 258.7 344.0 500.4 295.7 121.8 (38.3)
International (14.1) (18.0) 28.5 39.1 (32.7) 15.9
Corporate: Interest (68.9) (62.5) (51.2) (39.4) (53.2) (42.5)
Other (146.4) (120.8) (127.7) (198.8) (117.9) (145.4)
Federated Investors 54.0 54.6 58.3 49.4 38.7 23.3
___________________________________________________________________________________________________________
Income from Continuing Operations
before Extraordinary Item and
Cumulative Effect Adjustments 512.8 557.4 735.9 722.1 463.2 242.8
___________________________________________________________________________________________________________
Income (Loss) from Discontinued
Operations 126.6 142.1 130.9 138.3 (101.9) (130.2)
___________________________________________________________________________________________________________
Cumulative Effect Adjustments - - - - - -
___________________________________________________________________________________________________________
Net Income (Loss) $ 676.4 $ 713.3 $ 915.3 $ 1,015.6 $ 365.3 $ 112.6
___________________________________________________________________________________________________________
Net Realized Capital Gains (Losses),
Net of Tax (included above) 111.7 32.0 4.0 97.6 59.5 (36.0)
___________________________________________________________________________________________________________
Total Assets 87,099.0 81,344.6 75,724.1 69,360.1 60,096.0 52,604.3
___________________________________________________________________________________________________________
Total Long-Term Debt 1,037.7 1,093.8 930.9 654.4 527.9 484.2
___________________________________________________________________________________________________________
Minority Interest in Preferred Securities
of Subsidiary - - - - - -
___________________________________________________________________________________________________________
Redeemable Preferred Stock,
Net of Treasury Shares - 118.6 177.1 200.0 75.0 -
___________________________________________________________________________________________________________
Shareholders' Equity 6,936.7 6,453.8 6,015.7 5,633.4 4,745.9 4,112.3
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Per Common Share Data:
Income (Loss) from Continuing Operations
before Extraordinary Item and
Cumulative Effect Adjustments $ 4.56 $ 4.87 $ 6.33 $ 6.25 $ 4.14 $ 2.20
Income (Loss) from Discontinued
Operations 1.13 1.26 1.15 1.24 (.95) (1.31)
Cumulative Effect Adjustments for
Continuing Operations - - - - - -
Net Income (Loss) 6.02 6.25 7.91 8.87 3.23 .89
Dividends Declared 2.76 2.76 2.76 2.64 2.64 2.64
Shareholders' Equity 61.94 57.50 52.95 48.58 41.19 39.14
Market Price at Year End 56.50 47.25 45.25 56.38 53.50 36.50
___________________________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
(1) In 1994, the company changed its external reporting segments to better align the segments
with the way the businesses are managed. Prior periods have been restated to reflect the change.
</TABLE>
<PAGE> 3
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) 1994 1993 1992
_________________________________________________________________________________________
<S> <C> <C> <C>
Premiums...................................... $ 11,292.1 $ 10,574.9 $ 10,793.9
Net investment income......................... 4,463.5 4,919.0 5,069.0
Fees and other income........................ 1,823.9 1,620.0 1,620.6
Net realized capital gains (losses)........... (54.8) 89.8 114.9
________________________________________
Total revenue............................. 17,524.7 17,203.7 17,598.4
________________________________________
Current and future benefits................... 12,397.1 12,391.9 12,848.9
Operating expenses............................ 3,719.3 3,644.8 3,925.7
Amortization of deferred policy
acquisition costs......................... 750.0 736.4 800.2
Loss on discontinuance of products............ - 1,270.0 -
Severance and facilities charge............... - 308.0 145.0
________________________________________
Total benefits and expenses............... 16,866.4 18,351.1 17,719.8
________________________________________
Income (Loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect adjustments......... 658.3 (1,147.4) (121.4)
Income taxes (benefits)....................... 190.8 (532.1) (116.1)
________________________________________
Income (Loss) from continuing operations
before extraordinary item and cumulative
effect adjustments........................ 467.5 (615.3) (5.3)
Discontinued operations, net of tax........... - 27.0 173.8
________________________________________
Income (Loss) before extraordinary item and
cumulative effect adjustments............. 467.5 (588.3) 168.5
Extraordinary loss on debenture redemption.... - (4.7) -
Cumulative effect adjustments................. - 227.1 (112.5)
________________________________________
Net income (loss) $ 467.5 $ (365.9) $ 56.0
_________________________________________________________________________________________
________________________________________
Net realized capital gains (losses),
net of tax (included above) $ (42.6) $ 59.0 $ 78.6
_________________________________________________________________________________________
________________________________________
Per common share data:
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments.......... $ 4.14 $ (5.54) $ (.05)
Income from discontinued operations,
net of tax............................. - .24 1.58
Extraordinary loss on debenture redemption - (.04) -
Cumulative effect adjustments............. - 2.05 (1.02)
________________________________________
Net income (loss)...................... $ 4.14 $ (3.29) $ .51
________________________________________
________________________________________
Dividends declared........................ $ 2.76 $ 2.76 $ 2.76
________________________________________
________________________________________
Shareholders' equity $ 48.85 $ 62.77 $ 65.64
_________________________________________________________________________________________
________________________________________
Sources of earnings:
Aetna Health Plans.......................... $ 341.7 $ 272.2 $ 274.3
Large Case Pensions......................... 54.4 (822.3) (17.3)
Aetna Life Insurance & Annuity.............. 159.1 111.4 99.0
Property-Casualty........................... 58.1 (13.0) (106.3)
International............................... 71.2 55.0 25.1
Corporate: Interest........................ (60.5) (44.7) (50.9)
Other........................... (156.5) (173.9) (229.2)
________________________________________
Total from continuing operations.......... 467.5 (615.3) (5.3)
Discontinued operations..................... - 27.0 173.8
Extraordinary loss on debenture redemption.. - (4.7) -
Cumulative effect adjustments............... - 227.1 (112.5)
________________________________________
Net income (loss)........................... $ 467.5 $ (365.9) $ 56.0
________________________________________
________________________________________
<FN>
* This Management's Discussion and Analysis is as of February 7, 1995.
</TABLE>
<PAGE> 4
Overview
Aetna's 1994 net income was $468 million, compared with a net loss
of $366 million and net income of $56 million in 1993 and 1992,
respectively. The 1993 net loss included income from discontinued
operations of $27 million (compared with $174 million in 1992) 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.)
Aetna's reportable segments have been changed to better reflect
the way the businesses are managed, and prior years' results have
been restated to conform to the new segments. The new reportable
segments are Aetna Health Plans, Large Case Pensions, Aetna Life
Insurance & Annuity, Property-Casualty, International and
Corporate.
Adjusted Earnings
For purposes of the discussions which follow, adjusted earnings
represent income (loss) before cumulative effect adjustments
excluding after-tax net realized capital gains (losses) in 1994,
1993 and 1992, the 1993 and 1992 after-tax severance and
facilities charges and the 1993 after-tax loss on discontinuance
of products. Adjusted earnings by segment were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Aetna Health Plans $ 355.3 $ 332.4 $ 324.3
Large Case Pensions 71.4 47.4 44.0
Aetna Life Insurance & Annuity 162.9 125.3 100.1
Property-Casualty 59.5 (18.4) (199.0)
International 69.1 73.7 17.9
Corporate (208.1) (209.7) (275.5)
</TABLE>
Summary Segment Results
The following summary of segment results is based upon adjusted
earnings.
Aetna Health Plans:
Results improved in 1994, reflecting improved earnings in the
group insurance and health care businesses. Within the health
care businesses, managed care volume grew, consistent with the
increased costs associated with the continued expansion of managed
care.
Large Case Pensions:
Results in 1994 reflected the net benefits from the absence of
losses from discontinued fully guaranteed products.
Aetna Life Insurance & Annuity:
Results improved in 1994, principally reflecting a decrease in
operating expenses and strong sales growth.
<PAGE> 5
Overview (Continued)
Property-Casualty:
Results in 1994 reflected $114 million of indemnity-related
environmental reserve additions, partially offset by a $66 million
reduction in loss and loss adjustment reserves for prior accident
years in the personal auto business. Catastrophe losses were $190
million in 1994 compared with $85 million in 1993. Results in
1994 also reflected lower net investment income and lower
operating expenses.
International:
Results in 1994 reflected earnings from the company's increased
investment in a Mexican insurance operation and continued
improvement in the Pacific Rim operations. Earnings in 1993
included a $37 million tax benefit from prior year operating
losses related to the sale of the U.K. life and investment
management operations.
Corporate:
Results in 1994 reflected higher interest expense resulting from
the issuance by a subsidiary of 9 1/2% cumulative monthly income
preferred securities in November 1994, as well as certain other
long-term debt issued by the company in late 1993, which was
offset by lower corporate staff area expenses associated with
previous restructurings. 1993 results also reflected lower
corporate staff area expenses associated with previous
restructurings.
Results of Continuing Operations
Income from continuing operations (before extraordinary item and
cumulative effect adjustments) was $468 million in 1994, compared
with losses of $615 million and $5 million in 1993 and 1992,
respectively. The following factors complicate the comparison of
results:
Results for the year ended December 31, 1994 included after-tax
catastrophe losses of $190 million related primarily to the Los
Angeles earthquake and the severe winter weather occurring in
early 1994. After-tax catastrophe losses for the years ended
December 31, 1993 and 1992 were $85 million and $118 million,
respectively. Catastrophe losses in 1992 were primarily due to
Hurricane Andrew and Winter Storm Beth.
Results in 1994 reflected net losses of $114 million (after-tax
and net of reinsurance) for prior year reserve development on
indemnity-related environmental liability claims, in the
Property-Casualty segment, partially offset by a benefit of $66
million on personal auto claims. Results in 1993 included an
addition to workers' compensation reserves for prior accident
years of $259 million (after-tax and after discounting).
Reserve additions in 1992 for prior accident years included a
charge for asbestos and environmental liability claims of $293
million. (Please see "Property-Casualty" on pages 26 through
39.)
<PAGE> 6
Overview (Continued)
Results in 1993 included an after-tax charge for anticipated
future losses on discontinuance of the fully guaranteed large
case pension products of $825 million and losses on discontinued
products of $90 million ($53 million excluding net realized
capital losses). Results of discontinued products for the year
ended December 31, 1994 were charged against the reserve for
anticipated future losses and did not impact the net income of
the company. (Please see pages 19 through 22 for a discussion
of discontinued products.)
Results in 1993 and 1992 included after-tax severance and
facilities charges of $200 million and $96 million,
respectively. (Please see "Severance and Facilities Charges" on
page 9.)
Results in 1994 included net realized capital losses of $43
million compared with net realized capital gains of $59 million
and $79 million in 1993 and 1992, respectively. (Please see
"Net Realized Capital Gains and Losses" on page 7.)
Results of Discontinued Operations
Discontinued operations reflect the results of the company's
former 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 and $174
million in 1992. The 1993 income resulted from the redemption of
preferred stock received in connection with the sale.
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 1994 net
income. (Please see Notes 1, 5, 10 and 14 of Notes to Financial
Statements.)
<PAGE> 7
Overview (Continued)
Net Realized Capital Gains and Losses
Net realized after-tax capital gains (losses) included in the
results of continuing operations, allocable to experience rated
pension contractholders, and supporting discontinued products were
as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Net realized capital gains from sales $ 25.5 $ 486.5 $ 355.8
Net realized capital losses from additions to
reserves for mortgage loans and real estate (66.4) (417.6) (280.2)
Net realized capital gains (losses) from
write-downs of debt and equity securities (1.7) (9.9) 3.0
_______ _______ _______
Net realized capital gains (losses) from
continuing operations $ (42.6) $ 59.0 $ 78.6
_______ _______ _______
_______ _______ _______
Net realized capital losses allocable to
experience rated pension contractholders
(excluded above) $(126.8) $(117.1) $ (39.4)
_______ _______ _______
_______ _______ _______
Net realized capital losses on assets
supporting discontinued products
(excluded above) $(135.8)* $ ** $ **
_______ _______ ________
_______ _______ ________
<FN>
* The 1994 net realized capital losses of $135.8 million on assets supporting
discontinued products were charged to the reserve for future losses on
discontinued products. (Please see "Large Case Pensions - Discontinued
Products" on page 19.)
** Net realized capital losses of $37.4 million and $59.0 million, respectively
for 1993 and 1992 on assets supporting discontinued products are included in
the $59.0 million and $78.6 million of capital gains, respectively, shown above.
</TABLE>
Net realized capital gains from sales included a $12 million loss
in 1993 on the sale of the U.K. life and investment management
operations and a $50 million gain in 1992 from the sale of a
portion of the company's equity interest in MBIA Inc.
Adverse conditions in commercial real estate markets have
negatively impacted earnings in each of the last three years. The
impact in 1994 reflects improvement in certain segments of the
commercial real estate markets. The company has reduced the
mortgage loan and equity real estate portfolios, after reserves
and write-downs, by $10.8 billion since the end of 1990, bringing
mortgage loans and real estate as a percentage of general account
invested assets (net of impairment reserves) from 40% at December
31, 1990 to 25% at December 31, 1994.
<PAGE> 8
Overview (Continued)
Income Taxes
At December 31, 1994, $749 million of net unrealized capital
losses primarily on available for sale debt and equity securities
were reflected in shareholders' equity without deferred tax
benefits. For federal income tax purposes, capital losses are
deductible only against capital gains in the year of sale or
during the carryback and carryforward periods (three and five
years, respectively). Due to the expected full utilization of
capital gains in the carryback period and the uncertainty of
future capital gains, a valuation allowance of $262 million
related to such net unrealized capital losses has been reflected
in shareholders' equity. In addition, $609 million of unrealized
capital losses related to experience rated contracts are not
reflected in shareholders' equity since such losses, if realized,
will be charged to contractholders. However, the potential loss
of tax benefits on such losses is the risk of the company and
therefore would adversely affect the company rather than the
contractholder. Accordingly, an additional valuation allowance of
$213 million has been reflected in shareholders' equity as of
December 31, 1994. Any reversals of the valuation allowance are
contingent upon the recognition of future capital gains in the
company's federal income tax return or a change in circumstances
which causes the recognition of the benefits to become more likely
than not. Non-recognition of the deferred tax benefits on net
unrealized losses described above had no impact on net income for
1994, but has the potential to adversely affect future results if
such losses are realized. Potential losses of tax benefits
related to net unrealized losses on assets supporting the
discontinued products are not expected to adversely affect the
company's future results.
Management believes that it is more likely than not that the
company will realize the benefit of the net deferred tax asset of
$1.3 billion. (Please see Note 10 of Notes to Financial
Statements.)
Per Common Share
Income from continuing operations per common share before
extraordinary item and cumulative effect adjustments was $4.14 in
1994 compared with a loss from continuing operations per common
share in each of 1993 and 1992 of $5.54 and $.05, respectively.
Net income per common share in 1994 was $4.14 compared with a net
loss per common share in 1993 of $3.29 and net income per common
share in 1992 of $.51. Return on shareholders' equity was 7.5% in
1994 compared with (5.1)% in 1993 and .8% in 1992. The weighted
average number of common shares outstanding was 112.8 million in
1994, 111.1 million in 1993 and 110.1 million in 1992.
Shareholders' equity was $48.85 per common share at the end of
1994, down from $62.77 at the end of 1993 and $65.64 at the end of
1992. The decline in 1994 equity per common share primarily
reflects unrealized depreciation on debt securities.
<PAGE> 9
Overview (Continued)
Revenue
Total revenue, excluding net realized capital gains and losses,
increased 3% in 1994, primarily as a result of increased premiums,
partially offset by a decrease in net investment income. Premium
income increased 7%, primarily reflecting an increase in premiums
in the Aetna Health Plans segment resulting from growth in covered
members, modest price increases and a movement toward higher
revenue products. Partially offsetting this increase was a
decrease in premiums in the Property-Casualty segment due to
continued reduction in personal auto and workers' compensation
exposures, a decrease in commercial auto exposures and generally
stricter underwriting in commercial lines. Net investment income
decreased 9% in 1994, reflecting a decline in invested assets and
lower investment yields.
Severance and Facilities Charges
In late 1993, management decided upon a plan under which it would
take additional restructuring actions as part of its strategic and
financial assessment of the company's businesses. As a result,
the company recorded a $200 million after-tax ($308 million
pretax) severance and facilities charge to fourth quarter 1993
earnings. The planned actions include the elimination of
approximately 4,000 positions. As a result of the elimination of
these positions, the company determined that it would have excess
office space. Accordingly, the severance and facilities charge
also included costs related to vacating excess leased office space
and costs related to vacating and selling an owned property in
Hartford, Connecticut.
<PAGE> 10
Overview (Continued)
During 1994, the company charged costs of $224 million related to
the cost-reduction actions to the severance and facilities reserve
established in 1993. Of the approximately 4,000 positions
expected to be eliminated, approximately 3,300 had been eliminated
by December 31, 1994 and the related severance benefits charged
against the reserve. The remaining headcount reductions are
expected to be completed by the first half of 1995. The
annualized after-tax savings of approximately $200 million related
to these and other cost reduction actions are expected in 1995.
The total annual estimated savings of approximately $200 million
are expected to benefit individual segments in 1995 as follows:
<TABLE>
<CAPTION>
(Millions)
<S> <C>
Aetna Health Plans..................... $ 56
Large Case Pensions.................... 6
Aetna Life Insurance & Annuity......... 8
Property-Casualty...................... 120
International.......................... 3
Corporate.............................. 7
_____
Total estimated savings.............. $ 200
_____
_____
</TABLE>
In addition to the above, the company also recorded an after-tax
charge of $96 million ($145 million pretax) to second quarter 1992
earnings. Among the steps taken to reduce costs was the
elimination of approximately 4,800 positions in the latter half of
1992 and through 1993. By year-end 1993, all expected actions
under the 1992 restructuring had been completed, and after-tax
savings of $100 million ($130 million annualized) had been
achieved.
While 1994 earnings reflected the full benefit of the 1992
restructuring and slightly over half the benefits associated with
the 1993 cost reduction actions, total operating expenses for 1994
increased due to other factors, reflecting growth in premiums and
increased investments related to the company's health care
operations.
(Please see Note 4 of Notes to Financial Statements for further
discussions related to severance and facilities charges.)
Strategic Outlook
The company continues to review its Property-Casualty and other
businesses and assess their potential for contribution to the
company's long-term strategic and financial objectives.
<PAGE> 11
Aetna Health Plans
<TABLE>
<CAPTION>
Operating Summary (Millions) 1994 1993 1992
____________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 5,611.5 $ 4,700.6 $ 4,586.7
Net investment income 351.6 376.3 388.2
Fees and other income 1,197.2 1,039.5 992.6
Net realized capital losses (21.2) (10.4) (35.4)
_________________________________
Total revenue 7,139.1 6,106.0 5,932.1
_________________________________
Current and future benefits 4,755.1 3,989.3 3,793.1
Operating expenses 1,845.9 1,622.0 1,686.8
Severance and facilities charge - 79.8 40.2
_________________________________
Income before taxes 538.1 414.9 412.0
Income taxes 196.4 142.7 137.7
_________________________________
Income before cumulative
effect adjustments $ 341.7 $ 272.2 $ 274.3
____________________________________________________________________________
_________________________________
Net realized capital losses, net of tax
(included above) $ (13.6) $ (8.3) $ (23.3)
____________________________________________________________________________
_________________________________
Self-funded benefit payments
administered for customers other
than Medicare $12,226.6 $12,339.8 $12,730.4
____________________________________________________________________________
_________________________________
Benefit payments administered
for Medicare $13,260.1 $11,356.0 $10,140.2
____________________________________________________________________________
_________________________________
</TABLE>
The Aetna Health Plans ("AHP") segment includes three business
units: (1) health care, (2) specialty health, and (3) group
insurance. Products and services for these businesses are
marketed primarily to employers for the benefit of employees and
their dependents. Plans may be insured, in whole or in part, or
benefits 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. Self-
funded plans do not involve the assumption of significant risk by
the company and thus typically generate lower, but more
consistent, earnings than comparable insured plans. Revenue
produced by AHP is reflected in "premiums" if substantial risk is
assumed by the company and in "fees and other income" if risk is
assumed by the customer.
The health care business unit provides managed care and
traditional indemnity health care plans. These plans are
administered on both an insured and a self-funded basis.
The specialty health business unit provides behavioral health,
pharmacy, dental and occupational managed care plans. These plans
are primarily administered on a self-funded basis.
The group insurance business unit provides life insurance,
disability income and long-term care insurance plans. These plans
are primarily administered on an insured basis.
AHP's adjusted earnings (after-tax) follow:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 341.7 $ 272.2 $ 274.3
Less:
Net realized capital losses (13.6) (8.3) (23.3)
Severance and facilities charge - (51.9) (26.7)
_______ _______ _______
Adjusted earnings $ 355.3 $ 332.4 $ 324.3
_______ _______ _______
_______ _______ _______
</TABLE>
<PAGE> 12
Aetna Health Plans (Continued)
AHP's adjusted earnings increased $23 million in 1994, following
an $8 million increase in 1993. 1994 adjusted earnings reflected
improved earnings in the group insurance and health care
businesses. The improvement in group insurance was primarily
driven by a reduction in operating expenses and favorable claim
experience. Within the health care businesses, earnings improved
from an increase in premiums and fees, along with favorable
medical claim experience on several contracts, offset in part by
an increase in operating expenses. The growth in operating
expenses is primarily attributable to migration toward more
resource-intensive managed care business, to investments in
managed care-related systems and to investments in the development
of primary care physician practices. Adjusted earnings in 1993
benefited from a reduction in operating expenses.
Premiums and fees and other income increased 19% in 1994 and 3% in
1993, primarily resulting from growth in covered members, modest
price increases and a movement toward higher revenue products,
such as point-of-service (POS) and health maintenance
organizations (HMOs).
The company offers a broad spectrum of traditional indemnity and
managed care products. The latter include preferred provider
("PPO") arrangements, which offer enhanced coverage benefits for
services received from participating providers; POS plans, which
typically combine strong HMO-style medical management with an
option to seek health care outside of the provider network; 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. As of year-end 1994, the
company owned and managed 21 physician practices in six cities.
The number of members covered at December 31 were approximately:
<TABLE>
<CAPTION>
(Millions) 1994 (1) 1993 (2) 1992
___________________________________________________________
<S> <C> <C> <C>
Managed Health Care
PPO 4.0 3.5 2.1
POS 1.5 .5 .1
HMO 1.5 1.4 1.3
____________________________
Total Managed Health Care 7.0 5.4 3.5
____________________________
Traditional Health Plans (3) 8.6 9.6 9.5
Total Covered Members 15.6 15.0 13.0
<FN>
(1) Managed health care reflects a net addition of approximately .5 million
members in 1994 attributable to a contract with the Civilian Health and
Military Program of the Uniformed Services ("Champus") which covers medical
care for military retirees and dependents in California and Hawaii. This
contract is subject to periodic renewal and is currently under review with Champus.
(2) 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 membership as of December 31, 1993. HMO and POS membership was not affected
by the change. 1992 membership has not been restated for this change.
(3) Includes members of traditional health plans and those who have elected AHP
dental plans but who have not currently elected an AHP medical plan.
</TABLE>
<PAGE> 13
Aetna Health Plans (Continued)
Enrollment in AHP's managed health care products increased 30%
during 1994, from 5.4 million members to 7.0 million members as of
December 31, including growth of 1.0 million members in POS
products. Although aggregate enrollment growth in HMO products
was 8% in 1994 and 3% in 1993, enrollment in HMOs in which the
company is a majority owner grew by 121,000 members or 15% in 1994
and 93,000 members or 13% in 1993. Aggregate enrollment growth in
HMO products was partially offset by the divestiture of HMOs in
which the company was less than a majority owner and by declining
membership in plans where the company has only a management
relationship.
At December 31, 1994, AHP's specialty health business served
approximately 14 million people for behavioral health, 5 million
people for managed pharmacy and 8 million people for dental
benefits. Many of these members overlap those identified within
the AHP covered members table on page 12 due to such products
being typically sold in combination with a health care product.
At December 31, 1994, AHP's group insurance business covered
nearly 6 million lives related to group life insurance and over 2
million lives associated with disability insurance.
In addition, AHP is the largest commercial administrator of
Medicare benefits, processing claims for over 6,900 hospitals,
skilled nursing facilities and home health agencies, and for
physicians in nine states.
Outlook
Management expects that AHP should continue to be a source of
substantial earnings to the company, subject to the considerations
discussed below. The outlook for AHP is heavily dependent upon
its ability to effectively manage health care costs for customers.
AHP attempts to achieve this through a combination of negotiated
contracts with health care providers, development and
implementation of guidelines for appropriate utilization of health
care resources and by working with health care providers to review
treatment patterns in order to improve consistency and quality.
Beginning in 1993, the company, in an effort to further contain
health care costs and to improve quality and access, initiated a
program to acquire or develop ownership or management interests in
primary care physician practices. Operating losses (after-tax)
associated with this program, which include both current
operations and development costs, were $15 million and $3 million
in 1994 and 1993, respectively. AHP expects to invest substantial
amounts in acquisition or development of physician practices and
in other programs which the company believes will improve its
ability to control health care costs and enhance quality. The
continued market shift from traditional health plans toward
managed care programs will require continued attention and
investment by AHP in managed care if it is to maintain or increase
the level of earnings in the business. Management expects that
AHP's results in the near term will be lower than in 1994 due to
increased investments in managed care.
<PAGE> 14
Aetna Health Plans (Continued)
Legislative proposals to change the health insurance system have
been prominent at both the state and national levels. AHP has
actively supported proposals designed to enhance managed care and
to expand access to health care coverage through private sector
competition. State legislative action is expected to intensify in
1995. Although anti-managed care legislation is expected to be
proposed broadly in the states, to date such legislation has been
enacted in only a few states and, where enacted, has been limited
in scope. Management is not able to predict the outcome of the
various state and federal initiatives, or the effect any such
legislation, if adopted, would have on the company.
<PAGE> 15
Large Case Pensions
<TABLE>
<CAPTION>
Operating Summary (Millions) 1994 1993 1992
_______________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 234.4 $ 185.9 $ 204.2
Net investment income 2,017.4 2,327.7 2,560.4
Fees and other income 128.4 95.3 76.8
Net realized capital losses (25.0) (42.9) (90.1)
____________________________________
Total revenue 2,355.2 2,566.0 2,751.3
____________________________________
Current and future benefits 2,175.9 2,428.1 2,697.7
Operating expenses 98.2 120.2 104.6
Loss on discontinuance of products - 1,270.0 -
Severance and facilities charge - 21.9 3.1
____________________________________
Income (Loss) before taxes 81.1 (1,274.2) (54.1)
Income taxes (benefits) 26.7 (451.9) (36.8)
____________________________________
Income (Loss) before cumulative effect
adjustments $ 54.4 $ (822.3) $ (17.3)
_______________________________________________________________________________
____________________________________
Net realized capital losses,
net of tax (included above) $ (17.0) $ (30.5) $ (59.2)
Net loss attributable to discontinued
products, net of tax $ * $ (915.4) $ (131.0)
_______________________________________________________________________________
____________________________________
Deposits not included
in premiums above: (1)
Fully guaranteed $ 212.3 $ 797.7 $ 870.3
Experience rated 630.8 677.4 790.6
Non-guaranteed 1,278.4 1,732.1 1,892.2
____________________________________
Total $ 2,121.5 $ 3,207.2 $ 3,553.1
_______________________________________________________________________________
____________________________________
Assets under management: (2)
Fully guaranteed $ 11,905.3 $ 14,695.1 $ 15,008.0
Experience rated 15,944.9 17,020.6 17,021.7
Non-guaranteed 18,491.9 21,050.2 21,354.1
____________________________________
Total $ 46,342.1 $ 52,765.9 $ 53,383.8
_______________________________________________________________________________
____________________________________
<FN>
(1) Under FAS No. 97, certain deposits are not included in premiums or revenue.
(2) Under FAS No. 115, included above are net unrealized gains (losses) of
approximately $(540.0) million and $750.0 million at December 31, 1994
and 1993, respectively.
* Results of discontinued products in 1994 (loss of $172.1 million) were
charged against the reserve for anticipated future losses and did not
impact net income of the segment. (Please see "Discontinued Products"
on page 19.)
</TABLE>
Business units in Large Case Pensions manage a variety of
retirement and other savings products (including pension and
annuity products) and offer investment management and advisory
services to non-pension customers. Large case pension products
are offered primarily by Aetna Life Insurance Company and certain
of its registered investment advisor affiliates, and generally are
tailored for defined benefit and defined contribution pension
plans that qualify under Internal Revenue Code ("IRC") Section 401
for tax-preferred treatment. Contracts provide fully guaranteed,
partially guaranteed (experience rated) and non-guaranteed
investment options. As discussed below, fully guaranteed large
case pension products are no longer offered by the company.
(Please see "Discontinued Products" on page 19.)
<PAGE> 16
Large Case Pensions (Continued)
Large Case Pensions' adjusted earnings (after-tax) follow:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Income (Loss) before cumulative effect
adjustments $ 54.4 $(822.3) $ (17.3)
Less:
Net realized capital losses (17.0) (30.5) (59.2)
Severance and facilities charge - (14.2) (2.1)
Loss on discontinuance of products - (825.0) -
_______ _______ _______
Adjusted earnings $ 71.4 $ 47.4 $ 44.0
_______ _______ _______
_______ _______ _______
</TABLE>
Large Case Pensions' adjusted earnings increased $24 million in
1994, following a $3 million increase in 1993. The 1994 increase
in adjusted earnings reflects net benefits from the absence of
losses from discontinued fully guaranteed products. At December
31, 1993, the company discontinued the fully guaranteed products,
took a charge for anticipated future losses and established a
reserve that management believes is adequate to absorb such future
losses as they are recognized. Accordingly, the results of
discontinued products for 1994 (i.e., a loss of $172 million,
after-tax and including net realized capital losses) were charged
against the reserve and did not impact adjusted earnings of the
segment. Adjusted earnings of the segment include investment
income on the assets available to fund the expected cash flow
shortfall in discontinued products and is substantially offset in
1994 by the interest cost ($31 million, after-tax), related to the
payable to discontinued products established to fund such
shortfall. 1994 adjusted earnings were adversely affected by
continued declines in the level of assets under management.
Experience rated large case pension products require the customer
to assume investment (including realized capital gains and losses)
and other risks subject, among other things, to certain minimum
guarantees. The effect of realized gains and losses does not
impact the company's results.
Experience rated products are supported by either general account
or separate account assets. Those supported by general account
assets have declined in recent years, principally due to concerns
about the company's mortgage loan and real estate portfolios,
declines in the company's ratings and declining consumer
confidence in the life insurance industry. Experience rated
products supported by separate accounts have increased modestly to
$3.3 billion at December 31, 1994 from $2.9 billion at December
31, 1993.
<PAGE> 17
Large Case Pensions (Continued)
General account assets supporting experience rated products may be
subject to participant and/or contractholder withdrawal. At
December 31, 1994, approximately $3.0 billion of such contracts
allowed for unscheduled contractholder withdrawals, subject to
timing restrictions and 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 experience on
assets supporting experience rated contracts. Unscheduled
contractholder withdrawals have declined in recent years, due in
part to the 1992 conversion offer described below.
Further, at December 31, 1994, approximately $4.5 billion of the
experience rated pension contracts supported by general account
assets could be withdrawn (including transfers to other plan
investment options) at the direction of plan participants without
market value adjustment. Participant withdrawals are generally
subject to significant tax and plan constraints. Participant
withdrawal activity has declined in recent years.
Experience rated contractholder and participant withdrawals and
transfers were as follows (excluding contractholder transfers to
other company products) for the years ended December 31:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C>
Scheduled contract maturities
and benefit payments (1) $1,000.1 $1,049.8 $ 999.5
Contractholder withdrawals other than scheduled
contract maturities and benefit payments 590.6 893.2 1,129.7
Participant withdrawals 183.6 222.5 396.8
<FN>
(1) Includes payments made upon contract maturity and other amounts distributed in
accordance with contract schedules.
</TABLE>
During 1992, the company offered to holders of certain classes of
experience rated contracts the opportunity to modify such
contracts ("conversion offer"). The conversion offer 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. Such contract conversions 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.
<PAGE> 18
Large Case Pensions (Continued)
Non-guaranteed large case products provide for full assumption by
the customer of investment results. Assets ($18.5 billion at
December 31, 1994) supporting non-guaranteed products are held in
the company's various separate accounts or by unaffiliated
trustees and are managed by the company for a fee. Separate
account investment income and realized capital gains and losses
are allocated to such customers' contracts and are 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.
Outlook
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 life insurance industry. Consumer confidence may
be influenced by such factors as reduced insurance company ratings
(please see "Liquidity and Capital Resources" on page 61) and
perceived financial difficulties in the industry. Management
believes that a continuation of the substantial competitive
pressures in the large case pension market is likely to cause
assets under management to continue to decline further,
particularly if further ratings downgrades or other developments
reduce consumer confidence.
The impact of capital losses from the company's mortgage loan
portfolio is expected to be less significant in the future because
such losses related to the fully guaranteed products have been
reflected in the loss on discontinuance of these products. The
company will continue to incur interest expense on the payable
related to its discontinued products until the assets supporting
such amounts payable are transferred to the discontinued products'
portfolios.
Although the company is seeing some improvement in certain
segments of the commercial real estate market, capital losses on
experience rated pension business may increase in the future if
the company's capacity to pass through future investment losses to
experience rated contractholders is reduced. Changes in customer
withdrawal activity, future losses on investments, including
mortgage loans and experience rated contract modifications, and
significant increases in interest rates, if any, 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.
Earnings are expected to decline as assets under management
decline. Management expects to be able to redeploy capital to
other businesses.
<PAGE> 19
Large Case Pensions (Continued)
Discontinued Products
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 in 1993 and
established a reserve of $1,270 million at December 31, 1993 for
anticipated future losses expected on the run off of these
products. The 1993 loss on discontinuance was composed of $390
million for guaranteed investment contracts ("GICs") and $435
million for single-premium annuities ("SPAs").
Management believes the reserve for anticipated losses at December
31, 1994 is adequate to provide for future losses associated with
the guaranteed product liabilities. Losses on discontinued
products for 1994, as shown below, were charged to the reserve and
did not affect the company's results of operations. Future losses
(including capital losses) for each product will be charged to the
respective reserve at the time such losses are realized.
Results of discontinued products for years ended December 31 were
as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________________________________
GICs SPAs Total Total Total
____ ____ _____ _____ _________
<S> <C> <C> <C> <C> <C>
Negative interest margin (1)............. $ (86.1) $ (.7) $ (86.8) $ (87.9) $ (82.8)
Net realized capital losses.............. (97.6) (38.2) (135.8) (37.4) (59.0)
Interest earned on receivable from
continuing operations.................. 12.6 18.3 30.9 - -
Non-recurring gains on futures contracts. - - - 18.8 -
Other, net............................... 6.5 13.1 19.6 16.1 10.8
________ ________ _______ _________ _________
Results of discontinued products,
after-tax.............................. $ (164.6) $ (7.5) $ (172.1) $ (90.4) $ (131.0)
________ ________ _______ _________ _________
________ ________ _______ _________ _________
Results of discontinued products, pretax. $ (254.4) $ (18.6) $ (273.0) $ (137.8) $ (210.5)
________ ________ _______ _________ _________
________ ________ _______ _________ _________
<FN>
(1) Represents the amount by which interest credited to holders of fully guaranteed large case
pension contracts exceeds interest earned on invested assets supporting such contracts.
</TABLE>
<PAGE> 20
Large Case Pensions (Continued)
The activity in the reserve for anticipated future losses on
discontinued products for the year ended December 31, 1994 was as
follows (pretax):
<TABLE>
<CAPTION>
(Millions) GICs SPAs Total
___________________________________________________________________
<S> <C> <C> <C>
Reserve at December 31, 1993..... $ 600.0 $ 670.0 $1,270.0
Loss on discontinued products.... (254.4) (18.6) (273.0)
________ ________ ________
Reserve at December 31, 1994..... $ 345.6 $ 651.4 $ 997.0
________ ________ ________
________ ________ ________
</TABLE>
The 1994 loss on discontinued products which was charged against
the reserve included $98 million and $38 million (after-tax) of
net realized capital losses on GICs and SPAs, respectively, which
included losses from the sale of bonds of $35 million and $16
million, respectively. As a result of selling bonds and realizing
losses and reinvesting the proceeds at higher interest rates or
settling GIC liabilities at favorable pricing, the anticipated
future losses associated with the negative interest margin are
expected to be reduced in the future.
At December 31, 1994 and 1993, estimated future after-tax capital
losses of $127 million and $190 million ($196 million and $292
million, pretax), respectively, attributable to mortgage loans and
real estate supporting GICs, and $47 million and $70 million ($73
million and $108 million, pretax), respectively, attributable to
mortgage loans and real estate supporting SPAs were expected to be
charged to the reserve for future losses.
Discontinued fully guaranteed products provide guarantees on
investment return, maturity values, and if applicable, benefit
payments. The interest credited on these contracts at December
31, 1994 ranged from 2.9% to 17.7% with an average rate of 8.9%
(compared with an average rate of 9.5% at December 31, 1993). As
of December 31, 1994 and 1993, none of these contracts allowed for
contractholder withdrawal, except in extraordinary circumstances.
<PAGE> 21
Large Case Pensions (Continued)
The reserve for anticipated future losses on discontinued products
was established based on 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 as
of December 31, 1993. Calculation of the loss required projection
of both the amount and the timing of cash flows over approximately
the next 30 years, including consideration of, among other things,
future investment results, participant withdrawal and mortality
rates, and cost of asset management and customer service. The
cash flows on the assets of the discontinued products projected to
occur in each period were 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 approximated
the current fair value of the assets. Projections of future
investment results took into account both industry and company
data and were based on recent performance of mortgage loan and
real estate assets, projections regarding certain levels of future
defaults and prepayments, and assumptions regarding future real
estate market conditions, which assumptions management believes
reasonable. To the extent that actual future losses differ from
anticipated future losses, the company's results of operations
would be affected. 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.
At the time of discontinuance, a receivable from continuing
products was established for each discontinued product equivalent
to the net present value of the anticipated cash flow shortfalls.
The receivables will be funded from invested assets supporting
Large Case Pensions and accrue interest at the discount rates used
to calculate the loss on discontinuance until the receivable is
funded. The offsetting payable established in continuing products
will similarly accrue interest, generally offsetting the
investment income on the assets available to fund the shortfalls.
At December 31, 1994, the receivables from continuing operations
were $409 million and $463 million for GICs and SPAs,
respectively, and no funding had taken place.
Distributions on GICs and SPAs for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
_______________________________________________________________________________________
GICs SPAs Total Total Total
____ ____ _____ ______ ________
<S> <C> <C> <C> <C> <C>
Scheduled contract maturities,
GIC settlements and benefit
payments (1).................... $2,340.3 $ 531.6 $2,871.9 $2,672.2 $3,711.5
Participant directed withdrawals. 198.5 - 198.5 232.2 453.1
<FN>
(1) Includes payments made upon contract maturity, early settlement of GIC liabilities
and other amounts distributed in accordance with contract schedules.
</TABLE>
Cash required to meet the above payments was provided by earnings
on, sales of, and scheduled payments on, invested assets.
<PAGE> 22
Large Case Pensions (Continued)
At December 31, 1994, contractholder liabilities were $7.2 billion
and $5.0 billion for GICs and SPAs, respectively. Scheduled
maturities, future benefit payments, and other expected payments
of GICs and SPAs, including future interest, were as follows (in
millions):
<TABLE>
<CAPTION>
GICs SPAs
________ ________
<S> <C> <C> <C>
1995 $1,994.9 $ 527.0
1996 2,212.5 520.4
1997 1,387.5 513.8
1998 1,152.9 507.9
1999 950.5 502.6
2000-2004 1,236.4 2,428.2
2005-2009 18.7 2,238.6
2010-2014 6.4 1,947.9
2015-2019 3.6 1,578.9
Thereafter 1.1 2,916.4
</TABLE>
Invested assets (net of impairment reserves) supporting
discontinued products and the related impairment reserves were as
follows at December 31:
<TABLE>
<CAPTION>
1994 1993
______________________ ______________________
Carrying Impairment Carrying Impairment
(Millions) Value Reserves Value Reserves
______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Debt securities $ 6,155.0 $ - $ 8,269.0 $ -
Mortgage loans 4,294.9 372.1 5,419.1 647.2
Real estate 730.0 376.0 (1) 534.5 298.3 (1)
Short-term and other
invested assets 725.4 - 472.5 -
___________________________________________________________
Total $11,905.3 $ 748.1 $14,695.1 $ 945.5
______________________________________________________________________________________________
___________________________________________________________
<FN>
(1) Includes real estate write-downs in addition to impairment reserves.
</TABLE>
Debt securities attributable to discontinued products at December
31, 1994 and 1993 had an average quality rating of A+ and AA-,
respectively.
Please see "General Account Investments" on pages 43 through 57
for additional discussion of investments supporting discontinued
products.
<PAGE> 23
Aetna Life Insurance & Annuity
<TABLE>
<CAPTION>
Operating Summary (Millions) 1994 1993 1992
_______________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 168.3 $ 125.7 $ 111.9
Net investment income 958.7 962.4 884.3
Fees and other income 282.8 257.5 243.5
Net realized capital gains (losses) (5.6) 12.8 2.1
____________________________________
Total revenue 1,404.2 1,358.4 1,241.8
____________________________________
Current and future benefits 914.4 870.9 821.3
Operating expenses 217.7 244.9 234.5
Amortization of deferred policy
acquisition costs 37.1 38.5 32.7
Severance and facilities charge - 30.8 6.2
____________________________________
Income before taxes 235.0 173.3 147.1
Income taxes 75.9 61.9 48.1
____________________________________
Income before cumulative effect
adjustments $ 159.1 $ 111.4 $ 99.0
_______________________________________________________________________________
____________________________________
Net realized capital gains (losses),
net of tax (included above) $ (3.8) $ 6.1 $ 2.8
_______________________________________________________________________________
____________________________________
Deposits not included
in premiums above:(1)
Annuities:
Fully guaranteed $ 323.0 $ 194.9 $ 40.6
Experience rated 853.6 970.5 791.4
Non-guaranteed 1,884.7 1,363.5 844.8
____________________________________
Total annuities 3,061.3 2,528.9 1,676.8
Individual Life 314.4 268.7 260.5
____________________________________
Total deposits $ 3,375.7 $ 2,797.6 $ 1,937.3
_______________________________________________________________________________
_______________________________________________________________________________
Assets under management:
Fully guaranteed $ 1,973.8 $ 1,836.2 $ 1,690.9
Experience rated 9,201.2 9,241.5 7,416.3
Non-guaranteed 8,223.2 7,111.0 5,894.5
____________________________________
Total $ 19,398.2 $ 18,188.7 $ 15,001.7
_______________________________________________________________________________
____________________________________
<FN>
(1) Under FAS No. 97, certain deposits are not included in premiums or revenue.
</TABLE>
Business units in the Aetna Life Insurance & Annuity segment
("ALIAC") market a variety of life insurance, retirement and other
savings and investment products (including individual and group
annuities), financial and administrative services and mutual funds
to individuals, pension plans, small businesses, and employer-
sponsored groups. These products include contracts that qualify
under IRC Sections 401, 403, 408 and 457, and individual non-
qualified annuity contracts, and are written primarily by Aetna
Life Insurance and Annuity Company. The annuity and life
insurance contracts include fully guaranteed, experience rated and
non-guaranteed investment options. The non-guaranteed investment
options offered under these contracts are separate accounts that
invest in Aetna and unaffiliated mutual funds. Aetna retail
mutual funds also are available to individual and institutional
investors outside of the ALIAC retirement products.
ALIAC's adjusted earnings (after-tax) follow:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 159.1 $ 111.4 $ 99.0
Less:
Net realized capital gains (losses) (3.8) 6.1 2.8
Severance and facilities charge - (20.0) (3.9)
_______ _______ _______
Adjusted earnings $ 162.9 $ 125.3 $ 100.1
_______ _______ _______
_______ _______ _______
</TABLE>
<PAGE> 24
Aetna Life Insurance & Annuity (Continued)
ALIAC's adjusted earnings increased $38 million in 1994, following
a $25 million increase in 1993. The improvement in 1994 adjusted
earnings principally reflected a decrease in operating expenses
reflecting savings associated with prior year restructurings,
primarily related to ALIAC's financial and administrative service
and life insurance businesses. The 1994 improvement also
reflected an increase in fees assessed against policyholders,
primarily due to an increase in the volume of business in force
for certain universal life and annuity contracts. Adjusted
earnings in 1993 improved primarily due to increased investment
income from growth in certain annuity and universal life contracts
partially offset by lower investment yields on newly invested
assets. The 1993 increase also reflected an increase in fee
income within the annuity contracts.
Premiums relate to term life, whole life and annuity products
containing life contingencies. Premiums increased by $43 million
in 1994 and by $14 million in 1993. Such increases resulted
primarily from increases in structured settlement annuity sales.
Deposits relate to annuity contracts not involving life
contingencies and universal life contracts. Deposits increased by
$578 million in 1994 reflecting the $215 million acquisition of a
block of primarily individual annuity business and strong
universal life sales. The increase in deposits in 1993 primarily
reflected growth in the annuity business.
Assets under management at December 31, 1994 included $2.0 billion
in fully guaranteed investment options, $9.2 billion in experience
rated investment options, and $8.2 billion in non-guaranteed
investment options. ALIAC's contracts typically impose surrender
fees which decline over the duration of the contract. Assets held
under experience rated general account options have transfer and
withdrawal limitations. Withdrawals from the fully guaranteed and
experience rated investment options include an adjustment intended
to reflect the estimated fair value of the assets supporting the
contract at the time of withdrawal. Approximately 90% and 91% of
assets under management at December 31, 1994 and 1993,
respectively, allowed for contractholder withdrawal, 54% and 53%
of which, respectively, are subject to market value adjustments or
deferred surrender charges at December 31, 1994.
<PAGE> 25
Aetna Life Insurance & Annuity (Continued)
Outlook
ALIAC's annuity, pension and universal life sales through
traditional channels (primarily career agents, managing general
agents, regional brokers, consultants, and third party
administrators) are expected to continue to be strong in 1995.
ALIAC intends to increase its focus on the sale of non-qualified
products through non-traditional distribution channels (banks and
broker/dealers). ALIAC is also exploring attaining growth through
additional acquisitions of blocks of business. Management expects
that ALIAC should continue to be a material source of earnings to
the company.
<PAGE> 26
Property-Casualty
<TABLE>
<CAPTION>
Operating Summary (Millions) 1994 1993 1992
_____________________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 4,390.8 $ 4,653.2 $ 5,076.3
Net investment income 832.1 952.4 1,016.5
Fees and other income 115.6 144.3 207.3
Net realized capital gains .4 151.0 213.4
____________________________________
Total revenue 5,338.9 5,900.9 6,513.5
____________________________________
Current and future benefits 3,746.8 4,214.7 4,772.2
Operating expenses 914.1 1,025.4 1,206.9
Amortization of deferred policy
acquisition costs 647.2 646.2 725.9
Severance and facilities charge - 147.3 75.4
____________________________________
Income (Loss) before taxes 30.8 (132.7) (266.9)
Income tax benefits(1) (27.3) (119.7) (160.6)
____________________________________
Income (Loss) before cumulative
effect adjustments $ 58.1 $ (13.0) $ (106.3)
_____________________________________________________________________________________
____________________________________
Cumulative effect adjustment for the change in
accounting for workers' compensation reserves $ - $ 250.0 $ -
_____________________________________________________________________________________
____________________________________
Net realized capital gains (losses), net of tax
(included above) $ (1.4) $ 101.0 $ 142.4
_____________________________________________________________________________________
____________________________________
Catastrophe losses, net of tax
(included above) $ 189.6 $ 85.0 $ 118.2
_____________________________________________________________________________________
____________________________________
Statutory combined loss and expense ratio 123.3% 125.2% 126.1%
_____________________________________________________________________________________
____________________________________
Statutory combined loss and expense ratio,
adjusted for accounting change (2) 123.3% 116.4% 126.1%
_____________________________________________________________________________________
____________________________________
GAAP combined loss and expense ratio (3) 117.7% 122.5% 126.4%
_____________________________________________________________________________________
____________________________________
GAAP combined loss and expense ratio,
adjusted for accounting change (2) 117.7% 113.6% 126.4%
_____________________________________________________________________________________
____________________________________
<FN>
(1) Income tax benefits resulted from pretax losses in 1993 and 1992 and tax-exempt
interest income in 1994, 1993 and 1992.
(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).
(3) The difference between the statutory and GAAP combined loss and expense ratios
of 1994 primarily reflects the establishment of a reserve for statutory purposes
for severance and facilities charges and for the settlement of Proposition 103,
which were both previously reserved for on a GAAP basis.
</TABLE>
The business units in the Property-Casualty segment provide most
types of commercial and personal property-casualty insurance,
bonds, and insurance-related services for businesses, government
units and associations and individuals.
Property-Casualty's adjusted earnings (after-tax) follow:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Income (Loss) before cumulative effect
adjustments $ 58.1 $ (13.0) $ (106.3)
Less:
Net realized capital gains (losses) (1.4) 101.0 142.4
Severance and facilities charge - (95.6) (49.7)
_______ _______ _______
Adjusted earnings $ 59.5 $ (18.4) $(199.0)
_______ _______ _______
_______ _______ _______
</TABLE>
<PAGE> 27
Property-Casualty (Continued)
Property-Casualty's adjusted earnings increased $78 million in
1994, following a $181 million increase in 1993. The following
significant factors impact the comparison of adjusted earnings:
Adjusted earnings included after-tax catastrophe losses of $190
million, $85 million and $118 million in 1994, 1993 and 1992,
respectively, (net of reinsurance of $138 million, $28 million
and $329 million, respectively). Such losses contributed 6.4
points to the combined ratio in 1994, compared with 2.8 points
and 3.5 points for 1993 and 1992, respectively. Catastrophe
losses in 1994 included $161 million ($453 million pretax and
before reinsurance) from the Los Angeles earthquake and the
severe winter weather in early 1994. Catastrophe losses in 1992
included $85 million ($574 million pretax and before
reinsurance) from Hurricane Andrew and Winter Storm Beth.
Adjusted earnings in 1994 reflected losses of $114 million
(after-tax and net of reinsurance) related to indemnity-related
environmental prior year reserve development. Partially
offsetting this prior year reserve development in commercial
lines in 1994 were after-tax reductions of $66 million in prior
year loss reserves related to the personal auto business. 1993
adjusted earnings included an increase of $259 million (after-
tax and after discounting) in workers' compensation reserves for
prior accident years. Adjusted earnings in 1993 were also
adversely affected by after-tax additions to loss and loss
expense reserves for prior accident years of $29 million from
the company's U.K. reinsurance operation, arising principally on
discontinued lines and non-U.S. property exposures. 1992
adjusted earnings included an after-tax charge of $293 million
related to increases in environmental and asbestos-related
reserves, which was partially offset by favorable loss trends in
the personal lines of business. (Please see "Property-Casualty
Reserves" on page 28.)
Adjusted earnings in 1993 reflected a net tax benefit of $25
million related to revaluing the deferred tax asset as a result
of the increase in federal income tax rates.
Adjusted earnings in 1992 included an after-tax charge of $30
million related to an Olympia & York financial guarantee.
In addition, 1994 adjusted earnings benefited from a reduction in
operating expenses, primarily due to management's continuing
efforts to lower costs and exiting unprofitable markets. Adjusted
earnings in 1993 reflected a reduction in operating expenses,
improved underwriting in commercial lines and benefits from
reduced exposure in unprofitable personal auto markets. Partially
offsetting the improvements in 1994 and 1993 adjusted earnings was
lower net investment income primarily due to lower investment
yields.
<PAGE> 28
Property-Casualty (Continued)
Property-Casualty earned premiums decreased approximately 6% in
1994 and 8% in 1993. Continued reduction in personal auto and
workers' compensation exposures (though at a lesser rate than in
1993), a decrease in commercial auto exposures, generally stricter
underwriting in commercial lines, and the current competitive
marketplace contributed to the decreases. During 1994, the
company continued to review its exposure in, and capital committed
to, the personal auto and homeowners and workers' compensation
insurance markets to limit exposure in states that do not offer
the potential to achieve an acceptable return.
Personal auto and homeowners policies in force at December 31
were:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
____________________________________________________________
<S> <C> <C> <C>
Auto .6 .7 .8
Homeowners 1.5 1.5 1.6
</TABLE>
Property-Casualty Reserves
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
______________________________________________________________________
<S> <C> <C> <C>
Loss and Loss Expense Reserves:
Commercial Property-Casualty $ 14,133 $ 13,500 $ 13,405
Personal Property-Casualty 2,011 2,348 2,575
________________________________
Total (1) $ 16,144 $ 15,848 $ 15,980
______________________________________________________________________
________________________________
<FN>
(1) Loss and loss expense reserves are shown without reduction for
reinsurance recoverable in all three years and deductible amounts
recoverable from policyholders in 1994. Reinsurance recoverables
and deductible amounts recoverable from policyholders were $4.6
billion and $352 million, respectively, at December 31, 1994.
Reinsurance recoverables were $4.4 billion and $4.2 billion
at December 31, 1993 and 1992, respectively.
</TABLE>
Loss and loss expense reserves represent the estimated liability
for the ultimate cost, to the extent reasonably estimable, 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, reserves are continually
monitored and adjusted using a variety of actuarial and
statistical techniques as more current information becomes
available.
<PAGE> 29
Property-Casualty (Continued)
Additions to Reserves for Prior Accident Years
The table below shows the changes in loss estimates (net of
reinsurance) related to prior accident years, most of which were
for losses and related expenses for workers' compensation claims,
environmental liability risks, and asbestos and other product
liability risks. Additions (reductions) to reserves for prior
accident years reduce (increase) net income for the period in
which the adjustment is made.
<TABLE>
<CAPTION>
Commercial Personal
(Millions) Lines Lines Total
_______________________________________________________________________
<S> <C> <C> <C>
1994
Pretax $ 348 $ (96) $ 252
After-tax 226 (62) 164
1993 (1)
Pretax 79 (19) 60
After-tax 51 (12) 39
1992
Pretax 465 1 466
After-tax 307 1 308
<FN>
(1) Reserve additions in 1993 are net of the $250 million effect of
discounting workers' compensation life table indemnity reserves.
</TABLE>
Environmental and Asbestos-Related Claims
Reserving for environmental and asbestos-related claims is subject
to significant uncertainties (discussed below). Because of these
significant uncertainties, management is currently unable to make
a reasonable estimate as to the ultimate amount of losses or a
reasonable range of losses for all environmental and asbestos-
related claims and related litigation expenses. However, reserves
for these liabilities are evaluated by management regularly, and,
subject to the significant uncertainties discussed below,
adjustments have been and are expected to be 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 environmental and asbestos-related claims. It is not
possible at this time to determine whether reinsurance coverage
for these claims will be exhausted prior to disposing of or
otherwise settling all such claims, primarily because the ultimate
amount of payments that the company may make for all of these
claims and related litigation expenses is currently unknown. The
company has taken reinsurance recoveries into account in its
reserve calculations for known claims, and for unreported asbestos
bodily injury claims where, in many cases, the company reserves
for policy limits. The company believes that the reinsurance
recoveries taken into account in its reserve calculations are
probable of recovery; however, there can be no assurances that
reinsurance for these types of claims will not become subject to
coverage disputes with reinsurers, or that all reinsurers will
have the ability to pay the company for such claims.
<PAGE> 30
Property-Casualty (Continued)
Environmental-Related Claims
The company has been a major writer of commercial insurance
policies which are the types of policies alleged to cover
hazardous waste cleanup costs. Management is currently unable to
make a reasonable estimate as to the ultimate amount or a
reasonable range of its environmental-related liability. However,
in 1994, the company was able to begin estimating indemnity-
related liability on certain environmental claims and increased
reserves significantly. The company is continuing to gather and
analyze developing legal and factual information on known
environmental-related claims and continues to reassess its
reserving techniques in order to determine whether it can
reasonably estimate its liability for additional claims. As part
of this ongoing process, the company is aware of developing
databases and methodologies which may be useful in estimating
environmental liabilities, and the company is in the process of
reviewing its methodologies and reviewing additional data obtained
from an outside actuarial firm in an effort to improve the
company's ability to estimate all or a further portion of its
environmental-related liability. The review underway is expected
to be completed in the second or third quarter of this year. In
addition to this review, as claims in litigation mature and
approach the trial stage, the company obtains information that may
allow it to estimate exposure on certain of the claims involved in
the litigation and policyholders may seek to settle their claims
with the company. Also, the outcome of coverage litigation
involving the company or other insurers may assist in the
determination of additional amounts that might be paid in the
future for similar claims. The estimation of reserves for
reported environmental claims is likely to change as additional
information emerges and reserving techniques continue to develop.
The company is expected to be affected adversely by losses for
environmental claims and related litigation and such effect could
be material.
The company and the insurance industry are litigating issues,
described further below, that will ultimately determine, in many
cases, whether and to what extent insurance coverage exists for
environmental pollution claims. Once 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 is involved in certain coverage dispute
cases where insureds have presented the company with particularly
large claims for coverage, based on the number of sites alleged to
be covered, the nature of the business conducted and the alleged
scope of coverage. One case involving such an insured may begin
trial in early to mid-1995 with respect to a portion of the sites
alleged to be subject to coverage.
<PAGE> 31
Property-Casualty (Continued)
The company generally disputes that there is insurance coverage
for environmental claims and is vigorously litigating coverage and
related issues. As such, the company is continuously involved in
lawsuits regarding policy coverage and judicial interpretation of
legal liability for environmental pollution claims. Environmental
claims are complex and subject to significant uncertainties in
addition to the vagaries of and risks inherent in major litigation
generally. First, the underlying liabilities of the claimants are
difficult to estimate. At any given waste site, the amount of
remediation 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 of others to pay. A PRP may have no liability, may
share responsibility with others or may bear the cost alone.
Second, there are significant uncertainties for the company and
the insurance industry relating to whether insurance policies will
be found to 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 "occurrences" for purposes of determining applicable
policy limits; how pollution exclusions in policies should be
applied; and whether cleanup costs are payable as "damages."
The company establishes reserves for indemnity-related liabilities
(and related loss adjustment expenses, including legal fees
relating to its duty, if any, to defend a policyholder) for
particular known environmental claims when it believes it has
sufficient information to reasonably estimate its liability. The
company also has established a bulk reserve for legal fees
expected to be paid over the next several years related to
coverage disputes with policyholders. At this time, however,
because of the significant uncertainties discussed above, the
company does not establish reserves for unknown environmental
claims, for known claims where the estimated ultimate liability is
not reasonably estimable or for adverse development of currently
held reserves.
The table below reflects activity in the reserve for environmental
liability claims (pretax and before reinsurance) for the years
ended December 31:
<TABLE>
<CAPTION>
Environmental Liability Claims (Millions) 1994 1993 1992
_______________________________________________________________________________
<S> <C> <C> <C>
Beginning reserve $ 233.3 $ 237.8 $ 73.4
Reserve additions for incurred losses (1) 289.5 37.2 212.8
Payments for claims and claim
adjustment expense (2,3) 86.7 41.7 48.4
_______________________________
Ending reserve (4) $ 436.1 $ 233.3 $ 237.8
_______________________________________________________________________________
_______________________________
<FN>
(1) Before reduction for reinsurance of $59 million in 1994, $(3) million in
1993 and $11 million in 1992.
(2) Before reduction for reinsurance of $4 million in 1994, $2 million in 1993
and $4 million in 1992.
(3) Includes legal fees paid of $52 million in 1994, $31 million in 1993 and
$35 million in 1992.
(4) Before reduction for reinsurance of $58 million in 1994, $3 million in 1993
and $7 million in 1992.
</TABLE>
<PAGE> 32
Property-Casualty (Continued)
At December 31, 1994 and 1993, approximately $299 million and $94
million, respectively, of the reserve for environmental liability
claims represented estimated indemnity-related liabilities
(including loss adjustment expenses). The remainder represented a
bulk reserve for legal fees. In 1994, the company added $290
million pretax and before reinsurance ($231 million pretax and
after reinsurance) to reserves for environmental liability claims
primarily for indemnity-related liabilities. The indemnity-
related liabilities recorded principally relate to certain of the
known claim sites involved in coverage dispute litigation between
the company and some of its policyholders (including certain of
the sites relating to policyholders, which appear to present the
largest risk of liability to the company) and to settlements with
certain policyholders during the period. In 1992, the company
added $202 million (pretax) to reserves for environmental
liability claims primarily establishing the bulk reserve for legal
fees.
The company actively manages its environmental claims through a
special environmental claim unit. The number of environmental-
related liability claims the company had as of December 31 (and
policyholders involved in those claims), were as follows:
<TABLE>
<CAPTION>
1994 (1) 1993 (1) 1992 (1)
________ ________ ________
<S> <C> <C> <C>
Beginning balance 3,860 2,913 2,424
New claims 1,765 1,903 1,127
Closed claims 1,038 956 638
______ ______ ______
Ending balance (2) 4,587 3,860 2,913
______ ______ ______
______ ______ ______
Policyholders 1,146 1,132 1,000
______ ______ ______
______ ______ ______
<FN>
(1) For purposes of this table, "claims" are calculated separately for
each of the categories described in (2) below and are calculated on
a "per policyholder, per site" basis. The "claims" numbers reflect
cases where policyholders have notified the company of a claim under
primary insurance policies. In addition, policyholders have placed
the company on notice of possible claims that may potentially involve
excess general liability policies. 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.
(2) Of the claims open at December 31, 1994, 1993 and 1992, approximately 87%,
87% and 91%, respectively, represented environmental pollution-related
cleanup cases (including Superfund claims) against policyholders, and
approximately 13%, 13% and 9%, respectively, represented environmental
pollution-related third-party bodily injury and property damage claims
against policyholders. Of the claims open at December 31, 1994, 1993
and 1992, approximately 53%, 48% and 34%, respectively, were involved
in coverage disputes between the company and its policyholders that had
reached the litigation stage.
</TABLE>
<PAGE> 33
Property-Casualty (Continued)
Management believes that year-over-year there is not a meaningful
correlation between the number of outstanding environmental claims
and either the indemnity or loss expense portions of the
environmental liability. Because the company has generally
disputed that there is insurance coverage for environmental
claims, and because of significant uncertainties, the company
generally is not able to reasonably estimate the amount of
indemnity loss, if any, for a claim until well after the claim is
reported. In addition, loss expenses do not increase
proportionately with the number of outstanding claims primarily
because of the company's management of legal costs and because a
number of new claims involve additional sites relating to pre-
existing policyholder coverage disputes which should not
proportionately increase legal fees. Legal costs may vary in
particular years, however, due to other factors, such as the
timing of stages of certain large litigation.
Congress was scheduled to reauthorize the Superfund law in 1994,
but adjourned without doing so. There continues to be substantial
dissatisfaction among insurance and business groups and others
with the current law, particularly with respect to the law's
cleanup requirements and liability provisions, and there is
general recognition that major reforms are needed. However,
Superfund reform would not directly affect the numerous
environmental liability claims against the company resulting from
state and other federal environmental cleanup programs. At this
time, it is too early to determine whether the law will be
reauthorized and reformed in 1995-1996, what the substance of the
enacted legislation will be, or what the effect of any such
reforms will be on the company.
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
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. 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 received final approval by the courts.
<PAGE> 34
Property-Casualty (Continued)
Over the last few years, asbestos bodily injury claims also have
been filed by plaintiffs against entities that installed or
produced products that contained asbestos. Additionally, some
policyholders have attempted to recharacterize asbestos bodily
injury product liability claims in an effort to avoid applicable
policy coverage limits. The company is currently involved in
binding arbitration with one such major producer that had
exhausted applicable policy limits on asbestos products claims and
is awaiting the arbitrator's decision, which is appealable to a
panel of arbitrators. There is inadequate history from which the
company can estimate the ultimate liability it may have with
respect to these types of claims.
The table below reflects activity in the reserve for asbestos
bodily injury claims (pretax and before reinsurance) for the years
ended December 31:
<TABLE>
<CAPTION>
Asbestos Bodily Injury Claims (Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Beginning reserve $ 248.1 $ 294.9 $ 47.5
Reserve additions for incurred losses (1) 117.3 95.2 334.4
Payments for claims and claim
adjustment expense (2,3) 69.5 142.0 87.0
_______________________________
Ending reserve (4) $ 295.9 $ 248.1 $ 294.9
________________________________________________________________________________
_______________________________
<FN>
(1) Before reduction for reinsurance of $82 million in 1994, $20 million in
1993 and $115 million in 1992.
(2) Before reduction for reinsurance of $65 million in 1994, $27 million in
1993 and $51 million in 1992.
(3) Includes legal fees paid of $30 million in 1994, $56 million in 1993 and
$25 million in 1992.
(4) Before reduction for reinsurance of $62 million in 1994, $45 million in
1993 and $52 million in 1992.
</TABLE>
At December 31, 1994 and 1993, approximately 33% and 43%,
respectively, of reserves (pretax and before reinsurance)
represented legal fees. In 1993, payments increased, primarily
reflecting increased settlements of asbestos bodily injury claims,
including settlements of certain large claims for which reserves
had previously been established. In 1992, the company added $334
million (pretax and before reinsurance) to reserves for asbestos
bodily injury claims. Of this increase, $152 million (pretax and
before reinsurance) was added primarily because of the CCR
developments described above. These reserves are equal to the
remaining coverage limits for many of the company's largest
insureds, plus an estimate of the associated future costs of
litigation.
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.
<PAGE> 35
Property-Casualty (Continued)
The number of asbestos bodily injury claims the company had as of
December 31 (and policyholders involved in those claims), were as
follows:
<TABLE>
<CAPTION>
1994 (1) 1993 (1) 1992 (1)
____ ____ ____
<S> <C> <C> <C>
Beginning balance 1,283 1,864 2,330
New claims 271 248 172
Closed claims 277 829 638
_____ _____ _____
Ending balance (2) 1,277 1,283 1,864
_____ _____ _____
_____ _____ _____
Policyholders 318 287 239
_____ _____ _____
_____ _____ _____
<FN>
(1) The "claims" numbers above reflect cases where policyholders
have notified the company of a claim under primary insurance
policies. In addition, they reflect cases where policyholders
have placed the company on notice of possible claims that may
potentially involve excess general liability policies in those
instances where the company believes its excess policies are
likely to be accessed.
(2) Certain of the company's claims represent a claim by an
individual claimant and others represent a claim on behalf of
multiple claimants. At December 31, 1994, 1993 and 1992,
approximately 84%, 83% and 52%, respectively, represent claims
which have multiple claimants.
</TABLE>
Management believes that there is not a high correlation between
the number of outstanding asbestos claims and the recorded
reserves for such claims. The new claims generally relate to
policyholders having a small number of claims individually. The
closed claims in 1993 and 1992 reflect the increased activity
related to a small number of large policyholders pertaining to the
CCR settlement.
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.
<PAGE> 36
Property-Casualty (Continued)
The table below reflects activity in the reserve (a significant
portion of which represents legal fees) for asbestos property
damage claims (pretax and before reinsurance) for the years ended
December 31:
<TABLE>
<CAPTION>
Asbestos Property Damage Claims (Millions) 1994 1993 1992
______________________________________________________________________________
<S> <C> <C> <C>
Beginning reserve $ 28.7 $ 31.3 $ 21.1
Reserve additions for incurred losses (1) 6.2 16.9 28.6
Payments for claims and claim
adjustment expense (2) 5.0 19.5 18.4
_______________________________
Ending reserve (3) $ 29.9 $ 28.7 $ 31.3
______________________________________________________________________________
_______________________________
<FN>
(1) Before reduction for reinsurance of $3 million in each of 1994 and 1993
and $6 million in 1992.
(2) Before reduction for reinsurance of $3 million in 1994 and $2 million
in 1992. There were no such reinsurance recoveries in 1993.
(3) Before reduction for reinsurance of $7 million in each of 1994 and 1993
and $3 million in 1992.
</TABLE>
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 installed and relevant state law.
Management cannot predict whether such indemnity payments per
claim will increase, decrease or remain the same.
The number of asbestos property damage claims the company had as
of December 31 (and policyholders involved on those claims), were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
____ ____ ____
<S> <C> <C> <C>
Beginning balance 336 308 479
New claims 53 53 51
Closed claims 114 25 222
___ ___ ___
Ending balance (1) 275 336 308
___ ___ ___
___ ___ ___
Policyholders 48 43 24
___ ___ ___
___ ___ ___
<FN>
(1) Certain of the company's claims represent claims
related to individual properties and others represent
claims related to multiple properties. At December 31, 1994,
1993 and 1992, approximately 44%, 32% and 30%, respectively,
represent claims which relate to multiple properties.
</TABLE>
<PAGE> 37
Property-Casualty (Continued)
While the total number of open asbestos property damage claims
increased from December 31, 1992 to December 31, 1993, the reserve
balance for such claims decreased by $3 million. Reserve
additions for the period reflect the company's belief that new
claims arising during the period were primarily small or
incidental claims, many of which were closed in 1994.
Workers' Compensation Claims
The company added $574 million (pretax, before discount) to prior
accident year loss reserves in 1993 for workers' compensation
claims. Of this addition, approximately $250 million related to
reserves for workers' compensation life table indemnity claims.
The increase of $574 million resulted from a study of the
company's workers' compensation reserves which supported
adjustment of workers' compensation reserve balances to reflect
(i) a 60-year tail (compared to the 40-year tail previously
utilized) and (ii) a judgment that, because of application of
costly medical technologies sooner after injury and medical
advancements in the early treatment of injuries, recent claims
would benefit from a slowing in the growth of medical costs from
that being experienced by the company on older claims. Concurrent
with this addition to workers' compensation reserves, the company
implemented a change in accounting to discount reserves for
workers' compensation life table indemnity claims in order to more
accurately reflect the economic value of the company's obligations
and improve the matching of revenues and expenses. Further, such
discounting was consistent with industry practice. This
discounting resulted in a reduction as of December 31, 1993 of
$634 million (pretax) to loss reserves for workers' compensation
claims. (Please see Note 1 of Notes to Financial Statements.)
Estimating workers' compensation reserves is particularly
difficult (and, therefore, more subject to change than many other
types of property-casualty claims), largely because of the length
of the "tail" associated with workers' compensation claims.
Workers' compensation claim costs are dependent on a number of
complex factors including social and economic trends and changes
in doctrines of legal liability and damage awards.
Other
Policyholders of the company also seek insurance coverage from the
company for other long-term exposure claims against them,
including claims relating to silicone-based personal products,
lead paint and other allegedly toxic or harmful substances.
Evaluating and reserving for these types of exposures is complex
and subject to many uncertainties including those stemming from
coverage issues, long latency periods and changing laws.
<PAGE> 38
Property-Casualty (Continued)
The company has noted evidence of adverse loss developments in its
commercial general liability line of business. The company
believes that such developments largely are attributable to the
unusual frequency and size of claims in this line of business. The
company also believes that the unusual frequency and size of
construction defect claims brought against contractor
policyholders (observed by the company in 1994) and the increasing
size of other types of claims brought against contractor
policyholders (observed by the company to be continuing in 1994)
are contributing to these loss developments. The company believes
that it is reasonably possible that these adverse loss
developments will continue, and if so they would adversely affect
the company's future results although the company is currently
unable to estimate the extent to which results would be affected.
Management has and continues to review the factors contributing to
these developments (by, for example, segregating and examining
data on an individual policyholder basis) and to adjust its
reserves as more current data becomes available.
<PAGE> 39
Outlook
Significant actions have been taken, especially in the commercial
lines, to improve basic underwriting and claim-handling
fundamentals in order to improve profitability. Continued focus
on stricter underwriting programs, geographic specific strategies,
and increased service and value-added business, which address the
requirements of customers with more complicated insurance needs,
is expected to improve the earnings outlook in commercial lines.
However, except in isolated markets and lines of business,
expectations in recent years among market analysts that prices
would significantly increase in the commercial lines of business
have proven incorrect. Should existing market conditions
continue, earnings will continue to be under pressure.
In personal lines, recent actions have improved personal auto
underwriting profitability. However, increasingly competitive
market conditions will put pressure on further improvement.
Management will continue to evaluate personal auto market
conditions in each state and maintain or increase the company's
presence in those states that offer acceptable returns and reduce
its presence in those states where the company is unable to earn
acceptable returns. Management will continue to seek to obtain
personal lines rate increases where appropriate and will continue
to challenge regulatory or legislative initiatives that deny the
company an opportunity to earn a satisfactory return.
The company has undertaken a number of actions in the past few
years to improve its expense position. It will continue to seek
to further reduce the costs associated with acquiring, processing
and servicing business. The benefits of reduced expenses, driven
by a 17% staff reduction in 1994, should be fully reflected in
1995 earnings. However, the competitive marketplace and stricter
underwriting programs may depress premium levels in the shorter
term, in which case improvement in the company's expense ratios
would take longer to achieve.
The company is taking a number of steps intended to moderate the
volatility of property-casualty earnings, including transferring
more risk through restructured and expanded reinsurance programs.
Additionally, exposure to catastrophes is being reduced through
restricting business writings in certain geographic areas, to the
extent that the company can legally do so, and increasing
deductibles. These actions may somewhat reduce premium levels.
The company is aggressively managing its asbestos and
environmental liabilities. The company is expected to be affected
adversely in 1995 by losses for environmental and asbestos claims
and related litigation expenses, and such effect could be material
to the company's future results, liquidity and/or capital
resources.
<PAGE> 40
International
<TABLE>
<CAPTION>
Operating Summary (Millions) 1994 1993 1992
____________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 887.1 $ 909.5 $ 814.8
Net investment income 308.4 311.6 278.5
Fees and other income 97.0 83.4 100.4
Net realized capital gains (losses) 4.5 (25.2) 8.7
________________________________
Total revenue 1,297.0 1,279.3 1,202.4
Current and future benefits 782.7 860.1 732.3
Operating expenses 349.8 354.3 385.6
Amortization of deferred policy
acquisition costs 65.7 51.7 41.6
Severance and facilities charge - 11.0 -
________________________________
Income before taxes 98.8 2.2 42.9
Income taxes (benefits) 27.6 (52.8) 17.8
________________________________
Income before cumulative
effect adjustments $ 71.2 $ 55.0 $ 25.1
____________________________________________________________________________
________________________________
Net realized capital gains (losses),
net of tax (included above) $ 2.1 $ (11.6) $ 7.2
____________________________________________________________________________
________________________________
</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, Mexico, Taiwan,
Chile, Malaysia, Hong Kong, New Zealand, Peru, Argentina and
Korea. As part of the company's decision to realign its segments
(please see "Overview" on page 4), the United Kingdom reinsurance
operations, previously included within International, are now
reflected in the Property-Casualty segment.
International's adjusted earnings (after-tax) follow:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 71.2 $ 55.0 $ 25.1
Less:
Net realized capital gains (losses) 2.1 (11.6) 7.2
Severance and facilities charge - (7.1) -
_______ _______ _______
Adjusted earnings $ 69.1 $ 73.7 $ 17.9
_______ _______ _______
_______ _______ _______
</TABLE>
International's adjusted earnings decreased $5 million in 1994,
following a $56 million increase in 1993. Results in 1994 and
1993 reflected earnings from the company's increased investment in
a Mexican insurance operation and continued improvement in Pacific
Rim operations and earnings. 1993 adjusted earnings included a
$37 million tax benefit from prior year operating losses related
to the sale of the U.K. life and investment management operations.
During 1994, the company changed its accounting for an affiliate
from the consolidated basis of accounting to the equity basis of
accounting. Prior to the change, the company recognized revenue
of $98 million, $173 million and $134 million for 1994, 1993 and
1992, respectively, and benefits and expenses of $105 million,
$190 million and $148 million for 1994, 1993 and 1992,
respectively. This change did not impact results of the segment
in 1994.
<PAGE> 41
International (Continued)
Premiums in 1994 were 2% lower than in 1993, following a 12%
increase in 1993 premiums as compared with 1992. Excluding the
change in accounting for an affiliate discussed above, premiums
increased 5% and 8% in 1994 and 1993, respectively, primarily due
to increases in the volume of business sold in the Pacific Rim and
South American markets.
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.
These markets have added risks such as nationalization,
expropriation, foreign currency fluctuations and the potential for
restrictive capital regulations.
Approximately 25% of International's adjusted earnings are derived
from the company's Mexican affiliate. The devaluation of the
Mexican peso which occurred primarily in the fourth quarter of
1994 resulted in the recording of a $39 million unrealized loss
(after-tax) on the consolidated balance sheet of the company
related to the company's investment in its Mexican affiliate. The
company's currency risk with respect to the Mexican peso cannot be
hedged due to the fact that there is no active market for currency
forward contracts. As a result, the Mexican affiliate's
contribution to earnings could be negatively impacted.
Despite these risks, management believes that its operations are
sufficiently maturing and, therefore, expects International to be
a meaningful contributor to overall corporate results.
<PAGE> 42
Corporate
<TABLE>
<CAPTION>
Operating Summary (Millions, after-tax) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Interest expense $ 60.5 $ 44.7 $ 50.9
Other expense $ 156.5 $ 173.9 $ 229.2
</TABLE>
The Corporate segment includes interest expense and other
corporate net expenses which are not directly related to the
company's business segments. "Other expense" includes operating
expenses such as corporate staff areas, advertising and
contributions, and net investment income.
The 1994 increase in interest expense of $16 million resulted from
the issuance by a subsidiary of 9 1/2% cumulative monthly income
preferred securities in November 1994, as well as certain other
long-term debt by the company in late 1993. Other expense for
1993 and 1992 included after-tax severance and facilities charges
of $11 million and $13 million, respectively. Other expense also
included an after-tax realized capital loss of $9 million in 1994,
and after-tax realized capital gains of $2 million and $9 million
in 1993 and in 1992, respectively. Excluding the 1993 and 1992
severance and facilities charges and realized capital gains and
losses in all three years, the decrease in other expenses in 1994
and 1993 resulted from a reduction of corporate staff area
expenses associated with previous restructurings.
<PAGE> 43
General Account Investments
Investment-related amounts disclosed in the following investment
section relate to the total portfolio (including assets supporting
discontinued products and experience rated products). (Please see
"Large Case Pensions" on page 19 for a discussion of discontinued
products.)
<TABLE>
<CAPTION>
December 31,
________________________
(Millions) 1994 1993
__________________________________________________________________________
<S> <C> <C>
Invested Assets:
Life Companies:
Fully Guaranteed $ 14,486.3 $ 16,933.1
Experience Rated 16,670.9 18,824.1
Other 8,216.6 7,445.5
Property-Casualty Companies 14,919.5 18,253.1
________________________
Total General Account Assets,
net of impairment reserves $ 54,293.3 $ 61,455.8
__________________________________________________________________________
________________________
Net investment income $ 4,463.5 $ 4,919.0
__________________________________________________________________________
________________________
</TABLE>
At December 31, 1994 and 1993, the company's invested assets were
comprised of the following, net of impairment reserves:
<TABLE>
<CAPTION>
(Millions) 1994 1993
__________________________________________________________________________
<S> <C> <C>
Debt securities:
Held for investment, at amortized
cost (fair value $1,991.2 and $2,704.2) $ 2,000.8 $ 2,557.8
Available for sale, at fair value
(amortized cost $36,984.2 and $36,933.6) 35,110.7 38,868.9
Trading securities, at fair value
(1993 amortized cost, $119.0) - 117.8
Equity securities, at fair value
(cost $1,326.9 and $1,238.1) 1,655.6 1,658.9
Short-term investments 450.4 669.9
Mortgage loans 11,843.6 14,839.2
Real estate 1,545.7 1,315.8
Policy loans 533.8 490.7
Other 1,152.7 936.8
__________________________________________________________________________
Total invested assets $ 54,293.3 $ 61,455.8
__________________________________________________________________________
________________________
</TABLE>
The company's investment objective is to fund policyholder and
certain corporate liabilities in a manner which enhances
shareholder and contractholder value, subject to appropriate risk
constraints. It is the company's intention that this investment
objective be met by a mix of investments which matches the
characteristics of the liabilities they support; diversifies the
types of investment risks in its portfolios by interest rate,
liquidity, credit and equity price risk; and achieves asset
diversification by investment type, industry, issuer and
geographic location. The company regularly projects duration and
cash flow characteristics of its liabilities and makes appropriate
adjustments in the portfolios of assets which support the
liabilities.
<PAGE> 44
General Account Investments (Continued)
Interest rate risk is managed within a tight duration band, and
credit risk is managed by maintaining high average bond ratings
and diversified sector exposure. In pursuing its investment and
risk management objectives, the company utilizes assets whose
market value is at least partially determined by, among other
things, levels of or changes in domestic and/or foreign interest
rates (short term or long term), exchange rates, prepayment rates,
equity markets or credit ratings/spreads. (Please see "Use of
Derivatives and Other Investments" on page 56.)
Using financial modeling and other techniques, the company
regularly evaluates the appropriateness of the investments
relative to the company's management-approved investment
guidelines and the business objectives of the portfolios
(including evaluating the interest rate, liquidity, credit and
equity price risk resulting from derivative and other portfolio
activities). During 1994, the company operated within such
investment guidelines by maintaining a mix of investments that
diversifies its assets and matches the characteristics of the
liabilities which they support.
The decline in invested assets from December 31, 1993 to December
31, 1994 related principally to debt securities and mortgage
loans. The decrease in debt securities of $4.4 billion was due
principally to changes in market values of such securities.
Interest rates rose during 1994, causing a decrease in the value
of debt securities and resulting in a change from unrealized
capital gains on such securities of $1.9 billion at December 31,
1993 to unrealized capital losses of $1.9 billion at December 31,
1994. Of such unrealized capital losses at December 31, 1994,
$195 million and $607 million related to assets supporting
discontinued products and experience rated pension
contractholders, respectively. The decrease in mortgage loans of
$3.0 billion principally reflected prepayments, payments at
maturity on mortgage loans, the company's foreclosure of $515
million of mortgage loans (net of write-offs) and $193 million of
in-substance foreclosures (net of write-offs).
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.
<PAGE> 45
General Account Investments (Continued)
Debt Securities
As of December 31, 1994 and 1993, the company's investments in
debt securities represented 68% of total general account invested
assets and were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
_______________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 6,155.0 $ 8,269.0
Supporting experience rated products 11,770.5 11,763.8
Supporting remaining products 19,186.0 21,511.7
________________________________
Total $37,111.5 $41,544.5
________________________________
________________________________
</TABLE>
At December 31, 1994 and 1993, 5% and 6%, respectively, of the
fixed income investments included in Aetna's debt securities
portfolio were carried at amortized cost. At year-end 1994, the
estimated market value of investments carried at amortized cost
was approximately $10 million less than their carrying value. Of
the difference between market and carrying value, an unrealized
capital gain of less than $1 million is related to debt securities
supporting experience rated contracts.
<PAGE> 46
General Account Investments (Continued)
It is management's objective that the portfolio of debt securities
be of high quality and be well-diversified by market sector. The
debt securities 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
portfolio of debt securities was AA at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Debt Securities Quality Ratings Debt Securities Investments by Market Sector
12/31/94 12/31/94
_______________________________ ____________________________________________
<S> <C> <C> <C>
AAA 48.3%
AA 10.5% Corporate 28.1%
A 21.8% Treasuries/Agencies 23.3%
BBB 14.4% Mortgage-Backed Securities 18.1%
BB & Below 5.0% Financial 14.9%
Public Utilities 7.2%
Other Loan Backed 4.4%
Municipals 4.0%
</TABLE>
Included in the company's total debt security balances at December
31, 1994 and 1993 were the following categories of debt
securities:
<TABLE>
<CAPTION>
(Millions) December 31, 1994
_____________________________________________________________________________________________________
"Below Investment Problem Debt Potential Problem
Grade" Securities Securities Debt Securities
_________________ ____________ _________________
<S> <C> <C> <C>
Total $1,873.0 $ 146.4 $ 170.0
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 27.8% 35.6% 27.9%
Supporting experience rated products 25.8 14.3 29.6
Supporting remaining products 46.4 50.1 42.5
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
December 31, 1993
______________________________________________________________
"Below Investment Problem Debt Potential Problem
Grade" Securities Securities Debt Securities
_________________ ____________ _________________
<S> <C> <C> <C>
Total $1,951.1 $ 196.1 $ 191.0
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 31.5% 36.0% 30.5%
Supporting experience rated products 23.0 13.6 34.1
Supporting remaining products 45.5 50.4 35.4
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
</TABLE>
"Below investment grade" securities (which include "problem debt
securities" and "potential problem debt securities" described
below) are defined to be securities that carry a rating below BBB-
/Baa3. Such debt securities have been written down for other than
temporary declines in value. At year-end 1994 and 1993, $1.1
billion and $1.2 billion, respectively, of the below investment
grade debt securities were investments that were investment grade
when purchased, but have since deteriorated in quality.
Management defines "problem debt securities" to be securities for
which payment is in default, securities of issuers which are
currently in bankruptcy or in out-of-court reorganizations, or
securities of issuers for which bankruptcy or reorganization
within six months is considered likely.
<PAGE> 47
General Account Investments (Continued)
"Potential problem debt securities" are currently performing debt
securities for which neither payment default nor debt
restructuring is anticipated within six months, but whose issuers
are experiencing significant financial difficulties. Identifying
such potential problem debt securities requires significant
judgment as to likely future market conditions and developments
specific to individual debt securities.
The company does not accrue interest on problem debt securities
when management believes the likelihood of collection of interest
is doubtful. Lost investment income on problem debt securities
for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
______________________________________________________________________
<S> <C> <C> <C>
Allocable to discontinued products $ 3.4 $ 3.5 $ 7.2
Allocable to experience rated products 1.0 .5 5.7
Allocable to remaining products 5.8 1.6 7.6
</TABLE>
Collateralized Mortgage Obligations
At December 31, 1994 and 1993, the carrying value (fair value) of
collateralized mortgage obligations ("CMOs") was $3.4 billion and
$6.3 billion, respectively. The $2.9 billion decline in CMOs from
December 31, 1993 to December 31, 1994 was related primarily to
sales and principal repayments. CMO sales of $1.6 billion
resulted in net realized capital gains (pretax) of $35 million of
which $23 million was allocated to experience rated contracts.
The company's CMO exposure was reduced as a result of changes in
their risk and return characteristics and to better diversify the
risk profile of the company's assets. The principal risks
inherent in holding CMOs are prepayment and extension risks
related to dramatic decreases and increases in interest rates
whereby the value of the CMOs would be subject to variability on
the repayment of principal from the underlying mortgages earlier
or later than originally anticipated.
At December 31, 1994 and 1993, approximately 82% and 91%,
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. At December 31, 1994 and 1993, approximately 74% and
77%, respectively, of the company's CMO holdings were
collateralized by residential 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,
1994 and 1993, 3% 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 residential 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 8% and 5% of the
company's CMO holdings at December 31, 1994 and 1993,
respectively, receive principal payments from the underlying
mortgage pool only after all other priority classes have been
retired.
<PAGE> 48
General Account Investments (Continued)
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 also
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 also 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 Loans
During 1994, the mortgage loan portfolio was reduced 20% to $11.8
billion, net of impairment reserves. At December 31, 1994 and
1993, the company's mortgage loan investments net of impairment
reserves, supported the following types of business:
<TABLE>
<CAPTION>
(Millions) 1994 1993
______________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 4,294.9 $ 5,419.1
Supporting experience rated products 3,652.1 4,732.7
Supporting remaining products 3,896.6 4,687.4
___________________________
Total $11,843.6 $14,839.2
___________________________
___________________________
</TABLE>
During 1994, the company continued to manage its mortgage loan
portfolio to reduce the balance in absolute terms and relative to
invested assets, and to reduce its overall risk. Since 1990 when
the company ceased actively investing new money in mortgage loans,
the focus has been on reducing the mortgage loan portfolio in an
effort to maximize the return to the company. Mortgage loans, net
of impairment reserves, now represent 22% of total general account
invested assets, down from 38% in 1990. During this period, the
principal balance of the mortgage portfolio was reduced by 46%.
The $3.0 billion decrease since December 31, 1993 reflects the
effect of repayments of maturing loans, loan prepayments,
discounted loan payoffs, amortization and foreclosures (actual and
in-substance). At December 31, 1994 and 1993, approximately 91%
and 90%, respectively, of the outstanding principal balance of the
portfolio consisted of commercial loans with balloon maturity
features. (See "Liquidity and Capital Resources" on page 59.)
<PAGE> 49
General Account Investments (Continued)
At December 31, 1994 and 1993, the company's mortgage loan
balances, net of specific impairment reserves, by property type
and geographic region were as follows:
<TABLE>
<CAPTION>
December 31, 1994
Hotel/ Mixed
(Millions) Office Retail Apartment Motel Industrial Use Other Total
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Atlantic $ 827.4 $ 545.8 $ 264.7 $ 672.4 $ 236.1 $ 203.9 $ 41.4 $ 2,791.7
Middle Atlantic 1,140.4 519.7 218.0 124.0 69.9 118.7 9.4 2,200.1
New England 758.2 282.7 64.2 120.9 44.6 209.9 32.7 1,513.2
South Central 346.2 286.4 166.5 65.6 50.1 - 28.2 943.0
North Central 617.2 276.1 132.3 168.3 29.8 47.6 46.3 1,317.6
Pacific and
Mountain 1,170.9 565.1 250.3 143.0 443.1 76.6 84.2 2,733.2
Other 95.8 149.1 131.3 21.0 59.8 3.4 234.4 694.8
__________________________________________________________________________________________________
Total $ 4,956.1 $ 2,624.9 $ 1,227.3 $ 1,315.2 $ 933.4 $ 660.1 $ 476.6 $12,193.6
__________________________________________________________________________________________________
Less general portfolio loss reserve 350.0
__________________________________________________________________________________________________
Adjusted total, net of reserves $11,843.6
__________________________________________________________________________________________________
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
__________________________________________________________________________________________________
</TABLE>
The company has a comprehensive process for managing mortgage
loans which includes an ongoing risk assessment to evaluate key
attributes of the mortgage investment, specifically, debt service
coverage, cash flow sustainability, property condition, loan to
value, market/economic trends, deal structure, borrower strength
and ability to refinance. Action plans are established with the
objective of reducing potential risk and maximizing the return on
the investment. In addition, a collateral valuation is performed
on a regular basis for mortgage loans with a balance greater than
$5 million (approximately 86% of the principal balance of the
portfolio), to help determine whether adjustments to impairment
reserves are warranted.
<PAGE> 50
General Account Investments (Continued)
Problem, restructured and potential problem loans were reduced by
50% to $2.3 billion at December 31, 1994. During the year, the
company implemented a troubled debt restructuring program. The
primary objective of this program is to restructure eligible loans
in a manner which creates a market rate transaction which will
perform in accordance with its restructured terms. The program is
applied to those loans which have sound property and borrower
fundamentals but suffer from excess debt. An important feature of
these loans is that in exchange for principal forgiveness on a
portion of the loan, the company typically retains the right to
participate in property appreciation to the extent market
conditions improve in the future.
In those situations where the property fundamentals do not support
a restructuring of the loan, the company generally acquires the
collateral through foreclosure. Loans with a principal balance of
$764 million and collateral with a fair market value of $515
million were foreclosed upon in 1994. Additional loans with a
principal balance of $422 million were in the process of
foreclosure at year end. In certain cases, the company has taken
substantive possession of the property supporting its loan,
coupled with the borrower surrendering its interest in the future
economic benefits in the property. Where this has occurred, the
loans are considered in-substance foreclosures, written down to
their fair market value less selling costs and classified as real
estate held for sale. At December 31, 1994, there were $193
million of in-substance foreclosures (net of write-offs of $136
million).
Included in the company's total mortgage loan balances at December
31 were the following categories of mortgage loans:
<TABLE>
<CAPTION>
(Millions) December 31, 1994
________________________________________________________________________________________________________
Restructured Potential
Problem Loans Loans Problem Loans Total
_____________ ____________ _____________ _____
<S> <C> <C> <C> <C>
Total $ 673.1 $ 706.1 $ 918.7 $2,297.9
________ ________ ________ ________
________ ________ ________ ________
Percentage of total:
Supporting discontinued products 36.9% 39.1% 48.8%
Supporting experience rated products 30.8 31.1 25.5
Supporting remaining products 32.3 29.8 25.7
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
Impairment reserves $ 784.1
________
________
Impairment reserves as
a percentage of total 34.1%
________
________
December 31, 1993
_________________________________________________________________
Restructured Potential
Problem Loans Loans Problem Loans Total
_____________ ____________ _____________ _____
<S> <C> <C> <C> <C>
Total $1,116.0 $1,858.8 $1,575.6 $4,550.4
________ ________ ________ ________
________ ________ ________ ________
Percentage of total:
Supporting discontinued products 36.8% 51.5% 33.2%
Supporting experience rated products 34.7 25.9 38.2
Supporting remaining products 28.5 22.6 28.6
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
Impairment reserves $1,308.3
________
________
Impairment reserves as
a percentage of total 28.8%
________
________
</TABLE>
<PAGE> 51
General Account Investments (Continued)
"Problem loans" are defined to be loans with payments over 60 days
past due, loans on properties in the process of foreclosure, loans
on properties involved in bankruptcy proceedings and loans on
properties subject to redemption. Loans on properties in the
process of foreclosure increased to $422 million at December 31,
1994 from $399 million at December 31, 1993.
<TABLE>
<CAPTION>
Problem, Potential Problem and Geographic Distribution of Problem,
Restructured Mortgage Loans by Potential Problem and Restructured
Property Type Mortgage Loans
12/31/94 12/31/94
__________________________________ ___________________________________
<S> <C> <C> <C>
Office 56.4% Pacific and Mountain 23.7%
Retail 13.7% New England 19.7%
Hotel/Motel 8.0% North Central 18.5%
Mixed Use 6.9% South Atlantic 16.7%
Industrial 5.8% Middle Atlantic 13.0%
Apartment 5.7% South Central 6.2%
Other 3.5% Non-U.S. 2.2%
</TABLE>
"Restructured loans" are loans whose original contract terms have
been modified to grant concessions to the borrower and are
currently performing pursuant to such modified terms.
Restructured mortgage loans at December 31, 1994 and 1993 yielded
cash returns of approximately 6%.
Restructured loans that have a market rate of interest at the time
of the restructure (which represents the interest rate the company
would charge for a new loan with comparable risk) and demonstrate
sustainable performance (as generally evidenced by six months of
pre- or post-restructuring payment performance in accordance with
the restructured terms) may be returned to performing status.
Candidates for such treatment are re-underwritten and must meet
specific guidelines which are intended to provide reasonable
assurance that the loan will perform in accordance with its
contract terms. These guidelines require (i) adequate debt
service coverage throughout the term of the loan, (ii) appropriate
loan-to-value ratios based upon collateral value at the time of
restructuring and projected at maturity of the loan, and (iii)
reasonable protection against capital expenditure risk associated
with lease rollovers. In addition, such restructured loans are
designed to enhance the company's security position in the
collateral, maximize borrower commitment to the property, and in
many cases, ensure the company's participation in any appreciation
of the property as market conditions improve.
Prior to restructuring, such loans are generally classified and
accounted for as problem loans. However, in certain cases, loans
may be classified as potential problem and restructured loans if
they are performing pursuant to their existing loan terms at the
time. Upon closing of the restructure, any uncollectible portion
of the loan is written off against the impairment reserve and the
remaining recorded investment in the loan is classified as
restructured until it is returned to performing status.
<PAGE> 52
General Account Investments (Continued)
During 1994, loans which had been restructured, with a carrying
value of $474 million (net of write-offs of $216 million) and with
an average current yield of 9% were classified as performing. The
amount of the write-off approximated the reserves related to these
loans; therefore, there was no material effect on the Consolidated
Statement of Income in 1994. Of the aforementioned loans, $136
million (net of write-offs of $58 million) supported experience
rated pension contracts and $185 million (net of write-offs of $96
million) supported discontinued products. In addition, of the
$474 million of restructured loans, approximately 91% had equity
participation features. No such restructures and transfers to
performing status occurred prior to 1994.
"Potential problem loans" are currently performing loans which
management believes are likely to become classified as problem or
restructured loans in the next 12 months or so. Such loans are
identified through the portfolio review process on the basis of
known information about the ability of borrowers to comply with
present loan 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 management believes 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.
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 problem and restructured
loans outstanding at December 31 and the portion thereof actually
recorded as income for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
____________________________________________________________________
<S> <C> <C> <C>
Income which would have been
recorded under original terms
of loans $ 149.2 $ 299.1 $ 312.6
Income recorded 72.6 149.9 168.1
_______ _______ _______
Lost investment income $ 76.6 $ 149.2 $ 144.5
_______ _______ _______
_______ _______ _______
Lost investment income allocated to
investments supporting discontinued
products (included above) $ 28.8 $ 73.8 $ 76.7
_______ _______ _______
_______ _______ _______
Lost investment income allocated to
investments supporting experience
rated pension contracts
(included above) $ 22.5 $ 41.7 $ 40.2
_______ _______ _______
_______ _______ _______
Lost investment income allocated to
investments supporting remaining
products (included above) $ 25.3 $ 33.7 $ 27.6
_______ _______ _______
_______ _______ _______
</TABLE>
<PAGE> 53
General Account Investments (Continued)
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) 1994 1993
________________________________________________________________________________________________
Specific General Specific General
Reserves Reserve Total Reserves Reserve Total
______________________________ _______________________________
<S> <C> <C> <C> <C> <C> <C>
Allocable to discontinued
products (1) $ 144.7 $ 227.4 $ 372.1 $ 406.0 $ 241.2 $ 647.2
Allocable to experience
rated products 156.1 * 156.1 268.5 * 268.5
Allocable to remaining products 133.3 122.6 255.9 233.8 158.8 392.6
________________________________________________________________
Total $ 434.1 $ 350.0 $ 784.1 $ 908.3 $ 400.0 $ 1,308.3
________________________________________________________________
________________________________________________________________
<FN>
(1) Please see " Large Case Pensions" on pages 19 and 20 for a discussion of anticipated
future capital losses on assets supporting discontinued products.
* The general reserve at December 31, 1994 and 1993 excluded reserves of $208.5 million
and $217.0 million, respectively, related to experience rated pension contracts. Had
such reserves been included, total reserves would have been $992.6 million and
$1,525.3 million at December 31, 1994 and 1993, respectively.
</TABLE>
For the years ended December 31, after-tax mortgage loan
impairment expense was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
_____________________________________________________________________
<S> <C> <C> <C>
Allocable to discontinued products $ 68.8 (1) $152.6 $142.6
Allocable to experience
rated products (2) 59.8 114.7 76.0
Allocable to remaining products 67.2 145.4 98.9
<FN>
(1) Impairment expense allocable to discontinued products for the year
ended December 31, 1994 was charged against the reserve for future
losses and did not affect the company's results of operations.
(2) Impairment expense allocable to experience rated products does not
affect the company's results of operations.
</TABLE>
The decrease in mortgage impairment expense in 1994 is largely
attributable to improvement in certain segments of the commercial
real estate markets, and the reduction in potential problem loans.
(Please see "Outlook" on page 57.)
<PAGE> 54
General Account Investments (Continued)
Real Estate
At December 31, 1994 and 1993, the company's equity real estate
balances, net of write-downs and reserves, were as follows:
<TABLE>
<CAPTION>
(Millions) December 31, 1994
________________________________________________________________________________________________
Investment Properties Total Equity
Real Estate Held for Sale Real Estate
___________ _____________ ____________
<S> <C> <C> <C>
Total $ 382.3 $1,163.4 (1) $1,545.7
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 23.8% 54.9%
Supporting experience rated products 8.3 21.6
Supporting remaining products 67.9 23.5
________ ________
100.0% 100.0%
________ ________
________ ________
December 31, 1993
_________________________________________________________
Investment Properties Total Equity
Real Estate Held for Sale Real Estate
___________ _____________ ____________
<S> <C> <C> <C>
Total $ 434.9 $ 880.9 $1,315.8
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 22.6% 49.5%
Supporting experience rated products 8.4 27.7
Supporting remaining products 69.0 22.8
________ ________
100.0% 100.0%
________ ________
________ ________
<FN>
(1) Includes $193.4 million of in-substance foreclosures. (Please see "Mortgage Loans"
on page 50 for discussion of in-substance foreclosures.)
</TABLE>
<TABLE>
<CAPTION>
Equity Real Estate Geographic Distribution of
by Property Type Equity Real Estate
12/31/94 12/31/94
________________________ ___________________________
<S> <C> <C> <C>
Office 52.5% South Atlantic 29.8%
Retail 18.4% Pacific and Mountain 20.8%
Hotel/Motel 9.4% North Central 12.3%
Apartment 7.1% South Central 10.3%
Industrial 4.6% New England 10.2%
Land 4.3% Non-U.S. 8.5%
Mixed Use 2.1% Middle Atlantic 8.1%
Other 1.6%
</TABLE>
All real estate acquired through foreclosure, including in-
substance foreclosures, is classified as held for sale. These
properties were carried at 60% and 52% of the company's cash
investment (unpaid mortgage balance plus capital additions) at
December 31, 1994 and 1993, respectively.
<PAGE> 55
General Account Investments (Continued)
Although all foreclosed real estate is classified as held for sale
and carried at the lower of cost or currently estimated fair value
less estimated selling costs, the company is managing its
foreclosed real estate with the objective of maximizing the total
return on the properties. To achieve this objective, management
intends to hold certain foreclosed real estate having an aggregate
value of approximately $500 million at December 31, 1994 for up to
four years. Management believes these properties present
opportunities to generate total returns, both in current cash flow
and expected increases in value, over their anticipated holding
period that are attractive compared to the expected total returns
from alternative investments possessing similar risk
characteristics.
Investment real estate, which is generally carried at depreciated
cost, is written down to fair value 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 acquisition, properties
classified as held for sale are carried at the lower of cost or
fair value less estimated selling costs. Adjustments to the
carrying value of properties held for sale resulting from changes
in fair value, are recorded in a valuation reserve. Property
valuations are reviewed regularly by investment management.
Capital additions and asset improvements increase the cost basis
of the asset while depreciation reduces the cost basis.
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) 1994 1993
_____________________________________________________________
<S> <C> <C>
Allocable to discontinued products $ 376.0 $ 298.3
Allocable to experience rated products 179.6 228.3
Allocable to remaining products 206.6 242.9
________ ________
Total $ 762.2 $ 769.5
________ ________
________ ________
</TABLE>
<PAGE> 56
General Account Investments (Continued)
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) 1994 1993 1992
_____________________________________________________________________
<S> <C> <C> <C>
Allocable to discontinued products $ 12.8 (1) $ 55.1 $ 22.8
Allocable to experience
rated products (2) 2.9 51.5 15.4
Allocable to remaining products (.8) 64.5 15.9
<FN>
(1) Write-downs and impairment expense allocable to discontinued products
for the year ended December 31, 1994 was charged against the reserve
for future losses and did not affect the company's results of operations.
(2) Write-downs and impairment expense allocable to experience rated
products do not affect the company's results of operations.
</TABLE>
Use of Derivatives and Other Investments
The company's hedging activity has been limited and has
principally consisted of using futures, forward contracts and
interest rate swaps to hedge interest rate risk and currency risk.
These instruments subject the company to varying degrees of market
and credit risk. Market risk is the risk that future changes in
market prices may decrease the market value of one or all of these
financial instruments. Credit risk arises from the potential
inability of counterparties to perform under the terms of the
contracts. Management does not believe that the current level of
hedging activity will have a material effect on the company's
liquidity or results of operations. (Please see Note 18 of Notes
to Financial Statements for a discussion of the company's hedging
activities.)
<PAGE> 57
General Account Investments (Continued)
The company also had investments in certain debt instruments with
derivative characteristics, including those where market value is
at least partially determined by, among other things, levels of or
changes in domestic and/or foreign interest rates (short term or
long term), exchange rates, prepayment rates, equity markets or
credit ratings/spreads. The amortized cost and fair value of
these securities, included in the $37.1 billion debt securities
portfolio, as of December 31, 1994 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
_____________________________________________________________________________
<S> <C> <C>
Collateralized mortgage obligations:............ $ 3,562.7 $ 3,369.5
Interest-only strips (included above)......... 21.1 38.7
Principal-only strips (included above)........ 56.0 61.3
Treasury and agency strips:
Principal..................................... 1,144.0 977.6
Interest...................................... 104.2 90.2
Structured notes (1)............................ 45.0 36.6
Warrants to purchase debt securities (2)........ 9.4 3.9
Mandatorily convertible preferred stock......... 12.1 11.6
<FN>
(1) Includes instruments whose fair value is based on (and potentially magnified,
positively or negatively, by) changes in LIBOR or the U.S. Dollar/Japanese Yen
exchange rates.
(2) Represents the right to purchase specific debt securities and is accounted
for as a hedge. Upon exercise, the cost of the warrants will be added to the
basis of the debt securities purchased and amortized over their lives.
</TABLE>
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
59.) The company has reduced the mortgage loan and equity real
estate portfolios, after reserves and write-downs, by $10.8
billion since the end of 1990, bringing mortgage loans and real
estate as a percentage of general account invested assets from 40%
in 1990 to 25% at December 31, 1994. It is management's objective
over the next several years, real estate and capital market
conditions permitting, to continue to reduce the size and the risk
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 pursue plans to reduce risk,
maximize returns and reduce portfolio levels by pursuing payoffs
at maturity, loan restructurings and sales of foreclosed real
estate.
Management is seeing improvement in certain segments of the
commercial real estate market. While additional losses may emerge
in the company's mortgage loan and real estate portfolios, and may
increase to the extent recovery in this market is delayed,
management believes that the improvement in this market will
favorably impact real estate values.
The reserve for discontinued products reflects all anticipated
future losses on discontinued products, including capital losses
relating to the $5.0 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 be greater
than anticipated and thus materially impact such results. (Please
see "Discontinued Products" on page 19.)
<PAGE> 58
Liquidity and Capital Resources
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________
<S> <C> <C> <C>
Consolidated Assets $ 94,172.5 $100,036.7 $ 94,519.6
___________________________________________________________________
____________________________________
Shareholders' Equity $ 5,503.0 $ 7,043.1 $ 7,238.3
___________________________________________________________________
____________________________________
Cash and Cash Equivalents
and Short-Term Investments $ 3,404.0 $ 2,227.7 $ 3,925.8
___________________________________________________________________
____________________________________
Minority Interest in Preferred
Securities of Subsidiary $ 275.0 $ - $ -
___________________________________________________________________
____________________________________
Long-Term Debt $ 1,114.7 $ 1,160.0 $ 955.6
___________________________________________________________________
____________________________________
Average Short-Term Debt $ 219.8 $ 215.6 $ 273.1
___________________________________________________________________
____________________________________
Interest Expense $ 98.6 $ 77.4 $ 87.1
___________________________________________________________________
____________________________________
</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 see "Large Case Pensions" on pages 15 through 18 for a
discussion of the liquidity requirements specific to the large
case pension business. The following discussion addresses the
sources of liquidity available to meet the 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.
As the company's investment strategy focuses on matching asset and
liability durations, and not specific cash flows, and
additionally, since these duration assessments are dependent on
numerous cash flow assumptions, asset sales may be required, from
time to time, to satisfy liability obligations and/or rebalance
asset portfolios. The investment portfolios are closely monitored
to assess asset and liability matching in order to rebalance the
portfolios as conditions warrant.
<PAGE> 59
Liquidity and Capital Resources (Continued)
The company's invested assets at December 31, 1994 totaled $54.3
billion and consisted primarily of debt securities ($37.1
billion), mortgage loan and real estate investments ($13.4
billion), short-term investments ($.5 billion) and equity
securities ($1.7 billion). (Please see "General Account
Investments" on page 43.) The company also held substantial cash
and cash equivalents at December 31, 1994. (Please see "Factors
Affecting Cash Flow" on page 61.)
Given the high quality of the debt securities portfolio,
management expects the vast majority of the company's investments
in debt securities to be repaid in accordance with contractual
terms. At December 31, 1994, the scheduled principal repayments
of investments in debt securities company-wide (excluding
mortgage-backed securities of $6.7 billion) are $1.8 billion in
1995, $12.2 billion in the years 1996 through 2000, and $16.4
billion in the aggregate in the years after 2000. Mortgage-backed
securities included in the debt securities portfolio are generally
collateralized by residential mortgage loans on which the timely
payment of principal and interest is backed by specified
government agencies. (Please see "Debt Securities" on page 45.)
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.
Substantially all of the commercial mortgage loan portfolio
consists of loans with balloon maturity features. (Please see
"Mortgage Loans" on page 48.) As a result of adverse conditions
in real estate markets and tight lending practices by banks and
other financial institutions over the past several years, 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 $2.0
billion of mortgage loans scheduled to mature during 1994, $1.2
billion was not paid as scheduled, a substantial portion of which
supported large case pension liabilities. Of the loans not paid
as scheduled, $386 million were extended at interest rates at
least equal to current market (average rate of 9% over an average
extension period of 5 years), $773 million were under forbearance
(continuing to make payments under original loan terms) or under
discussion with borrowers at December 31, 1994 and $37 million
were foreclosed upon. Of the $773 million of loans under
forbearance or under discussion with borrowers, $164 million were
classified as problem or restructured loans at December 31, 1994.
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.
Despite various indications that liquidity is returning to certain
real estate markets, the company expects it will continue to
extend or refinance certain maturing loans in the portfolio.
However, the aggregate of normal principal amortization payments
on traditional loans, payments at maturity on loans that paid off
on schedule and prepayments (in whole or in part) on other loans,
produced substantial cash flow in 1994. Prepayments on mortgage
loans were $1.1 billion in 1994.
<PAGE> 60
Liquidity and Capital Resources (Continued)
At December 31, 1994, scheduled mortgage loan principal repayments
were as follows (in millions):
<TABLE>
<CAPTION>
<S> <C> <C>
1995 $1,765.1
1996 1,555.5
1997 1,507.7
1998 994.7
1999 1,607.3
Thereafter 5,197.4
</TABLE>
Consolidated Cash Flows
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________
<S> <C> <C> <C>
Net cash provided by (used for)
operating activities $ 254.1 $ (1,187.2) $ (578.1)
___________________________________________________________________________
______________________________________
Net cash provided by
investing activities $ 2,758.7 $ 796.7 $ 2,203.0
___________________________________________________________________________
______________________________________
Net cash used for
financing activities $ (1,613.0) $ (455.2) $ (2,110.5)
___________________________________________________________________________
______________________________________
Cash and cash equivalents $ 2,953.6 $ 1,557.8 $ 2,415.0
___________________________________________________________________________
______________________________________
</TABLE>
The company's cash flow requirements for 1994 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 1994 net cash of
$254 million was provided by operating activities. Net cash of
$1,187 million used for operating activities during 1993 included
$2,089 million used for net purchases of debt trading securities.
Net cash provided by investing activities was $2,759 million in
1994 and included $2,710 million from net sales, as well as
maturities and repayments of, mortgage loans and real estate. Net
cash provided by investing activities of $797 million in 1993
included a decrease of $674 million 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 American
Re-Insurance Company ("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 1994, 1993 and
1992 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. (Please see "Debt and Short-Term Borrowing" on page
62.)
<PAGE> 61
Liquidity and Capital Resources (Continued)
Factors Affecting Cash Flow
Cash flow may be influenced by general economic conditions,
including general interest rate levels, investment returns,
competition for business, and the perceived financial strength of
the company. 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, lower debt and
commercial paper ratings may adversely affect the availability and
cost of certain external funding sources.
During 1994, ratings of Aetna Life and Casualty Company and
certain of its subsidiaries were lowered by certain of the rating
agencies. Aetna's ratings at February 8, 1994 and at February 7,
1995 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 8, 1994 * AA- A1 AA-
February 7, 1995 * A+ *** A2 A+ ***
Aetna Life and Casualty Company
(commercial paper)
February 8, 1994 * Duff 1+ P-1 A-1+
February 7, 1995 * Duff 1 P-1 A-1 ***
Aetna Life Insurance Company
(claims paying)
February 8, 1994 A AA Aa3 A+
February 7, 1995 A AA **** Aa3 A+ ***
The Aetna Casualty and Surety Company
(claims paying)
February 8, 1994 A AA Aa2 AA-
February 7, 1995 A- AA- *** A1 A+ ***
Aetna Casualty and Surety Company of America
(claims paying)
February 8, 1994 ** ** ** **
February 7, 1995 A ** ** **
Aetna Life Insurance and Annuity Company
(claims paying)
February 8, 1994 A++ AAA Aa2 AAA
February 7, 1995 A++ AA+ *** Aa2 AA ***
<FN>
* Not rated by the agency.
** Not rated on a separate company basis.
*** Placed on credit watch or rating watch-down subsequent to February 7, 1995.
**** On rating watch-down.
</TABLE>
<PAGE> 62
Liquidity and Capital Resources (Continued)
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 or meet capital needs of the company's businesses
with cash and/or other assets. Such parent company cash flow
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 the parent
company's capital and liquidity needs including, but not limited
to, debt issuance, preferred stock issuance, intercompany
borrowings and pledging or selling of assets. Efforts to
simultaneously grow certain of the company's businesses to their
full potential and meet capital requirements of other businesses
may require significant future capital.
The company has significant short-term liquidity supporting its
businesses. At year-end 1994, cash and cash equivalents were $3.0
billion and short-term securities were $.5 billion. 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 or other assets,
borrowing among affiliates and using external borrowing or other
capital-raising capacity.
The company has substantial external borrowing capacity. In July
1994, the company entered into two committed bank lines of $500
million each with a group of worldwide banks. One $500 million
facility terminates in July 1995 and the other $500 million
facility terminates in July 1999. The company intends to obtain
an extension of the facility that terminates in July 1995. The
facilities replaced the company's $800 million revolving credit
facility which expired in July 1994. (Please see Note 9 of Notes
to Financial Statements.)
Minority Interest in Preferred Securities of Subsidiary
On November 22, 1994, Aetna Capital L.L.C. ("ACLLC"), a subsidiary
of the company, issued $275 million (11,000,000 shares) of 9 1/2%
cumulative monthly income preferred securities. ACLLC loaned the
proceeds from the preferred stock issuance to the company. The
company used the proceeds of the loan for general corporate
purposes. (Please see Note 11 of Notes to Financial Statements.)
Debt and Short-Term Borrowing
Long-term debt at December 31, 1994 was $1.1 billion, of which $63
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.
<PAGE> 63
Liquidity and Capital Resources (Continued)
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, the company may offer and
sell up to an additional $550 million of various types of
securities, and ACLLC may offer and sell up to an additional $225
million of preferred securities.
Short-term borrowing through 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
In 1994, 1993 and 1992, the company did not acquire any shares of
its common stock.
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 million on the sale, as well as $37
million of tax benefits from cumulative operating losses of the
subsidiary not previously tax benefited.
On September 30, 1992, the company completed the sale of Am Re,
formerly a wholly owned subsidiary. The company realized a gain
on the sale in 1992 of $38 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) Preferred Stock, which were redeemed in the first quarter
of 1993 resulting in an after-tax gain of $27 million.
Dividend Restrictions
Because Aetna Life and Casualty Company is a Connecticut insurance
company, the amount of dividends that it may pay to shareholders
in 1995 without prior approval by the Insurance Commissioner of
the State of Connecticut is $399 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 1995 to approximately $608
million in the aggregate.
<PAGE> 64
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. The National Association of
Insurance Commissioners ("NAIC") has adopted risk-based capital
("RBC") standards for both life and property-casualty insurers.
The RBC formula is a regulatory tool designed to identify weakly
capitalized companies by comparing the adjusted surplus to the
required surplus, which reflects the risk profile of the company
(RBC ratio). Within certain ratio ranges, regulators have
increasing authority to take action as the RBC ratio decreases.
There are four levels of regulatory action ranging from requiring
insurers to submit a comprehensive plan (an RBC plan) to the state
insurance commissioner to when the state insurance commissioner
places the insurer under regulatory control. The RBC ratio for
each of the company's primary insurance subsidiaries as measured
at December 31, 1994 was significantly above the levels which
would require regulatory action. Rating agencies also use their
own risk-based capital standards as part of determining a
company's rating.
Among other things, risk-based capital standards can have the
effect that as a company's liabilities increase, additional
capital (determined by a formula) may be required if a company
wants to maintain risk-based capital at its previous level for
regulatory and rating agency purposes. As a result, significant
future increases in liabilities (including reserves) of the
company or its insurance subsidiaries may require significant
future capital additions.
The NAIC also is considering several other solvency related
regulations including risk-based capital standards for HMOs and
the development of a model investment law and amendments to the
model insurance holding company law which would limit types and
amounts 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.
<PAGE> 65
Regulatory Environment (Continued)
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, in a case involving an employee benefit plan and
an insurance company, the United States Supreme 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 to the plan were "plan assets" for purposes of
ERISA and that the insurance company was 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 suggested that insurance company general account
assets were not plan 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
The Financial Accounting Standards Board (FASB)issued FAS No. 114,
Accounting by Creditors for Impairment of a Loan, in 1993. 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. In October 1994, the FASB issued
FAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, which amends FAS No. 114 to
allow a creditor to use existing methods for recognizing income on
impaired loans. The company will adopt these standards effective
January 1, 1995 and there is not expected to be a material impact
on net income.
<PAGE> 66
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 LLP 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 LLP appears on page 113.
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 LLP to
oversee and monitor 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> 67
Consolidated Statements of Income
For the years ended December 31,
<TABLE>
<CAPTION>
(Millions, except per share data) 1994 1993 1992
________________________________________________________________________________________________
<S> <C> <C> <C>
Revenue:
Premiums $ 11,292.1 $ 10,574.9 $ 10,793.9
Net investment income 4,463.5 4,919.0 5,069.0
Fees and other income 1,823.9 1,620.0 1,620.6
Net realized capital gains (losses) (54.8) 89.8 114.9
______________________________________________
Total revenue 17,524.7 17,203.7 17,598.4
________________________________________________________________________________________________
Benefits and Expenses:
Current and future benefits 12,397.1 12,391.9 12,848.9
Operating expenses 3,719.3 3,644.8 3,925.7
Amortization of deferred policy
acquisition costs 750.0 736.4 800.2
Loss on discontinuance of products - 1,270.0 -
Severance and facilities charge - 308.0 145.0
______________________________________________
Total benefits and expenses 16,866.4 18,351.1 17,719.8
________________________________________________________________________________________________
Income (Loss) from continuing operations
before income taxes, extraordinary item
and cumulative effect adjustments 658.3 (1,147.4) (121.4)
Income taxes (benefits) 190.8 (532.1) (116.1)
______________________________________________
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments 467.5 (615.3) (5.3)
Discontinued operations, net of tax:
Income from operations - - 86.8
Gain on sale - 27.0 38.1
Cumulative effect adjustments - - 48.9
______________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments 467.5 (588.3) 168.5
Extraordinary loss on debenture redemption,
net of tax - (4.7) -
Cumulative effect adjustments, net of tax - 227.1 (112.5)
______________________________________________
Net income (loss) $ 467.5 $ (365.9) $ 56.0
______________________________________________
______________________________________________
Pro forma amounts assuming the discounting
of workers' compensation life table
indemnity reserves is applied retroactively:
Income (Loss) from continuing operations $ 467.5 $ (615.3) $ (3.4)
______________________________________________
______________________________________________
Net income (loss) $ 467.5 $ (615.9) $ 57.9
______________________________________________
______________________________________________
Pro forma amounts assuming the accounting for
retrospectively rated reinsurance contracts
is applied retroactively:
Income (Loss) from continuing operations $ 467.5 $ (615.3) $ (26.7)
______________________________________________
______________________________________________
Net income (loss) $ 467.5 $ (392.2) $ 34.6
________________________________________________________________________________________________
______________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 68
Consolidated Statements of Income (Continued)
For the years ended December 31,
<TABLE>
<CAPTION>
(Millions, except per share data) 1994 1993 1992
_____________________________________________________________________________________________
<S> <C> <C> <C>
Results Per Common Share:
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments $ 4.14 $ (5.54) $ (.05)
Discontinued operations, net of tax:
Income from operations - - .79
Gain on sale - .24 .35
Cumulative effect adjustments - - .44
___________________________________________
Income (Loss) before extraordinary item
and cumulative effect adjustments 4.14 (5.30) 1.53
Extraordinary loss on debenture redemption,
net of tax - (.04) -
Cumulative effect adjustments, net of tax - 2.05 (1.02)
___________________________________________
Net income (loss) $ 4.14 $ (3.29) $ .51
___________________________________________
___________________________________________
Pro forma amounts assuming the discounting
of workers' compensation life table
indemnity reserves is applied retroactively:
Income (Loss) from continuing operations $ 4.14 $ (5.54) $ (.03)
___________________________________________
___________________________________________
Net income (loss) $ 4.14 $ (5.55) $ .53
___________________________________________
___________________________________________
Pro forma amounts assuming the accounting
for retrospectively rated reinsurance
contracts is applied retroactively:
Income (Loss) from continuing operations $ 4.14 $ (5.54) $ (.25)
___________________________________________
___________________________________________
Net income (loss) $ 4.14 $ (3.53) $ .31
_____________________________________________________________________________________________
___________________________________________
Weighted average common shares outstanding 112,848,653 111,062,954 110,101,861
_____________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 69
Consolidated Balance Sheets
As of December 31,
<TABLE>
<CAPTION>
(Millions, except share data) 1994 1993
__________________________________________________________________________________
<S> <C> <C>
Assets:
Investments:
Debt securities:
Held for investment, at amortized cost
(fair value $1,991.2 and $2,704.2) $ 2,000.8 $ 2,557.8
Available for sale, at fair value
(amortized cost $36,984.2 and $36,933.6) 35,110.7 38,868.9
Trading securities, at fair value
(1993 amortized cost, $119.0) - 117.8
Equity securities, at fair value (cost $1,326.9
and $1,238.1) 1,655.6 1,658.9
Short-term investments 450.4 669.9
Mortgage loans 11,843.6 14,839.2
Real estate 1,545.7 1,315.8
Policy loans 533.8 490.7
Other 1,152.7 936.8
____________________________
Total investments 54,293.3 61,455.8
__________________________________________________________________________________
Cash and cash equivalents 2,953.6 1,557.8
Reinsurance recoverables and receivables 5,011.0 4,840.7
Accrued investment income 777.2 782.6
Premiums due and other receivables 1,722.9 1,664.9
Federal and foreign income taxes:
Current 18.3 124.0
Deferred 1,266.7 1,282.9
Deferred policy acquisition costs 2,014.7 1,867.0
Other assets 1,992.2 1,756.3
Separate Accounts assets 24,122.6 24,704.7
____________________________
Total assets $ 94,172.5 $ 100,036.7
__________________________________________________________________________________
__________________________________________________________________________________
Liabilities:
Future policy benefits $ 17,979.2 $ 17,597.6
Unpaid claims and claim expenses 17,478.3 17,112.2
Unearned premiums 1,604.9 1,502.2
Policyholders' funds left with the company 23,223.1 27,592.2
____________________________
Total insurance liabilities 60,285.5 63,804.2
Dividends payable to shareholders 77.7 77.4
Short-term debt 23.9 35.7
Long-term debt 1,114.7 1,160.0
Other liabilities 2,718.6 3,162.1
Participating policyholders'
interests 170.5 172.5
Separate Accounts liabilities 24,003.6 24,581.7
____________________________
Total liabilities 88,394.5 92,993.6
__________________________________________________________________________________
Minority interest in preferred securities
of subsidiary 275.0 -
__________________________________________________________________________________
Commitments and Contingent Liabilities
(Notes 17, 18 and 19)
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
112,657,758 and 112,200,567 outstanding) 1,419.2 1,422.0
Net unrealized capital gains (losses) (1,071.5) 648.2
Retained earnings 5,259.6 5,103.3
Treasury stock, at cost (2,281,517 and
2,738,708 shares) (104.3) (130.4)
____________________________
Total shareholders' equity 5,503.0 7,043.1
__________________________________________________________________________________
Total liabilities, minority interest and
shareholders' equity $ 94,172.5 $ 100,036.7
__________________________________________________________________________________
__________________________________________________________________________________
Shareholders' equity per common share $ 48.85 $ 62.77
__________________________________________________________________________________
__________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 70
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Three Years Ended December 31, 1994 Common Capital Retained Treasury
(Millions, except share data) Total Stock Gains (Losses) Earnings Stock
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
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)
______________________________________________________________________________________________________
Net income 467.5 467.5
Net change in unrealized capital
gains and losses (1,719.7) (1,719.7)
Common stock issued for benefit plans
(457,191 shares) 26.1 26.1
Loss on issuance of treasury stock (2.8) (2.8)
Common stock dividends declared (311.2) (311.2)
_____________________________________________________________
Balances at December 31, 1994 $ 5,503.0 $ 1,419.2 $(1,071.5) $ 5,259.6 $ (104.3)
______________________________________________________________________________________________________
______________________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 71
Consolidated Statements of Cash Flows
For the years ended December 31,
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
_____________________________________________________________________________________________________
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 467.5 $ (365.9) $ 56.0
Adjustments to reconcile net income (loss) to
net cash provided by (used for)
operating activities:
Cumulative effect adjustments - (227.1) 112.5
Extraordinary loss on debenture
redemption - 4.7 -
Discontinued operations - - (135.7)
(Increase) decrease in accrued
investment income (.6) (17.9) 51.4
(Increase) decrease in premiums due and other
receivables (86.0) 1.3 765.4
Increase in reinsurance recoverables
and receivables (155.2) (225.8) (4,619.3)
Increase in deferred policy acquisition costs (187.7) (169.2) (71.4)
Depreciation and amortization 190.1 199.4 205.6
Increase (decrease) in federal and foreign income taxes 124.8 (387.7) (128.0)
Net decrease (increase) in other assets and
other liabilities (506.6) 860.7 (256.7)
Increase in other insurance liabilities 459.5 1,634.1 4,871.5
Net sales (purchases) of debt trading securities 52.3 (2,089.1) (1,222.6)
Gain on sale of subsidiaries - (15.0) (38.1)
Net realized capital (gains) losses 54.8 (101.8) (114.9)
Amortization of net investment discounts (91.4) (153.1) (150.1)
Other, net (67.4) (134.8) 96.3
__________________________________________
Net cash provided by (used for)
operating activities 254.1 (1,187.2) (578.1)
__________________________________________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 19,011.9 - -
Debt securities held for investment 5.6 - -
Debt securities, prior to adoption of FAS No. 115 - 6,300.9 3,862.1
Equity securities 675.9 929.9 836.7
Mortgage loans 195.2 211.9 82.6
Real estate 612.9 479.4 244.5
Short-term investments 59,375.3 65,500.1 94,739.4
Investment maturities and repayments of:
Debt securities available for sale 3,424.6 - -
Debt securities held for investment 853.4 - -
Debt securities, prior to adoption of FAS No. 115 - 5,804.6 6,089.9
Mortgage loans 2,218.9 2,488.7 1,893.6
Cost of investment purchases in:
Debt securities available for sale (22,437.3) - -
Debt securities held for investment (350.3) - -
Debt securities, prior to adoption of FAS No. 115 - (13,936.0) (9,637.3)
Equity securities (774.1) (1,025.4) (879.8)
Mortgage loans (257.6) (239.1) (417.3)
Real estate (59.1) (91.4) (103.5)
Short-term investments (59,222.1) (64,825.7) (95,432.4)
Proceeds from disposal of subsidiaries - 93.1 1,325.5
Increase in property and equipment (135.3) (148.4) (198.9)
Other, net (379.2) (745.9) (202.1)
__________________________________________
Net cash provided by investing activities 2,758.7 796.7 2,203.0
__________________________________________
Cash Flows from Financing Activities:
Deposits and interest credited for
investment contracts 3,063.7 3,909.5 4,134.6
Withdrawals of investment contracts (4,609.1) (4,358.3) (5,903.9)
Issuance of long-term debt 62.5 689.6 8.2
Repayment of long-term debt (104.1) (489.8) (73.2)
Issuance of preferred securities by
subsidiary 275.0 - -
Stock issued under benefit plans 23.3 90.8 8.2
Net (decrease) increase in short-term debt (13.1) 11.7 19.7
Dividends paid to shareholders (311.2) (308.7) (304.1)
__________________________________________
Net cash used for
financing activities (1,613.0) (455.2) (2,110.5)
_____________________________________________________________________________________________________
Effect of exchange rate changes on cash
and cash equivalents (4.0) (11.5) (18.9)
_____________________________________________________________________________________________________
Net increase (decrease) in cash
and cash equivalents 1,395.8 (857.2) (504.5)
Cash and cash equivalents, beginning of year 1,557.8 2,415.0 2,919.5
__________________________________________
Cash and cash equivalents, end of year $ 2,953.6 $ 1,557.8 $ 2,415.0
_____________________________________________________________________________________________________
_____________________________________________________________________________________________________
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE> 72
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 1993 and
1992 financial information to conform to 1994 presentation.
Accounting Changes
Offsetting of Amounts Related to Certain Contracts
Under certain insurance contracts with deductible features, the
company is obligated to pay the claimant for the full amount of a
claim. The company is subsequently reimbursed from the
policyholder for the deductible. Prior to 1994, unpaid claim
reserves were reported net of such deductibles. In 1994, the
company implemented Financial Accounting Standards Board ("FASB")
Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts, which requires that unpaid claims under certain
insurance contracts be reported on a gross basis. Deductible
amounts recoverable from policyholders of $352 million are
included in other assets at December 31, 1994, as a result of
implementing FASB Interpretation No. 39. The Consolidated Balance
Sheet as of December 31, 1993 has not been restated for this
change.
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 in 1993 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 as of December 31, 1993.
These amounts exclude gains and losses allocable to discontinued
products and experienced rated contractholders. Adoption of FAS
No. 115 did not have a material effect 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. Adoption of the
income recognition provisions of FAS No. 113 had no impact on the
1993 net loss.
<PAGE> 73
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
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.
Discounting of Workers' Compensation Life Table Indemnity Reserves
In 1993, the company 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 better 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).
Additionally, it is consistent with the practice of the company's
principal competitors and is permitted by state regulatory
authorities. 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 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.
<PAGE> 74
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Accounting for Retrospectively Rated Reinsurance Contracts
In 1993, the company changed its method of accounting for
retrospectively rated reinsurance contracts to conform to the
consensus reached by the Emerging Issues Task Force of the FASB.
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 the year ended December 31, 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.
Accounting for Income Taxes
The company adopted FAS No. 109, Accounting for Income Taxes, 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, required 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.
<PAGE> 75
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Future Application of Accounting Standards
Accounting by Creditors for Impairment of a Loan
The FASB issued FAS No. 114, Accounting by Creditors for
Impairment of a Loan, in 1993. 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. In October
1994, the FASB issued FAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures, which
amends FAS No. 114 to allow a creditor to use existing methods for
recognizing income on impaired loans. The company will adopt these
standards effective January 1, 1995 and there is not expected to
be a material impact on net income.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market
instruments and other debt issues with a maturity of 90 days or
less when purchased.
Investments
The company classifies investments in debt securities (including
redeemable preferred stocks) in three categories: held for
investment, available for sale and trading.
Debt securities which the company has the positive intent and
ability to hold to maturity are classified as held for investment
and are carried at amortized cost, net of write-downs for other
than temporary declines in value.
Debt securities which might be sold prior to maturity are
classified as available for sale and carried at fair value.
Available for sale debt securities are written down (as realized
losses) for other than temporary declines in value. Unrealized
gains and losses related to available for sale investments, after
deducting amounts allocable to experience rated contractholders,
discontinued products and related taxes, are reflected in
shareholders' equity.
<PAGE> 76
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
Debt securities which are held with the objective of trading to
generate profits on short-term differences in price ("trading
securities") are carried at fair value. Subsequent to adoption of
FAS No. 115, changes in fair value related to the trading
portfolio, after deducting amounts allocable to experience rated
contractholders and discontinued products, are reflected in net
realized capital gains in the Consolidated Statements of Income.
Equity securities are classified as available for sale and carried
at fair value. Equity securities are written down (as realized
losses) for other than temporary declines in value. Unrealized
gains and losses related to such securities, after deducting
amounts allocable to experience rated contractholders and net of
related taxes, are reflected in shareholders' equity.
Fair values for debt and equity securities are based on quoted
market prices or dealer quotations. Where quoted market prices or
dealer quotations are not available, fair values are 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.
Mortgage loans and policy loans are carried at unpaid principal
balances, net of valuation reserves, and are generally secured.
Valuation reserves for mortgage loans are established based on the
fair value of the collateral for impairments considered probable
of having been incurred, including those that management believes
are likely to arise from the overall portfolio. 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 write-downs 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 estimated selling costs.
Adjustments to the carrying value of properties held for sale are
recorded in a valuation reserve when the fair value less estimated
selling costs is below depreciated cost. The accumulated
depreciation for real estate was $121.5 million and $166.9 million
at December 31, 1994 and 1993, respectively.
Short-term investments, consisting primarily of money market
instruments and other debt issues purchased with a maturity of
91 days to one year, are considered available for sale and are
carried at fair value, which approximates amortized cost.
<PAGE> 77
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
The company utilizes foreign exchange forward contracts, 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.
(Please refer to Note 18.) Realized and unrealized gains and
losses from forward contracts hedging foreign translation
exposures are reflected, net of tax, in shareholders' equity.
Realized and unrealized gains and losses from forward contracts
hedging foreign transaction exposures are reflected in the
Consolidated Statements of Income.
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.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are 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 and pension
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.
<PAGE> 78
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
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, 1994 and 1993 was $668.1 million and $697.3 million,
respectively, and was net of accumulated depreciation of $859.9
million and $833.1 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 $148.8 million and $178.6 million at December 31, 1994
and 1993, respectively.
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 generally 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 Liabilities
Liabilities for unpaid property-casualty claims and claim expenses
include, to the extent reasonably estimable, provisions for
payments to be made on reported losses, and losses incurred but
not reported and for associated claim adjustment expenses. (Please
refer to Note 17.) Workers' compensation life table indemnity
reserves are discounted at 5% for voluntary business and 3.5% for
involuntary business, with mortality assumptions which reflect
current company and industry experience. Workers' compensation
life table indemnity reserves totaled $768 million and $926
million at December 31, 1994 and 1993, respectively, which were
22% and 26% of the company's total workers' compensation reserves
for unpaid claims and claim adjustment expenses at December 31,
1994 and 1993, respectively.
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.
<PAGE> 79
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Insurance Liabilities (Continued)
Reserve interest rates range from 2.25% to 10.50%. 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 17.74%) 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.
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 in the Consolidated Statements of 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 over the term of the coverage. Some group contracts allow
for premiums to be adjusted to reflect emerging experience. Such
premiums are recognized as the related experience emerges. Fees
for contracts providing claim processing service only are recorded
over the period the service is provided and are reflected 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 and non-life net operating losses.
<PAGE> 80
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Earnings Per Share
Earnings per common share are computed using net income divided by
the weighted average number of common shares outstanding,
including common share equivalents. There is not a significant
difference between primary and fully diluted earnings per share.
2. Discontinued Products
As of December 31, 1993, the company discontinued its fully
guaranteed large case pension products, which include guaranteed
investment contracts ("GICs") and single-premium annuities
("SPAs"). As a result, the company recognized an after-tax loss on
discontinuance of products of $825 million which is reflected in
the 1993 Consolidated Statement of Income and a related reserve of
$1,270 million at December 31, 1993. Losses on discontinued
products for the year ended December 31, 1994 were charged to the
reserve and did not affect the company's results of operations.
Results of discontinued products included in the Consolidated
Statement of Income for the year ended December 31, 1994, were as
follows:
<TABLE>
<CAPTION>
Guaranteed Single- Charged to
Investment Premium Reserve for
(Millions) Contracts Annuities Total Future Losses Net*
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Premiums $ - $ 57.3 $ 57.3 $ - $ 57.3
Net investment income 633.1 433.0 1,066.1 - 1,066.1
Net realized capital losses (150.2) (58.8) (209.0) 209.0 -
Interest earned on receivable from
continuing business 19.4 28.1 47.5 - 47.5
Other income 14.9 16.2 31.1 - 31.1
____________________________________________________________________
Total revenue 517.2 475.8 993.0 209.0 1,202.0
____________________________________________________________________
Current and future benefits 765.5 491.4 1,256.9 (64.0) 1,192.9
Operating expenses 6.1 3.0 9.1 - 9.1
____________________________________________________________________
Total benefits and expenses 771.6 494.4 1,266.0 (64.0) 1,202.0
____________________________________________________________________
Results of discontinued products $ (254.4) $ (18.6) $ (273.0) $ 273.0 $ -
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
<FN>
* Amounts are reflected in the 1994 Consolidated Statement of Income, except for interest of
$47.5 million earned on the receivable from continuing business which is eliminated in consolidation.
</TABLE>
Deposits of $212.3 million were received during 1994 under pre-
existing GIC contracts. In accordance with FAS No. 97, such
deposits are not included in premiums or revenue.
<PAGE> 81
Notes to Financial Statements (Continued)
2. Discontinued Products (Continued)
Assets and liabilities of discontinued products included in the
Consolidated Balance Sheet at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
____________________________________________________________________________
Guaranteed Single- Guaranteed Single-
Investment Premium Investment Premium
(Millions) Contracts Annuities Total Contracts Annuities Total
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Debt securities
available for sale $ 2,978.5 $ 3,176.5 $ 6,155.0 $ 4,690.9 $ 3,578.1 $ 8,269.0
Mortgage loans 2,749.6 1,545.3 4,294.9 3,468.2 1,950.9 5,419.1
Real estate 555.0 175.0 730.0 534.5 - 534.5
Short-term and other
investments 587.4 138.0 725.4 399.7 72.8 472.5
___________________________________________________________________________
Total investments 6,870.5 5,034.8 11,905.3 9,093.3 5,601.8 14,695.1
Current and deferred
income taxes 218.8 115.4 334.2 309.2 184.6 493.8
Receivable from continuing
business 409.4 463.1 872.5 390.0 435.0 825.0
Other 90.7 92.9 183.6 7.6 1.3 8.9
___________________________________________________________________________
Total Assets $ 7,589.4 $ 5,706.2 $13,295.6 $ 9,800.1 $ 6,222.7 $16,022.8
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
Future policy benefits $ - $ 5,032.6 $ 5,032.6 $ - $ 5,079.1 $ 5,079.1
Policyholders' funds left
with the company 7,224.4 - 7,224.4 8,976.6 - 8,976.6
Reserve for future losses
on discontinued products 345.6 651.4 997.0 600.0 670.0 1,270.0
Other 19.4 22.2 41.6 223.5 473.6 697.1
_________________________________________________________________________________________________________
Total Liabilities $ 7,589.4 $ 5,706.2 $13,295.6 $ 9,800.1 $ 6,222.7 $16,022.8
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
</TABLE>
Net unrealized capital losses in 1994 and gains in 1993 on
available for sale debt securities are included above in other
assets and other liabilities, respectively, and are not reflected
in consolidated shareholders' equity. The reserve for anticipated
future losses on GICs is included in policyholders' funds left
with the company, and the reserve for anticipated future losses on
SPAs is included in future policy benefits on the Consolidated
Balance Sheets.
<PAGE> 82
Notes to Financial Statements (Continued)
2. Discontinued Products (Continued)
The reserve for anticipated future losses on discontinued products
represents 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
reserve for anticipated future losses on discontinued products
required projection of both the amount and the timing of cash
flows over approximately the next 30 years, including
consideration of, among other things, future investment results,
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. Projections of future investment results took
into account both industry and company data and were based on
performance of mortgage loan and real estate assets, projections
regarding certain levels of future defaults and prepayments, and
assumptions regarding future real estate market conditions, which
assumptions management believes are reasonable. Management
continues to believe that the reserve for anticipated future
losses will be adequate to provide for the future losses
associated with the runoff of the liabilities.
At December 31, 1994 and 1993, estimated future after-tax realized
capital losses of approximately $127 million and $190 million
($196 million and $292 million, pretax), respectively,
attributable to mortgage loans and real estate supporting GICs,
and $47 million and $70 million ($73 million and $108 million,
pretax), respectively, attributable to mortgage loans and real
estate supporting SPAs were expected to be charged to the reserve
for anticipated future losses. Included in the $150 million and
$59 million of net realized capital losses (pretax) on GICs and
SPAs, respectively, for the year ended December 31, 1994, are
losses from the sales of bonds of $54 million and $24 million,
respectively. As a result of selling bonds and realizing losses,
the anticipated future losses associated with negative interest
margins is expected to be reduced in the future.
The activity in the reserve for anticipated future losses on
discontinued products for the year ended December 31, 1994 was as
follows:
<TABLE>
<CAPTION>
Guaranteed Single-
Investment Premium
(Millions) Contracts Annuities Total
_____________________________________________________________________________
<S> <C> <C> <C>
Reserve at December 31, 1993 $ 600.0 $ 670.0 $1,270.0
Loss on discontinued products 254.4 18.6 273.0
_____________________________________
Reserve at December 31, 1994 $ 345.6 $ 651.4 $ 997.0
_____________________________________________________________________________
_____________________________________________________________________________
</TABLE>
The average contractual yields guaranteed on the contracts
relating to the discontinued products exceed the average
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.
There was no funding from the company's continuing business in
1994.
<PAGE> 83
Notes to Financial Statements (Continued)
2. Discontinued Products (Continued)
Receivables of $872.5 million and $825.0 million to fund these
negative cash flows (which accrue interest at the rates used to
measure the loss for the two products) are included in the
discontinued products' assets at December 31, 1994 and 1993,
respectively. These receivables are fully offset by payables from
the company's continuing business. These amounts are eliminated
in the Consolidated Balance Sheets.
The activity in the receivable from continuing business for the
year ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
Guaranteed Single-
Investment Premium
(Millions) Contracts Annuities Total
___________________________________________________________________________
<S> <C> <C> <C>
Balance at December 31, 1993 $ 390.0 $ 435.0 $ 825.0
Interest earned 19.4 28.1 47.5
___________________________________
Balance at December 31, 1994 $ 409.4 $ 463.1 $ 872.5
___________________________________________________________________________
___________________________________________________________________________
</TABLE>
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 tax benefited.
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
1992 of $38.1 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)
Preferred Stock which were redeemed in 1993 resulting in an after-
tax gain of $27.0 million.
<PAGE> 84
Notes to Financial Statements (Continued)
3. Sales of Subsidiaries (Continued)
The operating results of Am Re were presented as a discontinued
operation through the sale date of September 30, 1992. Results
for the nine months ended September 30 were:
<TABLE>
<CAPTION>
(Millions) 1992
_____________________________________________________
<S> <C>
Total revenue $ 846.4
________
Income before taxes $ 120.9
Income taxes 34.1
________
Income from discontinued operations $ 86.8
_____________________________________________________
</TABLE>
4. Severance and Facilities Charge
The company recorded a $200 million after-tax ($308 million
pretax) severance and facilities charge in the fourth quarter of
1993. The planned actions included the elimination of
approximately 4,000 positions. As a result of the planned
elimination of these positions, the company determined that it
would have excess office space. Accordingly, the severance and
facilities charge also included costs related to vacating the
excess leased office space, and costs related to abandoning and
preparing for sale an owned property in Hartford, Connecticut.
The 1993 severance and facilities charge included the following
(pretax):
<TABLE>
<CAPTION>
Facility and Vacated
Severance Asset Write- Leased
(Millions) Related Off Related Property Other Total
_________ ____________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Aetna Health Plans..................... $ 44.4 $ 20.4 $ 11.8 $ 3.2 $ 79.8
Large Case Pensions.................... 11.5 8.4 1.0 1.0 21.9
Aetna Life Insurance & Annuity......... 10.9 5.1 1.4 13.4 (1) 30.8
Property-Casualty...................... 96.8 24.2 20.7 5.6 147.3
International.......................... 4.6 2.9 2.0 1.5 11.0
Corporate: Other...................... 12.2 5.0 - - 17.2
_______ _______ _______ _______ _______
Total Company (3)...................... $ 180.4 $ 66.0 (2) $ 36.9 $ 24.7 $ 308.0
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
<FN>
(1) Includes a charge of $13.0 million related to the cessation of a business providing
administrative services to defined contribution pension plans. The charge includes
broker buyout, direct losses on runoff of the existing contracts and other related costs.
(2) Facility and asset write-off related charges include the write-down to net realizable value
(based on an internally prepared appraisal) of a company property that will be abandoned.
The charge does not include operating costs expected to be incurred prior to the date of
abandonment of the property. Facility and asset write-off related charges also include costs
to retire computer equipment used by employees whose positions were, or are expected to be,
eliminated and other related costs.
(3) Facility and asset write-off related charges are non-cash costs. All other items shown above
required, or will require, cash outlays.
</TABLE>
<PAGE> 85
Notes to Financial Statements (Continued)
4. Severance and Facilities Charge (Continued)
During 1994, the company charged costs of $224.1 million (pretax)
to the 1993 severance and facilities reserve related to the cost
reduction actions as follows:
<TABLE>
<CAPTION>
Facility and Vacated
Severance Asset Write- Leased
(Millions) Related Off Related Property Other Total
_________ ____________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Severance and facilities reserve at
December 31, 1993.................... $ 180.4 $ 66.0 $ 36.9 $ 24.7 $ 308.0
Charges against reserve................ 153.0 12.1 35.7 23.3 224.1
_______ _______ _______ _______ _______
Severance and facilities reserve at
December 31, 1994.................... $ 27.4 $ 53.9 $ 1.2 $ 1.4 $ 83.9
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
</TABLE>
Vacating the leased office space was substantially completed by
December 31, 1994. The remaining lease payments (net of expected
subrentals) on such vacated facilities are payable over
approximately the next six years. Of the approximately 4,000
positions expected to be eliminated, approximately 3,300 had been
eliminated by December 31, 1994. The remaining headcount
reductions and other actions planned for under the restructuring
actions are expected to be completed during the first half of
1995.
In 1992, the company also undertook actions to reduce costs which
resulted in an after-tax restructuring charge of $95.7 million
($145.0 million pretax) to 1992 earnings. Among the actions to
reduce costs was the elimination of approximately 4,800 positions
in the latter half of 1992 and through 1993. The 1992 severance
and facilities charge included the following (pretax):
<TABLE>
<CAPTION>
Vacated Pension
Severance Leased Curtailment
(Millions) Related Property Gain Total
_________ ________ ___________ _______
<S> <C> <C> <C> <C>
Aetna Health Plans..................... $ 50.1 $ - $ (9.9) $ 40.2
Large Case Pensions.................... 4.2 - (1.1) 3.1
Aetna Life Insurance & Annuity......... 7.8 - (1.6) 6.2
Property-Casualty...................... 69.3 20.9 (14.8) 75.4
International.......................... .1 - (.1) -
Corporate: Other....................... 20.1 - - 20.1
_______ _______ _______ _______
Total Company (1)...................... $ 151.6 $ 20.9 $ (27.5) $ 145.0
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
(1) The pension curtailment gain is a non-cash item. All other items shown above
required cash outlays.
</TABLE>
By year-end 1993, all expected actions under the 1992
restructuring had been completed.
<PAGE> 86
Notes to Financial Statements (Continued)
5. Investments
<TABLE>
<CAPTION>
Debt securities at December 31, 1994 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
_______________________________________________________________________________________________
Held for Investment:
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 6.5 $ .5 $ - $ 7.0
Obligations of states and
political subdivisions 275.3 1.5 9.6 267.2
Utilities 136.0 .1 1.6 134.5
Financial 224.1 2.1 1.6 224.6
Transportation/Capital Goods 221.5 3.8 1.7 223.6
Other corporate securities 99.6 .9 .6 99.9
Mortgage-backed securities 10.5 - .6 9.9
Other loan-backed securities 15.0 - .6 14.4
Foreign governments 623.4 1.4 .4 624.4
Other 388.9 4.3 7.5 385.7
______________________________________________________
Total Held for Investment $ 2,000.8 $ 14.6 $ 24.2 $ 1,991.2
_______________________________________________________________________________________________
______________________________________________________
Available for Sale:
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 8,343.9 $ 13.6 $ 630.3 $ 7,727.2
Obligations of states and
political subdivisions 1,401.1 11.2 53.9 1,358.4
Utilities 2,604.4 52.1 136.3 2,520.2
Financial 5,155.8 28.7 256.2 4,928.3
Transportation/Capital Goods 2,714.2 61.1 114.7 2,660.6
Other corporate securities 3,039.8 28.8 170.2 2,898.4
Mortgage-backed securities 7,013.5 123.1 425.3 6,711.3
Other loan-backed securities 1,691.2 .2 56.5 1,634.9
Foreign governments 2,820.6 13.2 268.3 2,565.5
Other 2,199.7 26.9 120.7 2,105.9
______________________________________________________
Total Available for Sale $ 36,984.2 $ 358.9 $ 2,232.4 $ 35,110.7
_______________________________________________________________________________________________
______________________________________________________
Available for sale securities of
discontinued products
(included above) $ 6,349.8 $ 137.9 $ 332.7 $ 6,155.0
_______________________________________________________________________________________________
______________________________________________________
</TABLE>
<PAGE> 87
Notes to Financial Statements (Continued)
5. Investments (Continued)
<TABLE>
<CAPTION>
Debt securities at December 31, 1993 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
(Millions) Cost 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 4,893.1 200.1 16.7 5,076.5
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 9,632.3 686.3 16.9 10,301.7
Other loan-backed securities 49.1 .2 .2 49.1
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
discounted products
(included above) $ 7,659.4 $ 695.1 $ 85.5 $ 8,269.0
______________________________________________________________________________________________
_____________________________________________________
</TABLE>
At December 31, 1994 and 1993, net unrealized appreciation
(depreciation) of $(1,873.5) million and $1,935.3 million,
respectively, on available for sale debt securities included
$(607.3) million and $717.4 million, respectively, related to
experience rated contractholders and $(194.8) million and $609.6
million, respectively, related to discontinued products, which
were not reflected in shareholders' equity.
<PAGE> 88
Notes to Financial Statements (Continued)
5. Investments (Continued)
The carrying and fair value of debt securities held for investment
and available for sale are shown below by contractual maturity.
Actual maturities may differ from contractual maturities because
securities may be restructured, called or prepaid.
<TABLE>
<CAPTION>
1994 Amortized Fair
(Millions) Cost Value
____________________________________________________________________
Held for Investment:
<S> <C> <C>
Due to mature:
One year or less $ 166.3 $ 167.0
After one year through five years 1,456.1 1,453.8
After five years through ten years 172.1 169.9
After ten years 180.8 176.2
Mortgage-backed securities 10.5 9.9
Other loan-backed securities 15.0 14.4
____________________________________________________________________
Total Held for Investment $ 2,000.8 $ 1,991.2
____________________________________________________________________
________________________
Available for Sale:
Due to mature:
One year or less $ 1,707.4 $ 1,677.1
After one year through five years 10,405.3 9,951.1
After five years through ten years 7,482.2 7,071.4
After ten years 8,684.6 8,064.9
Mortgage-backed securities 7,013.5 6,711.3
Other loan-backed securities 1,691.2 1,634.9
____________________________________________________________________
Total Available for Sale $36,984.2 $35,110.7
____________________________________________________________________
________________________
</TABLE>
Investments in available for sale equity securities were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
________________________________________________________________________________
<S> <C> <C> <C> <C>
1994
________________________________________________________________________________
Equity securities $ 1,326.9 $ 399.5 $ 70.8 $ 1,655.6
________________________________________________________________________________
1993
________________________________________________________________________________
Equity securities $ 1,238.1 $ 455.2 $ 34.4 $ 1,658.9
________________________________________________________________________________
</TABLE>
Real Estate holdings at December 31 were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
____________________________________________________________________
<S> <C> <C>
Properties held for sale $ 1,297.1 $ 1,122.2
Investment real estate 394.3 461.3
______________________
1,691.4 1,583.5
Valuation reserve 145.7 267.7
______________________
Net carrying value $ 1,545.7 $ 1,315.8
____________________________________________________________________
______________________
Net carrying value of real estate of
discontinued products (included above) $ 730.0 $ 534.5
____________________________________________________________________
______________________
</TABLE>
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Investments (Continued)
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, 1994 and 1993 were $616.5 million and
$501.8 million, respectively, (including $315.8 million and $218.5
million, respectively, attributable to assets of discontinued
products).
Impairment reserves at December 31 were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
____________________________________________________________________
<S> <C> <C>
Mortgage loans $ 784.1 $ 1,308.3
Real estate 145.7 267.7
Other 6.0 6.0
______________________
Total impairment reserves $ 935.8 $ 1,582.0
____________________________________________________________________
______________________
Impairment reserves of
discontinued products (included above) $ 432.3 $ 727.0
____________________________________________________________________
______________________
</TABLE>
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) 1994 1993
____________________________________________________________________
<S> <C> <C>
Debt securities $ 7.9 $ 76.9
Equity securities 20.3 14.9
Mortgage loans 80.1 342.1
Real estate 159.8 188.0
______________________
Total non-income producing assets 268.1 $ 621.9
____________________________________________________________________
______________________
Non-income producing assets of
discontinued products
(included above) $ 68.0 $ 248.0
____________________________________________________________________
______________________
</TABLE>
Significant non-cash investing and financing activities include
acquisition of real estate through foreclosures (including in-
substance foreclosures in 1994) of mortgage loans amounting to
$708 million in 1994, $295 million in 1993 and $306 million in
1992. 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. No gain was recorded on this exchange.
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 44 through 53.
<PAGE> 90
Notes to Financial Statements (Continued)
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.
Provisions for impairments and changes in the fair value of real
estate subsequent to foreclosure are also 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 losses allocable to experience rated
contractholders of $195.0 million, $180.1 million and $59.7
million for the years ended December 31, 1994, 1993 and 1992,
respectively, 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.
Net realized capital gains (losses) on investments were as
follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Debt securities $ (32.6) $ 606.3 $ 315.1
Equity securities 31.5 91.3 184.2
Mortgage loans (91.8) (435.7) (358.5)
Real estate 42.2 (151.5) (43.9)
Sales of subsidiaries 16.9 (18.2) -
Other (21.0) (2.4) 18.0
__________________________________
Pretax realized capital gains (losses) $ (54.8) $ 89.8 $ 114.9
________________________________________________________________________________
__________________________________
After-tax realized capital gains (losses) $ (42.6) $ 59.0 $ 78.6
________________________________________________________________________________
</TABLE>
Proceeds from sales of investments in debt securities available
for sale during 1994 were $19.0 billion. Gross gains of $128.8
million and gross losses of $158.7 million were realized on those
sales.
Proceeds from sales of investments in debt securities held for
investment and available for sale during 1993 and 1992 were
$6,300.9 million and $3,862.1 million, respectively. Gross gains
of $250.6 million and $262.3 million, and gross losses of $30.1
million and $7.0 million, were realized on those sales.
Shareholders' equity included changes in unrealized capital gains
(losses), excluding changes in unrealized capital gains (losses)
related to experience rated contractholders and discontinued
products, for the periods as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
______________________________________________________________________________________
<S> <C> <C> <C>
Equity securities $ (90.7) $ 94.2 $ 127.6
Debt trading securities - (134.8) 66.4
Debt securities available for sale (1,679.7) 608.3 -
Foreign exchange and other, net (119.4) 14.6 (51.8)
________________________________________
(1,889.8) 582.3 142.2
Increase (Decrease) in deferred federal
income taxes (170.1) 193.7 48.5
________________________________________
Net changes in unrealized capital gains
(losses) $ (1,719.7) $ 388.6 $ 93.7
______________________________________________________________________________________
________________________________________
</TABLE>
<PAGE> 91
Notes to Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
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 (depreciation) for debt securities carried at
amortized cost is the difference between estimated market and
carrying values, and amounted to approximately $(9.6) million,
$146.4 million and $1.7 billion at December 31, 1994, 1993 and
1992, respectively. Such unrecorded appreciation (depreciation)
includes amounts allocable to experience rated contractholders.
The change in unrecorded appreciation and depreciation was
$(156.0) million, $(1,528.2) million and $(719.3) million in 1994,
1993 and 1992, respectively.
Shareholders' equity included the following unrealized capital
gains (losses), which are net of amounts allocable to experience
rated contractholders and amounts related to discontinued
products, at December 31:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
_________________________________________________________________________________
<S> <C> <C> <C>
Equity securities:
Gross unrealized capital gains $ 398.2 $ 455.2 $ 366.3
Gross unrealized capital losses (68.1) (34.4) (39.7)
___________________________________
330.1 420.8 326.6
Debt trading securities:
Gross unrealized capital gains - - 172.0
Gross unrealized capital losses - - (37.2)
___________________________________
- - 134.8
Debt securities available for sale:
Gross unrealized capital gains 89.0 671.1 -
Gross unrealized capital losses (1,160.4) (62.8) -
___________________________________
(1,071.4) 608.3 -
Foreign exchange and other, net (176.1) (56.7) (71.3)
Deferred federal income taxes 154.1 324.2 130.5
___________________________________
Net unrealized capital gains (losses) $(1,071.5) $ 648.2 $ 259.6
_________________________________________________________________________________
___________________________________
</TABLE>
At December 31, 1994, $749 million of net unrealized capital
losses primarily on available for sale debt and equity securities
were reflected in shareholders' equity without deferred tax
benefits. (Please refer to Note 10 for discussion of the tax
treatment for unrealized capital losses on available for sale debt
and equity securities.)
<PAGE> 92
Notes to Financial Statements (Continued)
7. Net Investment Income
Net investment income includes amounts allocable to experience
rated contractholders of $1.4 billion, $1.6 billion and $1.7
billion for the years ended December 31, 1994, 1993 and 1992,
respectively. Interest credited to contractholders is included
in current and future benefits.
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C>
Debt securities $ 2,882.1 $ 3,003.4 $ 2,948.8
Equity securities 56.9 55.8 56.5
Short-term investments 14.0 55.3 76.9
Mortgage loans 1,301.2 1,586.8 1,885.5
Real estate 361.2 378.5 335.7
Policy loans 28.0 29.9 26.7
Other 96.3 160.2 52.7
Cash equivalents 135.1 76.7 134.6
_______________________________________
Gross investment income 4,874.8 5,346.6 5,517.4
Less investment expenses 411.3 427.6 448.4
_______________________________________
Net investment income $ 4,463.5 $ 4,919.0 $ 5,069.0
___________________________________________________________________________________
_______________________________________
</TABLE>
8. Dividend Restrictions and Shareholders' Equity
The amount of dividends that may be paid to shareholders in 1995
without prior approval by the Insurance Commissioner of the State
of Connecticut is $398.9 million. Dividend payments by the
domestic insurance subsidiaries of Aetna Life and Casualty Company
are subject to similar restrictions in Connecticut and other
states, and are limited in 1995 to approximately $607.7 million in
the aggregate. During 1994, these subsidiaries paid no dividends
to Aetna Life and Casualty Company.
The amounts of statutory net income (loss) for the years ended and
shareholders' equity as of December 31, were as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C>
Statutory net income:
Life companies $ (147.2) $ 87.7 $ 123.8
Property-casualty companies (242.5) (125.1) 688.0
Consolidating eliminations (.1) (3.3) 5.9
_______________________________________
Total $ (389.8) $ (40.7) $ 817.7
___________________________________________________________________________________
_______________________________________
Statutory shareholders' equity:
Life companies $ 2,492.4 $ 2,332.8
Property-casualty companies 3,988.9 4,336.8
Consolidating eliminations (2,484.8) (2,323.9)
________________________
Total $ 3,996.5 $ 4,345.7
____________________________________________________________________
________________________
</TABLE>
As of December 31, 1994, the company does not utilize any
statutory accounting practices which are not prescribed by
insurance regulators that, individually or in the aggregate,
materially affect statutory shareholders' equity.
<PAGE> 93
Notes to Financial Statements (Continued)
9. Debt
<TABLE>
<CAPTION>
(Millions) 1994 1993
____________________________________________________________________________
<S> <C> <C>
Long-term debt:
Domestic:
Eurodollar Notes, 9 1/2% due 1995 $ 100.2 $ 100.4
Notes, 8 5/8% due 1998 99.8 99.8
Notes, 6 3/8% due 2003 198.9 198.7
Debentures, 6 3/4% due 2013 198.4 198.3
Eurodollar Notes, 7 3/4% due 2016 63.5 63.5
Debentures, 8% due 2017 199.1 198.6
Mortgage Notes and Other Notes, 3%-11 1/2%
due in varying amounts to 2018 41.4 56.7
Debentures, 7 1/4% due 2023 198.3 198.3
International:
Mortgage Notes, 6 1/2%-11 7/8% due in
varying amounts to 2006 15.1 45.7
______________________
Total $ 1,114.7 $ 1,160.0
____________________________________________________________________________
______________________
</TABLE>
At December 31, 1994, $23.9 million of short-term borrowings were
outstanding. Total unused committed bank lines available to the
company at December 31, 1994 amounted to $1,020 million, including
credit facilities aggregating $1.0 billion with a group of
worldwide banks. One $500 million facility terminates in July
1995 and the other $500 million facility terminates in July 1999.
Various interest rate options are available under each facility
and any borrowings mature on the expiration date of the applicable
credit commitment. The company pays facility fees ranging from
.08% to .375% per annum under the short-term credit agreement and
from .1% to .5% per annum under the medium-term credit agreement,
depending upon the company's long-term senior unsecured debt
rating. The commitments require the company to maintain
shareholders' equity, excluding net unrealized capital gains and
losses, of at least $5 billion. These facilities also support 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. Pursuant to shelf registration
statements declared effective by the Securities and Exchange
Commission ("SEC"), the company may offer and sell up to an
additional $550 million of various types of securities. (Please
refer to Note 11.)
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.
<PAGE> 94
Notes to Financial Statements (Continued)
9. Debt (Continued)
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 1995 through 1999 are $102.3 million, $10.9
million, $.2 million, $129.4 million and $1.3 million,
respectively, and $870.6 million thereafter.
Total interest expense was $98.6 million, $77.4 million and $87.1
million in 1994, 1993 and 1992, respectively. The company paid
interest of $98.7 million, $74.1 million and $94.9 million in
1994, 1993 and 1992, respectively.
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 at December 31, 1993.
Income tax expense (benefits) attributable to income (loss) from
continuing operations consists of:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C>
Current taxes (benefits):
Income - federal taxes $ 274.2 $ 47.3 $ (18.1)
Income - foreign taxes 8.6 8.8 11.6
Realized capital gains (losses) (340.0) 18.6 74.4
_______________________________________
(57.2) 74.7 67.9
Deferred taxes (benefits):
Income - federal taxes (81.4) (617.7) (147.4)
Income - foreign taxes 1.5 (1.3) 1.5
Realized capital gains (losses) 327.9 12.2 (38.1)
_______________________________________
248.0 (606.8) (184.0)
_______________________________________
Total $ 190.8 $ (532.1) $ (116.1)
___________________________________________________________________________________
_______________________________________
</TABLE>
<PAGE> 95
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
(benefits) for the following reasons:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C>
Income (Loss) from U.S. operations $ 533.0 $(1,211.9) $ (151.4)
Income from non-U.S. operations 125.3 64.5 30.0
______________________________________
Income (Loss) before taxes 658.3 (1,147.4) (121.4)
Tax rate 35% 35% 34%
______________________________________
Application of the tax rate 230.4 (401.7) (41.3)
Tax effect of:
Tax-exempt interest (36.7) (54.9) (68.6)
Foreign operations (1.7) (46.9) 12.7
Excludable dividends (15.5) (20.5) (12.8)
Tax rate change on deferred assets
and liabilities - (24.0) -
Goodwill 8.6 6.8 3.5
Other, net 5.7 9.1 (9.6)
______________________________________
Income taxes (benefits) on income (loss) $ 190.8 $ (532.1) $ (116.1)
___________________________________________________________________________________
______________________________________
</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) 1994 1993
____________________________________________________________________
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 1,142.1 $ 1,013.2
Reserve for loss on
discontinued products 344.1 445.0
Reserve for severance and
facilities expenses 57.6 108.0
Impairment reserves 113.2 274.0
Other postretirement benefits 230.6 235.6
Net unrealized capital losses 601.6 -
Net operating loss carryforward 225.0 152.8
Other 7.7 52.1
______________________
Total gross assets 2,721.9 2,280.7
Less valuation allowance 546.6 70.2
______________________
Assets net of valuation 2,175.3 2,210.5
Deferred tax liabilities:
Deferred policy acquisition costs 557.0 519.7
Unrealized losses allocable to
experience rated contracts 213.0 -
Net unrealized capital gains - 331.3
Market discount 91.0 72.8
Other 47.6 3.8
______________________
Total gross liabilities 908.6 927.6
______________________
Net deferred tax asset $ 1,266.7 $ 1,282.9
____________________________________________________________________
______________________
</TABLE>
The 1994 valuation allowance relates to future tax benefits of
$22.9 million on purchased domestic net operating loss
carryforwards, $48.5 million on foreign net operating loss
carryforwards, and of $475.2 million on unrealized capital losses,
the realization of which are uncertain. The 1993 valuation
allowance relates to future tax benefits of $47.3 million on
foreign net operating loss carryforwards and $22.9 million on
purchased domestic net operating loss carryforwards.
<PAGE> 96
Notes to Financial Statements (Continued)
10. Federal and Foreign Income Taxes (Continued)
Net unrealized capital gains and losses are presented in
shareholders' equity net of deferred taxes. At December 31, 1994,
$749 million of net unrealized capital losses primarily on
available for sale debt and equity securities were reflected in
shareholders' equity without deferred tax benefits. For federal
income tax purposes, capital losses are deductible only against
capital gains in the year of sale or during the carryback and
carryforward periods (three and five years, respectively). Due to
the expected full utilization of capital gains in the carryback
period and the uncertainty of future capital gains, a valuation
allowance of $262 million related to the net unrealized capital
losses has been reflected in shareholders' equity. In addition,
$609 million of net unrealized capital losses related to
experience rated contracts are not reflected in shareholders'
equity since such losses, if realized, will be charged to
contractholders. However, the potential loss of tax benefits on
such losses is the risk of the company and therefore would
adversely affect the company rather than the contractholder.
Accordingly, an additional valuation allowance of $213 million has
been reflected in shareholders' equity as of December 31, 1994.
Any reversals of the valuation allowance are contingent upon the
recognition of future capital gains in the company's federal
income tax return or a change in circumstances which causes the
recognition of the benefits to become more likely than not. Non-
recognition of the deferred tax benefits on net unrealized losses
described above had no impact on net income for 1994, but has the
potential to adversely affect future results if such losses are
realized. Potential losses of tax benefits related to net
unrealized losses on assets supporting the discontinued products
are not expected to adversely affect the company's future results.
Management believes that it is more likely than not that the
company will realize the benefit of the net deferred tax asset of
$1,266.7 million. The company's election of special estimated tax
payments in years 1989 through 1993 assures realizability of a
substantial portion of deferred tax assets arising from the
discounting of property-casualty reserves. 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 patterns of these differences. Because of the company's
long-term history of taxable income, which is projected to
continue, and the availability of significant tax planning
strategies, such as converting tax-exempt bonds to taxable bonds,
the company expects sufficient taxable income in the future to
realize the net deferred tax asset.
The net deferred tax asset includes $153.6 million related to the
company's expected utilization of its current U.S. net operating
loss carryforward of $438.9 million, $161.2 million of which
expires in the year 2008 and $277.7 million of which expires in
the year 2009.
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.
<PAGE> 97
Notes to Financial Statements (Continued)
10. Federal and Foreign Income Taxes (Continued)
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
$857.2 million at December 31, 1994. 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.
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 received net federal income tax refunds for continuing
operations of $74.1 million in 1994 and made net federal income
tax payments of $101.6 million and $55.3 million in 1993 and 1992,
respectively.
11. Minority Interest in Preferred Securities of Subsidiary
On November 22, 1994, Aetna Capital L.L.C. ("ACLLC"), a wholly
owned subsidiary of the company, issued $275 million (11,000,000
shares) of 9 1/2% Cumulative Monthly Income Preferred Securities,
Series A, on which payments are guaranteed to a certain extent by
the company on a subordinated basis. The securities are
redeemable, at the option of ACLLC with the company's consent, in
whole or in part, from time to time, on or after November 30,
1999, or at any time under certain limited circumstances related
to tax events, at a redemption price of $25 per security plus
accumulated and unpaid dividends to the redemption date. The
securities are scheduled to become due and payable on November 22,
2024. The maturity date may be changed under certain
circumstances.
ACLLC has loaned the proceeds from the preferred stock issuance
and the common capital contributions to the company. In return,
the company issued approximately $348 million principal amount of
9 1/2% subordinated debentures to ACLLC due November 22, 2024.
Interest on these debentures is payable monthly, and under certain
circumstances, principal may be due prior to or later than the
original maturity date. This loan is eliminated in the 1994 Consolidated
Balance Sheet.
ACLLC may offer and sell up to an additional $225 million of
preferred securities under a shelf registration statement declared
effective by the SEC.
12. Common Stock
At December 31, 1994 and 1993, 3,802,256 common shares were
reserved for issuance under the dividend reinvestment plan,
13,036,958 and 6,702,878 common shares were reserved for the stock
option plans, and 946,675 common shares were reserved for other
benefit plans, respectively.
In 1994 and 1993, the company did not acquire any shares of its
common stock.
<PAGE> 98
Notes to Financial Statements (Continued)
12. Common Stock (Continued)
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.
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.
13. 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) 1994 1993 1992
______________________________________________________________________________
<S> <C> <C> <C>
Premiums $ 52.0 $ 52.4 $ 54.0
______________________________________________________________________________
Assets $ 700.8 $ 704.8 $ 686.1
______________________________________________________________________________
</TABLE>
<PAGE> 99
Notes to Financial Statements (Continued)
14. 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 60
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) 1994 1993 1992
________________________________________________________________________________
<S> <C> <C> <C>
Return on plan assets $ 8.2 $ 178.7 $ 78.9
Service cost - benefits earned
during the period (92.7) (82.2) (82.3)
Interest cost on projected
benefit obligation (175.2) (169.3) (153.1)
Net amortization and deferral 202.3 31.3 160.5
________________________________________________________________________________
Net periodic pension income (cost) $ (57.4) $ (41.5) $ 4.0
________________________________________________________________________________
</TABLE>
As a result of restructuring activities, a curtailment gain of
approximately $27.5 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.
The measurement dates used to determine the funded status of the
plans were September 30, 1994 and 1993. The funded status of plans
for which assets exceeded accumulated benefits was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
____________________________________________________________________
<S> <C> <C>
Actuarial present value of vested
benefit obligation $ 1,930.3 $ 1,868.8
____________________________________________________________________
Actuarial present value of
accumulated benefit obligation $ 1,952.1 $ 1,898.9
____________________________________________________________________
Plan assets at fair value $ 2,176.4 $ 2,259.0
Actuarial present value of
projected benefit obligation 2,333.3 2,221.7
______________________
Plan assets in excess of (less than)
projected benefit obligation (156.9) 37.3
Unrecognized net loss 216.7 98.5
Unrecognized service cost - prior
period 9.1 (7.7)
Unrecognized net asset at date of
adoption of FAS No. 87 (58.2) (87.9)
______________________
Prepaid pension cost $ 10.7 $ 40.2
____________________________________________________________________
</TABLE>
At 1994 and 1993, non-funded plans had projected benefit
obligations of $130.1 million and $163.8 million, respectively.
The accumulated benefit obligations at 1994 and 1993 related to
these plans were $105.3 million and $127.6 million, respectively,
and the related accrued pension cost was $107.9 million and $89.7
million, respectively.
<PAGE> 100
Notes to Financial Statements (Continued)
14. Benefit Plans (Continued)
The weighted average discount rate was 8.0% for 1994, 7.5% for
1993 and 8.0% for 1992. The expected long-term rate of return on
plan assets was 8.5% for 1994 and 9.0% for 1993 and 1992. The
rate of increase in future compensation was 5.0% for 1994, 4.5%
for 1993, and 5.0% for 1992. The future annual cost-of-living
adjustment was 3.0% for 1994, 1993 and 1992.
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 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 generally required to contribute
to the plans based on their years of service with the company.
In January 1994, the company announced a 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 modification
resulted in a $30.7 million after-tax increase to earnings for the
year ended December 31, 1994.
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) 1994 1993 1992
______________________________________________________________________________
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ (8.6) $ (19.0) $ (28.8)
Interest cost (34.2) (42.9) (50.9)
Net amortization 31.2 11.7 -
Return on plan assets 3.2 3.1 2.9
__________________________________
Net periodic postretirement
benefit cost $ (8.4) $ (47.1) $ (76.8)
_________________________________________________________________________________
___________________________________
</TABLE>
The measurement dates used to determine the funded status of the
postretirement benefit plans were September 30, 1994 and 1993. The
funded status of the plans was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
____________________________________________________________________
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $ 285.2 $ 234.6
Fully eligible active employees 64.3 102.7
Active employees not eligible to
retire 97.2 229.8
______________________
Total 446.7 567.1
Plan assets at fair value 48.1 45.8
______________________
Accumulated postretirement benefit
obligation in excess of plan assets 398.6 521.3
Unrecognized net gain 43.9 75.5
Prior service cost 204.3 63.7
____________________________________________________________________
Accrued postretirement benefit cost $ 646.8 $ 660.5
____________________________________________________________________
______________________
</TABLE>
<PAGE> 101
Notes to Financial Statements (Continued)
14. Benefit Plans (Continued)
The weighted average discount rates were 8.0% for 1994, 7.5% for
1993 and 8.0% for 1992. The health care cost trend rate for the
1994 valuation decreased gradually from 11.5% for 1995 to 5.5% by
the year 2005. For the 1993 valuation, the rates decreased
gradually from 12.5% for 1994 to 5.5% by the year 2005.
Increasing the health care cost trend rate by one percentage point
would increase the accumulated postretirement benefit obligation
at 1994 by $34.6 million and would increase the net periodic
postretirement benefit cost for 1994 by $2.7 million (pretax).
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
1994, 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 $59.9 million,
$58.9 million and $58.8 million for 1994, 1993 and 1992,
respectively. The Plan trustee held 6,380,355 shares, 5,996,806
shares and 6,925,145 shares of Aetna Life and Casualty Company's
common stock for Plan participants at the end of 1994, 1993 and
1992, respectively.
1994 Stock Incentive Plan - The company's 1994 stock incentive
plan (approved by shareholder vote on April 29, 1994) replaced the
1984 stock option plan. No new options will be granted under the
1984 plan, however, options currently outstanding will continue to
be in effect. The 1994 plan provides for stock options (see (1)
Stock Option Plans), and deferred contingent common stock or cash
awards (see (2)Incentive Units) to certain key employees. The
maximum number of shares of common stock issuable under the Stock
Option Plans and Incentive Units is 8 million, of which options
and units to receive 1,502,900 shares were granted during 1994.
The total amount charged to operations for the 1994 Stock
Incentive Plan, which was determined from factors relating to
various performance measures, was $19.2 million, after-tax, for
the year ended December 31, 1994.
(1) Stock Option Plans - Executive and middle management employees
may be granted options to purchase common stock of the company at
the market price on the date of grant. Certain options granted
prior to 1992 contain stock appreciation rights permitting the
employee to exercise those rights and receive the excess of fair
market value at the date of exercise over the grant date fair
market value in cash and/or stock.
Stock option transactions under the 1994 Stock Incentive Plan and
the 1984 Stock Option Plan are summarized below:
<TABLE>
<CAPTION>
Range of
Number Option Prices
of Shares Per Share
____________________________________________________________________
<S> <C> <C>
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
Granted 1,140,100 $46.50-$55.25
Exercised (464,790) $29.50-$61.50
Canceled or expired (211,875) $29.50-$61.50
____________________________________________________________________
Outstanding at December 31, 1994 5,072,958 $41.50-$61.50
____________________________________________________________________
Range of expiration dates 6/95-10/2004
____________________________________________________________________
Options exercisable at
December 31, 1994 3,967,608
____________________________________________________________________
</TABLE>
<PAGE> 102
Notes to Financial Statements (Continued)
14. Benefit Plans (Continued)
(2) Incentive Units - Executive and middle management employees
may be granted incentive units under the 1994 Stock Incentive
Plan, which are rights to receive common stock or cash at the end
of a vesting period (currently 1996) conditioned upon the
employee's continued employment during that period and achievement
of company performance goals. The incentive unit holders are not
entitled to dividends during the vesting period.
Incentive unit transactions related to the 1994 Stock Incentive
Plan under which holders may be entitled to receive common stock,
are summarized below:
<TABLE>
<CAPTION>
Number
of Shares
__________________________________________________
<S> <C>
Granted 362,800
Canceled or expired (17,000)
_______
Outstanding at December 31, 1994 345,800
_______
_______
</TABLE>
15. Segment Information (1)(2)(3)(4)(5)(6)
Summarized financial information for the company's principal
operations was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
_________________________________________________________________________________
<S> <C> <C> <C>
Revenue:
Aetna Health Plans $ 7,139.1 $ 6,106.0 $ 5,932.1
Large Case Pensions 2,355.2 2,566.0 2,751.3
Aetna Life Insurance & Annuity 1,404.2 1,358.4 1,241.8
Property-Casualty 5,338.9 5,900.9 6,513.5
International 1,297.0 1,279.3 1,202.4
Corporate: Other (9.7) (6.9) (42.7)
___________________________________
Total revenue $17,524.7 $17,203.7 $17,598.4
_________________________________________________________________________________
___________________________________
Income (Loss) from continuing
operations before income taxes,
extraordinary item and cumulative
effect adjustments:
Aetna Health Plans $ 538.1 $ 414.9 $ 412.0
Large Case Pensions 81.1 (1,274.2) (54.1)
Aetna Life Insurance & Annuity 235.0 173.3 147.1
Property-Casualty 30.8 (132.7) (266.9)
International 98.8 2.2 42.9
Corporate: Interest (94.8) (69.3) (82.3)
Other (230.7) (261.6) (320.1)
___________________________________
Total income (loss) from continuing
operations before income taxes,
extraordinary item and
cumulative effect adjustments $ 658.3 $(1,147.4) $ (121.4)
_________________________________________________________________________________
___________________________________
Net income (loss):
Aetna Health Plans $ 341.7 $ 272.2 $ 274.3
Large Case Pensions 54.4 (822.3) (17.3)
Aetna Life Insurance & Annuity 159.1 111.4 99.0
Property-Casualty 58.1 (13.0) (106.3)
International 71.2 55.0 25.1
Corporate: Interest (60.5) (44.7) (50.9)
Other (156.5) (173.9) (229.2)
____________________________________
Income (Loss) from continuing operations
before extraordinary item and
cumulative effect adjustments 467.5 (615.3) (5.3)
Discontinued operations, net of tax - 27.0 173.8
___________________________________
Income (Loss) before extraordinary
item and cumulative effect
adjustments 467.5 (588.3) 168.5
Extraordinary loss on
debenture redemption - (4.7) -
Cumulative effect adjustments - 227.1 (112.5)
___________________________________
Net income (loss) $ 467.5 $ (365.9) $ 56.0
_________________________________________________________________________________
___________________________________
</TABLE>
<PAGE> 103
Notes to Financial Statements (Continued)
15. Segment Information (1)(2)(3)(4)(5)(6)(Continued)
<TABLE>
<CAPTION>
(Millions) 1994 1993
__________________________________________________________________
<S> <C> <C>
Assets:
Aetna Health Plans $ 6,184.7 $ 5,767.5
Large Case Pensions 40,525.1 46,571.5
Aetna Life Insurance & Annuity 21,318.2 20,508.8
Property-Casualty 21,593.8 22,361.5
International 4,532.9 4,801.9
Corporate 17.8 25.5
________________________
Total assets $ 94,172.5 $100,036.7
__________________________________________________________________
________________________
<FN>
(1) In 1994, the company changed its external reporting segments to
better align the segments with the way the businesses are managed.
Prior periods have been restated to reflect these changes.
(2) 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 Large Case Pensions segment only.
(3) Assets at December 31, 1994 and 1993 include $12.4 billion and $15.2
billion, respectively, of assets attributable to discontinued products.
Discontinued products are included in the Large Case Pensions segment.
(4) 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 indemnity reserves. This benefit affected
the Property-Casualty segment only.
(5) 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 Aetna
Health Plans results, $1.8 million reduced Large Case Pensions results,
$4.4 million reduced Aetna Life Insurance & Annuity results, $22.7
million increased Property-Casualty results, $.6 million increased
International results and $7.6 million increased Corporate results.
(6) 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,
$51.9 million ($79.8 million pretax) was allocated to Aetna Health
Plans, $14.2 million ($21.9 million pretax) to Large Case Pensions,
$20.0 million ($30.8 million pretax) to Aetna Life Insurance & Annuity,
$95.6 million ($147.3 million pretax) to Property-Casualty, $7.1 million
($11.0 million pretax) to International, and $11.2 million ($17.2 million
pretax) to Corporate. Of the total 1992 charge, $26.7 million ($40.2
million pretax) was allocated to Aetna Health Plans, $2.1 million
($3.1 million pretax) to Large Case Pensions, $3.9 million ($6.2
million pretax) to Aetna Life Insurance & Annuity, $49.7 million
($75.4 million pretax) to Property-Casualty and $13.3 million
($20.1 million pretax) to Corporate.
</TABLE>
16. 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. Only those reinsurance recoverables deemed probable
of recovery are reflected as assets on the company's Consolidated
Balance Sheets.
<PAGE> 104
Notes to Financial Statements (Continued)
16. Reinsurance (Continued)
Prepaid reinsurance premiums were $.3 billion for both the years
ended December 31, 1994 and 1993. A summary of earned premiums
for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
_______________________________________________________________________________________________
1994
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Life insurance $ 2,082.9 $ 64.6 $ 37.8 $ 2,056.1
Accident and health insurance 4,852.3 63.0 17.1 4,806.4
Property-casualty insurance 5,192.9 1,266.5 503.2 4,429.6
_______________________________________________________
Total earned premiums $ 12,128.1 $ 1,394.1 $ 558.1 $ 11,292.1
_______________________________________________________________________________________________
_______________________________________________________
1993
_______________________________________________________________________________________________
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
_______________________________________________________________________________________________
_______________________________________________________
</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 for both the
years ended December 31, 1994 and 1993 and $1.7 billion for the
year ended December 31, 1992.
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 $1.8 billion, $1.9 billion
and $2.0 billion in 1994, 1993 and 1992, 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> 105
Notes to Financial Statements (Continued)
17. Property-Casualty Reserves
The following represents changes in aggregate reserves for the
property-casualty operations: (1)(2)
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
__________________________________________________________________________________________
<S> <C> <C> <C>
Gross unpaid claims and claim adjustment expenses
at beginning of year $ 15,848 $ 15,980 $ 15,408
Less reinsurance recoverables 4,410 4,233 4,001
__________________________________
Net unpaid claims and claim adjustment expenses
at beginning of year 11,438 11,747 11,407
Incurred claims and claim adjustment expenses:
Provision for insured events of the
current year 3,631 3,724 4,407
Increases in provision for insured
events of prior years 252 60 (3) 466
__________________________________________________________________________________________
Total incurred claims and claim adjustment expenses 3,883 3,784 4,873
__________________________________________________________________________________________
Payments: Claims and claim adjustment expenses
attributable to insured events of
the current year 1,375 1,204 1,560
Claims and claim adjustment expenses
attributable to insured events of
prior years 2,783 2,889 2,973
__________________________________________________________________________________________
Total payments 4,158 4,093 4,533
__________________________________________________________________________________________
Net unpaid claims and claim adjustment expenses
at end of the year 11,163 11,438 11,747
Plus: Reinsurance recoverables 4,629 4,410 4,233
Deductible amounts recoverable
from policyholders 352 - -
__________________________________________________________________________________________
Gross unpaid claims and claim adjustment expenses
at end of the year $ 16,144 $ 15,848 $ 15,980
__________________________________________________________________________________________
__________________________________
<FN>
(1) Excludes accident and health and group life businesses, for which there was not a
material impact on results for 1994, 1993 and 1992 from emerging claim experience
on prior year events.
(2) Includes International.
(3) Includes increases in provision for insured events of prior years of $674 million,
offset by the cumulative effect adjustment related to the change in accounting to
report workers' compensation life table indemnity claims on a discounted basis of
$(514) million and the current year effect of this change in accounting of $(100)
million related to the provision for insured events of prior years.
</TABLE>
Environmental and Asbestos-Related Claims
Reserving for environmental and asbestos-related claims is subject
to significant uncertainties. Because of these significant
uncertainties, management is currently unable to make a reasonable
estimate as to the ultimate amount of losses or a reasonable range
of losses for all environmental and asbestos-related claims and
related litigation expenses. To the extent that such liabilities
are not reasonably estimable, no reserve has been provided.
However, reserves for these liabilities are evaluated by
management regularly, and, subject to the significant
uncertainties, adjustments have been and are expected to be made
to such reserves as developing loss patterns and other information
appear to warrant.
Environmental and asbestos-related loss and loss adjustment
expense reserves, as reflected on the Consolidated Balance Sheets
at December 31, were as follows (before reinsurance):
<TABLE>
<CAPTION>
(Millions) 1994 1993
_____________________________________________________________
<S> <C> <C>
Environmental Liability $ 436 $ 234
Asbestos Bodily Injury 296 248
Asbestos Property Damage 30 29
______________________
Total Environmental and
Asbestos-Related Reserves $ 762 $ 511
_____________________________________________________________
______________________
</TABLE>
<PAGE> 106
Notes to Financial Statements (Continued)
18. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of the company's
financial instruments at December 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993
_______________________________________________________________________________________
Carrying Fair Carrying Fair
Value Value Value Value
________ _____ ________ _____
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 2,953.6 $ 2,953.6 $ 1,557.8 $ 1,557.8
Short-term investments 450.4 450.4 669.9 669.9
Debt securities 37,111.5 37,101.9 41,544.5 41,690.9
Equity securities 1,655.6 1,655.6 1,658.9 1,658.9
Mortgage loans 11,843.6 11,525.9 14,839.2 14,940.6
Liabilities:
Investment contract liabilities:
With a fixed maturity $11,562.3 $11,555.1 $13,738.0 $15,005.0
Without a fixed maturity 11,250.6 10,927.9 12,188.0 12,224.0
Short-term debt 23.9 23.9 35.7 35.7
Long-term debt 1,114.7 1,009.4 1,160.0 1,202.7
</TABLE>
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. In evaluating the company's
management of interest rate and liquidity risk, and currency
exposures, the fair values of all assets and liabilities should be
taken into consideration, not only those presented above.
The following valuation methods and assumptions were used by the
company in estimating the fair value of the above financial
instruments:
Short-term instruments: Fair values are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, the carrying amounts reported in the
Consolidated Balance Sheets approximate fair value. Short-term
instruments have a maturity date of one year or less and include
cash and cash equivalents, short-term investments and short-term
debt.
Debt and equity securities: Fair values are based on quoted
market prices or dealer quotations. Where quoted market prices or
dealer quotations are not available, fair values are estimated by
using quoted market prices for similar securities or discounted
cash flow methods.
Mortgage loans: Fair values are 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 estimates of
mortgage loans of lower credit quality, including problem and
restructured loans, are based on the estimated fair value of the
underlying collateral.
<PAGE> 107
Notes to Financial Statements (Continued)
18. Financial Instruments (Continued)
Investment contract liabilities (included in policyholders' funds
left with the company):
With a fixed maturity: Fair value is estimated by discounting
cash flows at interest rates currently being offered by, or
available to, the company for similar contracts.
Without a fixed maturity: Fair value 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 on demand.
Long-term debt: Fair value is based on quoted market prices for
the same or similar issued debt or, if no quoted market prices are
available, on the current rates estimated to be available to the
company for debt of similar terms and remaining maturities.
Off-Balance-Sheet Financial Instruments (including Derivative
Financial Instruments):
The notional amounts, carrying values and estimated fair values of
the company's off-balance-sheet financial instruments at December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Carrying
Value
Notional Asset Fair
(Millions) Amount (Liability) Value
____________________________________________________________________________
1994
____________________________________________________________________________
<S> <C> <C> <C>
Foreign exchange forward contracts
- sell:
Related to net investments in
foreign affiliates $497.8 $ .9 $ 4.7
Related to investments in
non-dollar denominated assets 266.9 .3 1.6
Foreign exchange forward contracts
- buy:
Related to net investments in
foreign affiliates 48.5 2.0 4.8
Related to investments in
non-dollar denominated assets 40.9 (.3) .2
Futures contracts 122.5 .1 .1
Forward contracts to purchase
investments 5.6 - -
Interest rate swaps:
Unrecognized gains 429.4 - 20.7
Unrecognized losses 386.4 - (18.3)
</TABLE>
<PAGE> 108
Notes to Financial Statements (Continued)
18. Financial Instruments (Continued)
<TABLE>
<CAPTION>
Carrying
Value
Notional Asset Fair
(Millions) Amount (Liability) Value
__________________________________________________________________________
1993
__________________________________________________________________________
<S> <C> <C> <C>
Foreign exchange forward contracts
- sell:
Related to net investments in
foreign affiliates $534.0 $ 4.2 $ 1.6
Related to investments in
non-dollar denominated assets 442.9 5.1 (2.6)
Foreign exchange forward contracts
- buy:
Related to net investments in
foreign affiliates 99.9 3.6 5.0
Related to investments in
non-dollar denominated assets 27.9 (1.6) (.3)
Futures contracts 141.2 .1 .1
Forward contracts to purchase
investments 273.6 - (1.4)
Interest rate swaps:
Unrecognized gains 386.4 - 18.3
Unrecognized losses 529.4 - (29.7)
</TABLE>
The notional amounts of these instruments do not represent the
company's risk of loss. The fair value amounts of these
instruments was estimated based on quoted market prices, dealer
quotations or internal price estimates believed to be comparable
to dealer quotations. These amounts reflect the estimated amounts
that the company would have to pay or would receive if the
contracts were terminated.
The company engages in hedging activities to manage foreign
exchange and interest rate risk. Such hedging activities have
principally consisted of using off-balance-sheet instruments
including foreign exchange forward contracts, futures and forward
contracts, and interest rate swap agreements. All of these
instruments involve, to varying degrees, elements of market risk
and credit risk in excess of the amounts recognized in the
Consolidated Balance Sheets. The company evaluates the risks
associated with off-balance-sheet financial instruments in a
manner similar to that used to evaluate the risks associated with
on-balance-sheet financial instruments. (Please see General
Account Investments - Use of Derivatives and Other Investments on
pages 56 and 57 of the Management's Discussion and Analysis of
Financial Condition and Results of Operations.) Market risk is
the possibility that future changes in market prices may make a
financial instrument less valuable. For off-balance-sheet
financial instruments used for hedging, such market price changes
are generally offset by the market price changes in the hedged
instruments held by the company. Credit risk arises from the
possibility that counterparties may fail to perform under the
terms of the contract, which could result in an unhedged position.
However, unlike on-balance-sheet financial instruments, where
credit risk generally is represented by the notional or principal
amount, the off-balance-sheet financial instruments' risk of
credit loss generally is significantly less than the notional
value of the instrument and is represented by the positive fair
value of the instrument. The company generally does not require
collateral or other security to support the financial instruments
discussed below. However, the company controls its exposure to
credit risk through credit approvals, credit limits and regular
monitoring procedures. There were no material concentrations of
off-balance-sheet financial instruments at December 31, 1994.
<PAGE> 109
Notes to Financial Statements (Continued)
18. Financial Instruments (Continued)
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 utilizes foreign
exchange forward contracts to hedge its foreign currency exposure
arising from certain investments in foreign affiliates (primarily
Canada, Great Britain and Malaysia) and non-dollar denominated
investment securities. The company generally utilizes foreign
currency contracts with terms of up to three months.
At December 31, 1994, the company had unhedged foreign currency
exposures of $238.1 million and $154.6 million related to net
investments in foreign affiliates (primarily Taiwan, Mexico and
Chile) and investments in non-dollar denominated assets,
respectively, for which effective markets for hedging vehicles do
not currently exist.
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. Futures
contracts trade on organized exchanges and, therefore, have
minimal credit risk.
Interest Rate Swaps:
The company utilizes interest rate swaps to manage certain
exposures related to changes in interest rates. This swap
activity includes transactions which were entered into in prior
years where the company acts as an intermediary for entities whose
debt the company has guaranteed to allow them to convert variable
rate debt to a fixed rate, with the company retaining no interest
rate risk. (Please refer to Note 19.) Interest rate swap
activity also includes exchanging variable rate asset returns for
fixed rate returns.
<PAGE> 110
Notes to Financial Statements (Continued)
19. Commitments and Contingent Liabilities
Commitments
Commitments to extend credit are legally binding agreements to
lend monies 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 reduced 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, 1994 and
1993, the company had $139.6 million and $130.2 million,
respectively, in commitments to fund partnerships and $4.0 million
and $64.0 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, 1994 and 1993 was $728.3
million and $930.3 million, respectively. Future runoff of
financial guarantees as of December 31, 1994 is estimated to be
$205.1 million for 1995, $29.2 million for 1996, $136.5 million
for 1997, $277.5 million for 1998, $5.1 million for 1999 and $74.9
million thereafter. It is 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 $47.7 million and $80.2 million at
December 31, 1994 and 1993, respectively. Premium income received
from such guarantees is recognized pro rata over the contract
coverage period.
<PAGE> 111
Notes to Financial Statements (Continued)
19. Commitments and Contingent Liabilities (Continued)
Reinsurance Agreement
In connection with the sale of Am Re (please 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 were 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 has not yet been required to make any payments under this
agreement, though it is reasonably possible that it may be
required to do so in the future.
Leases
The company has entered into operating leases for office space and
certain computer and other equipment. Rental expenses for these
items were $250.1 million, $267.4 million and $312.0 million for
1994, 1993 and 1992, respectively. Future net minimum payments
under non-cancelable leases as of December 31, 1994 are estimated
to be $190.9 million for 1995, $161.7 million for 1996, $134.7
million for 1997, $103.4 million for 1998, $86.5 million for 1999
and $663.2 million thereafter.
Included in these future payments are $131.7 million and $369.4
million, attributable to the next five and subsequent nine years,
respectively, of a subordinated master lease for office space.
The company, as the major subleasee, is obligated to pay $53.9
million for its own space during the next five years.
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 dismissed with
prejudice all federal antitrust claims in all of the complaints
before it. The court declined to exercise jurisdiction over the
state claims in the attorneys general complaints. The U.S. Court
of Appeals for the Ninth Circuit subsequently reversed the
District Court's dismissal of the federal antitrust claims and,
after further proceedings, the U.S. Supreme Court agreed to review
the Court of Appeals' decision.
<PAGE> 112
Notes to Financial Statements (Continued)
19. Commitments and Contingent Liabilities (Continued)
Litigation (Continued)
In June 1993, the Supreme Court returned the suit to the Court of
Appeals. 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. After
further proceedings the District Court ordered the parties to
undertake discovery on the remaining issues.
On October 5, 1994, all of the plaintiffs signed a letter
evidencing a settlement in principle of the litigation with all
the defendants, including Aetna. The agreement provides that the
defendants will pay plaintiffs an aggregate of $36 million plus
the costs of class notice (currently estimated at $2 million).
Aetna's share of the settlement is not material. The settlement
has received preliminary court approval, and notice of the
settlement terms has been sent to class members. The settlement
is subject to final court approval, and a hearing regarding such
approval is scheduled to occur in the first half of 1995.
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
environmental and asbestos-related claims. These lawsuits and
other factors make reserving for these claims subject to
significant uncertainties.
While the ultimate outcome of the litigation described herein
cannot be determined at this time, such litigation (other than
that related to environmental and asbestos-related claims, which
is subject to significant uncertainties), net of reserves
established therefor and giving effect to reinsurance probable of
recovery, is not expected to result in judgments for amounts
material to the financial condition of the company, although it
may adversely affect results of operations in future periods. The
company is expected to be affected adversely in the future by
losses for environmental and asbestos-related claims and related
litigation expenses and such effect could be material to the
company's future results, liquidity and/or capital resources.
<PAGE> 113
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, 1994 and
1993, 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, 1994. 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, 1994 and 1993, and the results of their operations
and their cash flows for each of years in the three-year period
ended December 31, 1994, 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.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 7, 1995
<PAGE> 114
Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
(Millions, except per share data) First Second Third Fourth
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
1994 (1)(2)(3)
________________________________________________________________________________________________
Total revenue $ 4,313.6 $ 4,405.0 $ 4,385.1 $ 4,421.0
________________________________________________________________________________________________
Income from continuing
operations before income taxes $ 56.4 $ 188.2 $ 177.9 $ 235.8
Federal and foreign income taxes 10.7 55.8 48.5 75.8
______________________________________________________
Net income $ 45.7 $ 132.4 $ 129.4 $ 160.0
________________________________________________________________________________________________
Per Share Results:
Net income $ .40 $ 1.17 $ 1.15 $ 1.42
________________________________________________________________________________________________
Common Stock Data:
Dividends Declared $ .69 $ .69 $ .69 $ .69
Common Stock Prices, High 65.75 57.88 57.50 48.00
Common Stock Prices, Low 53.13 50.00 45.13 43.25
________________________________________________________________________________________________
<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 1994 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 $22.2 million, $19.8 million, $17.9 million and $6.5 million for the first,
second, third and fourth quarters of 1994, respectively.
(2) First quarter 1994 net income includes catastrophe losses of $123.8 million,
after-tax, related primarily to the Los Angeles earthquake and severe winter weather.
(3) Second quarter 1994 net income includes prior year reserve additions of $82.4
million, after-tax, primarily related to environmental indemnity claims, offset by
$53.5 million after-tax of prior year reserve releases in the personal auto business.
</TABLE>
<PAGE> 115
Quarterly Data (Unaudited) - (Continued)
<TABLE>
<CAPTION>
(Millions, except per share data) First Second Third Fourth
________________________________________________________________________________________________
<S> <C> <C> <C> <C>
1993 (1)(2)(3)(4)(5)
________________________________________________________________________________________________
Total revenue $ 4,319.9 $ 4,349.9 $ 4,328.1 $ 4,205.8
________________________________________________________________________________________________
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, and a benefit of $26.3 million related to the cumulative effect of the
change in accounting for retrospectively rated reinsurance contracts.
(3) 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%.
(4) 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.
(5) The 1993 fourth quarter results reflect the following: a loss of $825.0 million
($1.3 billion pretax) on the discontinuance of fully guaranteed large case pension
products; an after-tax severance and facilities charge of $200.0 million ($308.0
million pretax); and 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> 116
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 1994 annual report to shareholders of Aetna Life and
Casualty Company:
<TABLE>
<CAPTION>
Page No. in this Exhibit Description
________________________ ______________________________________________________
<S> <C>
46 Debt Securities Quality Ratings
46 Debt Securities Investments by Market Sector
51 Problem, Potential Problem and Restructured Mortgage
Loans by Property Type
51 Geographic Distribution of Problem, Potential Problem
and Restructured Mortgage Loans
54 Equity Real Estate by Property Type
54 Geographic Distribution of Equity Real Estate
</TABLE>
<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 Capital L.L.C. DE 95% owned by Aetna Life and Casualty Company(2)
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
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
Aeltus Investment Management, Inc CT 100% owned by Aetna Life Insurance 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 Series Fund MD 7% owned by Aetna Life Insurance
and Annuity Company(3)
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 96% owned by Aetna Life Insurance
and Annuity Company(4)
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 Capital Holdings, Inc. CT 100% owned by Aetna International, Inc.
Aetna Realty Investors, Inc. DE 100% owned by Aeltus Investment Management,
Inc.
Aeltus Capital, Inc. CT 100% owned by Aeltus Investment Management,
Inc.
Smith Whiley & Company DE 40% owned by Aeltus Investment Management,
Inc.
<FN>
(1) Percentages are rounded to the nearest whole percent and are based on ownership of
voting rights.
(2) Aetna Capital Holdings, Inc. owns 5% of Aetna Capital L.L.C.
(3) Aetna Life Insurance Company owns 10% and The Aetna Casualty and Surety Company owns 1%.
(4) Aetna Life Insurance Company owns 4% of the outstanding total stock of Aetna Variable Fund.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
State of
Subsidiary Incorporation Ownership (1)
_____________________________________ ______________ __________________________________________
<S> <C> <C>
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.
Aetna Health Plans of Illinois, Inc. IL 100% owned by AHP Holdings, Inc.
Aetna Health Plans of the
Carolinas, Inc. NC 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.
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.
Med Southwest, Inc. TX 55% owned by AHP Holdings, Inc.
PHPSNE Parent Corporation DE 55% 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 Plans of Arizona, Inc. AZ 100% 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 Risk, Inc. DE 39% owned by The Aetna Casualty
and Surety Company
Farmington Casualty Company CT 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.
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, Inc. DE 100% owned by Executive Risk, Inc.
Aetna Health Plans of California, 100% owned by Partners Acquisition
Inc. CA Company, Inc.
Aetna Government Health Plans, Inc. CA 100% owned by Parters Acquisition Company,
Inc.
Executive Re Indemnity, Inc. DE 100% owned by Executive Re, 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. 33-52819 and No. 33-52819-01 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 7, 1995, relating to the consolidated
balance sheets of Aetna Life and Casualty Company and Subsidiaries as of
December 31, 1994 and 1993 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, 1994,
which reports appear in or are incorporated by reference in the December
31, 1994 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 /s/ KPMG Peat Marwick LLP
_____________________
(Signature)
KPMG Peat Marwick LLP
Hartford, Connecticut
March 17, 1995
<PAGE> 1
POWER OF ATTORNEY
We, the undersigned directors and officers of Aetna Life and Casualty
Company (the "Company"), hereby severally constitute and appoint Zoe
Baird, Robert E. Broatch and Robert J. Price, and each of them
individually, our true and lawful attorneys, with full power to them and
each of them to sign for us, and in our names and in the capacities
indicated below, the Company's 1994 Form 10-K and any and all amendments
thereto to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys to the Form 10-K
and to any and all amendments thereto.
WITNESS our hands and common seal on this 24th day of February, 1995.
<TABLE>
<CAPTION>
<S> <C>
/s/ Ronald E. Compton /s/ Gerald Greenwald
_____________________________ ______________________________
Ronald E. Compton Gerald Greenwald
Chairman, President and Director Director
(Principal Executive Officer)
/s/ Wallace Barnes /s/ Michael H. Jordan
_____________________________ ______________________________
Wallace Barnes Michael H. Jordan
Director Director
/s/ John F. Donahue
_____________________________ ______________________________
John F. Donahue Jack D. Kuehler
Director Director
/s/ William H. Donaldson /s/ Frank R. O'Keefe, Jr.
_____________________________ ______________________________
William H. Donaldson Frank R. O'Keefe, Jr.
Director Director
/s/ Barbara Hackman Franklin /s/ David M. Roderick
_____________________________ ______________________________
Barbara Hackman Franklin David M. Roderick
Director Director
/s/ Richard L. Huber
_____________________________ ______________________________
Earl G. Graves Richard L. Huber
Director Vice Chairman for Strategy and Finance
(Principal Financial Officer)
</TABLE>
<PAGE> 2
POWER OF ATTORNEY
We, the undersigned directors and officers of Aetna Life and Casualty
Company (the "Company"), hereby severally constitute and appoint Zoe
Baird, Robert E. Broatch and Robert J. Price, and each of them
individually, our true and lawful attorneys, with full power to them and
each of them to sign for us, and in our names and in the capacities
indicated below, the Company's 1994 Form 10-K and any and all amendments
thereto to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys to the Form 10-K
and to any and all amendments thereto.
WITNESS our hands and common seal on this 3rd day of March, 1995.
<TABLE>
<CAPTION>
<S> <C>
_____________________________ ______________________________
Ronald E. Compton Gerald Greenwald
Chairman, President and Director Director
(Principal Executive Officer)
_____________________________ ______________________________
Wallace Barnes Michael H. Jordan
Director Director
/s/ Jack D. Kuehler
_____________________________ ______________________________
John F. Donahue Jack D. Kuehler
Director Director
_____________________________ ______________________________
William H. Donaldson Frank R. O'Keefe, Jr.
Director Director
_____________________________ ______________________________
Barbara Hackman Franklin David M. Roderick
Director Director
/s/ Earl G. Graves
_____________________________ ______________________________
Earl G. Graves Richard L. Huber
Director Vice Chairman for Strategy and Finance
(Principal Financial Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Form 10-K for the fiscal year ended
December 31, 1994 for Aetna Life and Casualty Company and is qualified in its
entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 35,111
<DEBT-CARRYING-VALUE> 2,001
<DEBT-MARKET-VALUE> 1,991
<EQUITIES> 1,656
<MORTGAGE> 11,844
<REAL-ESTATE> 1,546
<TOTAL-INVEST> 54,293
<CASH> 2,954
<RECOVER-REINSURE> 5,011
<DEFERRED-ACQUISITION> 2,015
<TOTAL-ASSETS> 94,173
<POLICY-LOSSES> 17,979
<UNEARNED-PREMIUMS> 1,605
<POLICY-OTHER> 17,478
<POLICY-HOLDER-FUNDS> 23,223
<NOTES-PAYABLE> 1,115
<COMMON> 1,419
0
0
<OTHER-SE> 4,084
<TOTAL-LIABILITY-AND-EQUITY> 94,173
11,292
<INVESTMENT-INCOME> 4,464
<INVESTMENT-GAINS> (55)
<OTHER-INCOME> 1,824
<BENEFITS> 12,397
<UNDERWRITING-AMORTIZATION> 750
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 658
<INCOME-TAX> 191
<INCOME-CONTINUING> 467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 467
<EPS-PRIMARY> 4.14
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 11,438<F2>
<PROVISION-CURRENT> 3,631
<PROVISION-PRIOR> 252
<PAYMENTS-CURRENT> 1,375
<PAYMENTS-PRIOR> 2,783
<RESERVE-CLOSE> 11,163<F2>
<CUMULATIVE-DEFICIENCY> (252)
<FN>
<F1>There is not a significant difference between primary and fully diluted
earnings per share.
<F2>Amounts are net of reinsurance recoverables. Reserve-close is also net of
deductible amounts recoverable from policyholders.
</FN>
</TABLE>
