<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
____________________
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 or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
___________________________________________________________________________
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0123
______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding
Title of Class at September 30, 1995
________________ _______________________
Common Capital Stock 114,314,806
without par value
<PAGE> 2
TABLE OF CONTENTS
_________________
Page
____
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Shareholders'
Equity 6
Consolidated Statements of Cash Flows 7
Condensed Notes to Financial Statements 8
Independent Auditors' Review Report 20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 47
Item 5. Other Information. 47
Item 6. Exhibits and Reports on Form 8-K. 48
Signatures 49
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________________ _________________________
(Millions, except share and per share data) 1995 1994 1995 1994
____ ____ ____ ____
<S> <C> <C> <C> <C>
Revenue:
Premiums.................................. $ 2,856.0 $ 2,858.7 $ 8,610.7 $ 8,440.0
Net investment income..................... 1,118.4 1,111.2 3,344.9 3,358.7
Fees and other income..................... 495.3 454.7 1,478.0 1,381.1
Net realized capital losses............... (.5) (31.7) (32.8) (51.0)
___________ ___________ ____________ __________
Total revenue......................... 4,469.2 4,392.9 13,400.8 13,128.8
___________ ___________ ____________ __________
Benefits and expenses:
Current and future benefits............... 2,991.4 3,136.9 9,881.2 9,369.0
Operating expenses........................ 969.8 863.3 2,866.8 2,745.3
Amortization of deferred policy
acquisition costs....................... 191.6 214.8 575.4 592.0
___________ ___________ ____________ ___________
Total benefits and expenses........... 4,152.8 4,215.0 13,323.4 12,706.3
___________ ___________ ____________ ___________
Income before income taxes.................. 316.4 177.9 77.4 422.5
Federal and foreign income taxes (benefits):
Current................................... 106.7 (27.6) 80.3 (53.2)
Deferred.................................. (2.4) 76.1 (78.9) 168.2
___________ ___________ ____________ ___________
Total federal and foreign income taxes
(benefits).......................... 104.3 48.5 1.4 115.0
___________ ___________ ____________ ___________
Net income............................ $ 212.1 $ 129.4 $ 76.0 $ 307.5
___________ ___________ ____________ ___________
___________ ___________ ____________ ___________
Results per common share:
Net income.............................. $ 1.86 $ 1.15 $ .67 $ 2.73
___________ ___________ ____________ ___________
___________ ___________ ____________ ___________
Dividends declared...................... $ .69 $ .69 $ 2.07 $ 2.07
___________ ___________ ____________ ___________
___________ ___________ ____________ ___________
Weighted average common shares
outstanding............................. 114,370,702 112,854,480 113,522,029 112,899,393
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 4
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
_____________ ____________
<S> <C> <C>
Assets:
Investments:
Debt securities:
Held for investment, at amortized
cost (fair value $1,916.1 and
$1,991.2)....................... $ 1,888.1 $ 2,000.8
Available for sale, at fair value
(amortized cost $38,104.8 and
$36,984.2)...................... 39,210.7 35,110.7
Equity securities, at fair value
(cost $1,181.9 and $1,326.9)....... 1,652.1 1,655.6
Short-term investments.............. 866.7 450.4
Mortgage loans...................... 10,446.1 11,843.6
Real estate......................... 1,654.5 1,545.7
Policy loans........................ 593.7 533.8
Other............................... 1,026.6 1,152.7
___________ __________
Total investments............... 57,338.5 54,293.3
Cash and cash equivalents............. 2,580.6 2,953.6
Reinsurance recoverables and
receivables.......................... 5,226.3 5,011.0
Accrued investment income............. 775.9 777.2
Premiums due and other receivables.... 1,797.6 1,722.9
Federal and foreign income taxes:
Current............................. 45.1 18.3
Deferred............................ 1,097.4 1,266.7
Deferred policy acquisition costs..... 2,175.1 2,014.7
Other assets.......................... 2,046.9 1,992.2
Separate Accounts assets.............. 28,569.6 24,122.6
___________ __________
Total assets.................... $ 101,653.0 $ 94,172.5
___________ __________
___________ __________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 5
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30, December 31,
(Millions, except share and per share data) 1995 1994
_____________ ____________
<S> <C> <C>
Liabilities:
Future policy benefits........................ $ 17,958.0 $ 17,979.2
Unpaid claims and claim expenses.............. 18,062.1 17,478.3
Unearned premiums............................. 1,642.3 1,604.9
Policyholders' funds left with the company.... 23,623.7 23,223.1
___________ __________
Total insurance reserve liabilities....... 61,286.1 60,285.5
Dividends payable to shareholders............. 78.9 77.7
Short-term debt............................... 69.5 23.9
Long-term debt................................ 1,121.1 1,114.7
Other liabilities............................. 3,219.5 2,718.6
Participating policyholders' interests........ 192.4 170.5
Separate Accounts liabilities................. 28,509.5 24,003.6
___________ __________
Total liabilities......................... 94,477.0 88,394.5
___________ __________
Minority interest in preferred securities
of subsidiary.................................. 275.0 275.0
___________ __________
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 114,314,806
and 112,657,758 outstanding)................. 1,425.6 1,419.2
Net unrealized capital gains (losses)......... 401.4 (1,071.5)
Retained earnings............................. 5,099.4 5,259.6
Treasury stock, at cost (624,469 and
2,281,517 shares)............................ (25.4) (104.3)
___________ __________
Total shareholders' equity................ 6,901.0 5,503.0
___________ __________
Total liabilities, minority interest
and shareholders' equity................. $ 101,653.0 $ 94,172.5
___________ __________
___________ __________
Shareholders' equity per common share......... $ 60.37 $ 48.85
___________ __________
___________ __________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 6
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Millions, except share data)
Net
Common Unrealized
Capital Capital Retained Treasury
Nine Months Ended September 30, 1995 Total Stock Gains (Losses) Earnings Stock
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ 5,503.0 $ 1,419.2 $(1,071.5) $ 5,259.6 $ (104.3)
__________________________________________________________________________________________________________
Net Income............................ 76.0 76.0
Net change in unrealized capital gains
and losses.......................... 1,472.9 1,472.9
Common stock issued for benefit plans
(1,657,048 shares).................... 78.9 78.9
Gain on issuance of treasury stock.... 6.4 6.4
Common stock dividends declared....... (236.2) (236.2)
____________________________________________________________________
Balances at September 30, 1995 $ 6,901.0 $ 1,425.6 $ 401.4 $ 5,099.4 $ (25.4)
__________________________________________________________________________________________________________
____________________________________________________________________
Nine Months Ended September 30, 1994
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 7,043.1 $ 1,422.0 $ 648.2 $ 5,103.3 $ (130.4)
__________________________________________________________________________________________________________
Net income............................ 307.5 307.5
Net change in unrealized capital gains
and losses.......................... (1,280.3) (1,280.3)
Common stock issued for benefit plans
(441,338 shares)...................... 25.2 25.2
Loss on issuance of treasury stock.... (4.5) (4.5)
Common stock dividends declared....... (233.3) (233.3)
____________________________________________________________________
Balances at September 30, 1994 $ 5,857.7 $ 1,417.5 $ (632.1) $ 5,177.5 $ (105.2)
__________________________________________________________________________________________________________
____________________________________________________________________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 7
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
_________________________
(Millions) 1995 1994
____ ____
<S> <C> <C>
Cash Flows from Operating Activities:
Net income........................................................ $ 76.0 $ 307.5
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Decrease in accrued investment income.......................... 2.9 42.4
Increase in premiums due and other receivables................. (32.3) (190.4)
Increase in reinsurance recoverables and receivables........... (210.1) (94.4)
Increase in deferred policy acquisition costs.................. (147.4) (132.9)
Depreciation and amortization.................................. 140.9 142.9
(Decrease) Increase in federal and foreign income taxes........ 127.9 (7.2)
Net decrease in other assets and other liabilities............. (103.4) (558.5)
Increase in insurance reserve liabilities...................... 323.1 465.9
Net sales of debt trading securities........................... - 52.3
Decrease (Increase) in minority interest....................... 10.2 (18.6)
Net realized capital losses.................................... 32.8 51.0
Amortization of net investment discount........................ (77.6) (66.3)
Other, net..................................................... (29.8) (1.3)
_________ _________
Net cash provided by (used for) operating activities......... 113.2 (7.6)
_________ _________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale............................. 12,617.2 16,659.5
Debt securities held for investment............................ - 5.6
Equity securities.............................................. 1,083.9 496.7
Mortgage loans................................................. 113.6 123.2
Real estate.................................................... 208.7 449.7
Short-term investments......................................... 42,029.7 45,409.7
Investment repayments of:
Debt securities available for sale............................. 2,358.3 2,804.6
Debt securities held for investment............................ 277.6 498.2
Mortgage loans................................................. 1,038.5 1,662.6
Cost of investments in:
Debt securities available for sale............................. (15,935.3) (19,657.4)
Debt securities held for investment............................ (144.8) (5.3)
Equity securities.............................................. (674.0) (595.4)
Mortgage loans................................................. (148.2) (211.9)
Real estate.................................................... (124.1) (31.4)
Short-term investments......................................... (42,463.1) (45,386.9)
Increase in property, plant & equipment........................... (118.9) (97.2)
Net decrease in Separate Accounts................................. 58.7 3.7
Other, net........................................................ (93.8) (189.1)
_________ _________
Net cash provided by investing activities....................... 84.0 1,938.9
_________ _________
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts........... 2,357.8 2,526.3
Withdrawals of investment contracts............................... (2,829.9) (3,220.9)
Issuance of long-term debt........................................ 6.8 66.5
Stock issued under benefit plans.................................. 85.3 20.7
Repayment of long-term debt....................................... (1.9) (91.9)
Net increase in short-term debt................................... 45.6 110.4
Dividends paid to shareholders.................................... (236.2) (233.3)
_________ _________
Net cash used for financing activities.......................... (572.5) (822.2)
_________ _________
Effect of exchange rate changes on cash and cash
equivalents....................................................... 2.3 (2.0)
_________ _________
Net (decrease) increase in cash and cash equivalents................. (373.0) 1,107.1
Cash and cash equivalents, beginning of period....................... 2,953.6 1,557.8
_________ _________
Cash and cash equivalents, end of period............................. $ 2,580.6 $ 2,664.9
_________ _________
_________ _________
Supplemental Cash Flow Information:
Interest paid..................................................... $ 101.7 $ 81.4
_________ _________
_________ _________
Income taxes paid................................................. $ 84.1 $ 117.4
_________ _________
_________ _________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 8
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation
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 and are unaudited. Certain reclassifications have been
made to 1994 financial information to conform to 1995
presentation. These interim statements necessarily rely heavily
on estimates, including assumptions as to annualized tax rates.
In the opinion of management, all adjustments necessary for a fair
statement of results for the interim periods have been made. All
such adjustments are of a normal, recurring nature.
(2) Future Application of Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 121, Accounting for
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires write down to fair value when long-lived
assets to be held and used are impaired. The statement also
requires long-lived assets to be disposed of (e.g., real estate
held for sale) to be carried at the lower of cost or fair value
less estimated selling costs and does not allow such assets to be
depreciated. This statement will be effective for 1996 financial
statements, although earlier adoption is permissible. The company
has not yet determined the timing of adoption of this statement,
however, the impact on earnings is not expected to be material.
In October 1995, the Financial Accounting Standards Board issued
FAS No. 123, Accounting for Stock-Based Compensation. This
statement addresses the accounting for the cost of stock-based
compensation, such as stock options. FAS No. 123 permits either
expensing the cost of stock-based compensation over the vesting
period or disclosing in the financial statement footnotes what this
expense would have been. This cost would be measured at the grant
date based upon estimated fair values, using option pricing models.
The requirements of this statement will be effective for 1996
financial statements, although earlier adoption is permissible if
an enterprise elects to expense the cost of stock-based
compensation. The company is currently evaluating the disclosure
and expense recognition alternatives as permitted by this
statement.
<PAGE> 9
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Insurance Liabilities
Workers' compensation life table indemnity reserves are discounted
at 5% for voluntary business and 3.5% for involuntary business, with
mortality assumptions that reflect current company and industry
experience. Workers' compensation life table indemnity reserves
totaled $713 million at September 30, 1995, which was 21% of the
total workers' compensation reserves for unpaid claims and claim
adjustment expenses. Certain other property-casualty reserves with
fixed and determinable payment patterns over periods of up to 7
years, including reserves related to a small number of environmental
and asbestos-related claim settlements with such payment patterns,
have also been discounted. The risk free rates used in discounting
such reserves range from 4% to 7%, and the amount of such discounted
reserves was approximately $187 million at September 30, 1995.
(4) Discontinued Products
Results of discontinued fully guaranteed large case pension
products (guaranteed investment contracts ("GICs") and single-
premium annuities ("SPAs")) for the three and nine months ended
September 30, 1995 and 1994 were charged to the reserve for
anticipated future losses 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. Management believes the reserve for anticipated losses
at September 30, 1995 is adequate to provide for future losses
associated with these products. To the extent that actual future
losses differ from anticipated future losses, the company's
results of operations would be affected. (Please refer to the
company's 1994 Annual Report to Shareholders for a more complete
discussion of the reserve for anticipated future losses on
discontinued products.)
<PAGE> 10
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Discontinued Products (Continued)
Results of discontinued products were as follows (pretax, in
millions):
<TABLE>
<CAPTION>
Charged to
(Added to)
Guaranteed Single- Reserve for
Investment Premium Future
Three months ended September 30, 1995 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net investment income $ 121.2 $ 111.6 $ 232.8 $ - $ 232.8
Net realized capital gains (losses) (12.4) 16.2 3.8 (3.8) -
Interest earned on receivable
from continuing business 5.0 7.7 12.7 - 12.7
Other income 2.1 3.0 5.1 - 5.1
_____________________________________________________________
Total revenue 115.9 138.5 254.4 (3.8) 250.6
_____________________________________________________________
Current and future benefits 138.1 108.9 247.0 1.7 248.7
Operating expenses (.4) 2.3 1.9 - 1.9
_____________________________________________________________
Total benefits and expenses 137.7 111.2 248.9 1.7 250.6
_____________________________________________________________
Results of discontinued products $ (21.8) $ 27.3 $ 5.5 $ (5.5) $ -
_____________________________________________________________________________________________________
_____________________________________________________________
Charged to
(Added to)
Guaranteed Single- Reserve for
Investment Premium Future
Three months ended September 30, 1994 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Premiums $ - $ 2.5 $ 2.5 $ - $ 2.5
Net investment income 155.9 107.7 263.6 - 263.6
Net realized capital losses (73.7) (19.5) (93.2) 93.2 -
Interest earned on receivable
from continuing business 4.8 7.1 11.9 - 11.9
Other income 2.8 6.0 8.8 - 8.8
_____________________________________________________________
Total revenue 89.8 103.8 193.6 93.2 286.8
_____________________________________________________________
Current and future benefits 190.0 110.3 300.3 (17.2) 283.1
Operating expenses 2.9 .8 3.7 - 3.7
_____________________________________________________________
Total benefits and expenses 192.9 111.1 304.0 (17.2) 286.8
_____________________________________________________________
Results of discontinued products $ (103.1) $ (7.3) $ (110.4) $ 110.4 $ -
_____________________________________________________________________________________________________
______________________________________________________________
<FN>
* Amounts are reflected in the 1995 and 1994 Consolidated Statements of Income, except for interest
of $12.7 million and $11.9 million for the three months ended September 30, 1995 and 1994, respectively,
earned on the receivable from continuing business which is eliminated in consolidation.
</TABLE>
<PAGE> 11
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Discontinued Products (Continued)
<TABLE>
<CAPTION>
Charged to
(Added to)
Guaranteed Single- Reserve for
Investment Premium Future
Nine months ended September 30, 1995 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net investment income $ 391.8 $ 333.9 $ 725.7 $ - $ 725.7
Net realized capital gains (losses) (43.5) 38.6 (4.9) 4.9 -
Interest earned on receivable
from continuing business 15.2 22.9 38.1 - 38.1
Other income 7.0 9.0 16.0 - 16.0
_____________________________________________________________
Total revenue 370.5 404.4 774.9 4.9 779.8
_____________________________________________________________
Current and future benefits 438.4 336.5 774.9 (4.1) 770.8
Operating expenses 1.2 7.8 9.0 - 9.0
_____________________________________________________________
Total benefits and expenses 439.6 344.3 783.9 (4.1) 779.8
_____________________________________________________________
Results of discontinued products $ (69.1) $ 60.1 $ (9.0) $ 9.0 $ -
_____________________________________________________________________________________________________
_____________________________________________________________
Charged to
(Added to)
Guaranteed Single- Reserve for
Investment Premium Future
Nine months ended September 30, 1994 Contracts Annuities Total Losses Net*
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Premiums $ - $ 47.2 $ 47.2 $ - $ 47.2
Net investment income 483.4 323.5 806.9 - 806.9
Net realized capital losses (130.8) (45.9) (176.7) 176.7 -
Interest earned on receivable
from continuing business 14.4 20.9 35.3 - 35.3
Other income 9.3 12.4 21.7 - 21.7
_____________________________________________________________
Total revenue 376.3 358.1 734.4 176.7 911.1
_____________________________________________________________
Current and future benefits 582.7 374.2 956.9 (53.6) 903.3
Operating expenses 5.1 2.7 7.8 - 7.8
_____________________________________________________________
Total benefits and expenses 587.8 376.9 964.7 (53.6) 911.1
_____________________________________________________________
Results of discontinued products $ (211.5) $ (18.8) $ (230.3) $ 230.3 $ -
_____________________________________________________________________________________________________
_____________________________________________________________
<FN>
* Amounts are reflected in the 1995 and 1994 Consolidated Statements of Income, except for interest
of $38.1 million and $35.3 million for the nine months ended September 30, 1995 and 1994, respectively,
earned on the receivable from continuing business which is eliminated in consolidation.
</TABLE>
Deposits of $7.7 million and $30.9 million for the three months
ended September 30, 1995 and 1994, respectively, and $24.5 million
and $199.4 million for the nine months ended September 30, 1995
and 1994, respectively, were received under pre-existing GIC
contracts. In accordance with FAS No. 97, such deposits are not
included in premiums or revenue.
<PAGE> 12
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Discontinued Products (Continued)
Assets and liabilities of discontinued products were as follows
(in millions):
<TABLE>
<CAPTION>
September 30, 1995
_______________________________________
Guaranteed Single-
Investment Premium
Contracts Annuities Total
_______________________________________
<S> <C> <C> <C>
Debt securities available for sale $ 2,472.5 $ 3,287.8 $ 5,760.3
Mortgage loans 2,433.5 1,497.5 3,931.0
Real estate 501.9 177.8 679.7
Short-term and other investments 259.2 350.5 609.7
_______________________________________
Total investments 5,667.1 5,313.6 10,980.7
Current and deferred income taxes 210.1 124.7 334.8
Receivable from continuing
business 424.7 485.9 910.6
Other 72.3 - 72.3
________________________________________
Total assets $ 6,374.2 $ 5,924.2 $12,298.4
______________________________________________________________________________
________________________________________
Future policy benefits $ - $ 4,950.5 $ 4,950.5
Policyholders' funds left with
the company 5,930.9 - 5,930.9
Reserve for future losses on
discontinued products 276.5 711.5 988.0
Other 166.8 262.2 429.0
________________________________________
Total liabilities $ 6,374.2 $ 5,924.2 $12,298.4
______________________________________________________________________________
________________________________________
</TABLE>
Net unrealized capital gains as of September 30, 1995 on available
for sale debt securities are included above in other liabilities
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 Sheet.
At September 30, 1995, estimated future after-tax realized capital
losses of approximately $103.5 million ($159.2 million, pretax),
attributable to mortgage loans and real estate supporting GICs,
and $39.6 million ($60.9 million, pretax), attributable to
mortgage loans and real estate supporting SPAs were expected to be
charged to the reserve for future losses. Included in the ($43.5)
million and $38.6 million of net realized capital (losses) gains
(pretax) on GICs and SPAs, respectively, for the nine months ended
September 30, 1995 are (losses) gains from the sale of bonds of
($6.4) million and $51.2 million, respectively.
<PAGE> 13
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Discontinued Products (Continued)
The activity in the reserve for anticipated future losses on
discontinued products was as follows (pretax, in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
____________________________________
Guaranteed Single-
Investment Premium
Contracts Annuities Total
_____________________________________________________________________________
<S> <C> <C> <C>
Reserve at beginning of period $ 345.6 $ 651.4 $ 997.0
Results of discontinued products (69.1) 60.1 (9.0)
____________________________________
Reserve at end of period $ 276.5 $ 711.5 $ 988.0
_____________________________________________________________________________
____________________________________
</TABLE>
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, on which interest is accrued at the discount
rates used to calculate the loss on discontinuance, will be
funded, net of taxes on the accrued interest, from invested assets
supporting Large Case Pensions. The offsetting payable, on which
interest is similarly accrued, was established in continuing
products. The interest on such payable generally offsets the
investment income on the assets available to fund the shortfall.
At September 30, 1995, for GICs and SPAs, the receivables from
continuing operations, net of the related deferred taxes payable
on the accrued interest income of $12.2 million and $17.8 million,
respectively, were $412.5 million and $468.1 million,
respectively. As of September 30, 1995, no funding had taken
place. These amounts are eliminated in consolidation and are
therefore not reflected on the Consolidated Balance Sheets.
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.
<PAGE> 14
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Intent to Sell Subsidiary
The company intends to sell its subsidiary, Aetna Re-Insurance
Company (U.K.) Ltd., and accordingly, the subsidiary has been
written down to estimated fair market value. A loss of $22.5
million (after-tax) is included in net realized capital losses in
the Consolidated Statements of Income for the nine months ended
September 30, 1995.
(6) Investments
Net investment income includes amounts allocable to experience
rated contractholders of $363.4 million and $350.8 million for the
three months ended September 30, 1995 and 1994, respectively, and
$1,092.1 million and $1,080.6 million for the nine months ended
September 30, 1995 and 1994, respectively. Interest credited to
contractholders is included in current and future benefits.
Net realized capital gains (losses) allocable to experience rated
contractholders of $62.9 million and ($26.1) million for the three
months ended September 30, 1995 and 1994, respectively, and $74.2
million and ($136.2) million for the nine months ended September
30, 1995 and 1994, respectively, were deducted from net realized
capital losses 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.
As of January 1, 1995, the company adopted FAS No. 114, Accounting
by Creditors for Impairment of a Loan and FAS No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. In accordance with these standards, a loan is
considered impaired when it is probable that the company will be
unable to collect amounts due according to the contractual terms
of the loan agreement. For impaired loans, a specific impairment
reserve is established for the difference between the recorded
investment in the mortgage loan and the fair value of the
collateral. General reserves are established for losses management
believes are likely to arise from the overall portfolio but cannot
be attributed to specific loans. Prior to the adoption of FAS
Nos. 114 and 118, the company included the reserve for estimated
losses on potential problem loans (other than those allocable to
experience rated products) which management believed were likely
to become classified as problem or restructured in the next 12
months or so in the general reserve.
<PAGE> 15
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Investments (continued)
At September 30, 1995, the total recorded investment in loans that
are considered to be impaired (which include problem loans,
restructured loans and potential problem loans) under FAS No. 114 and
related specific reserves are presented in the table below. Included
in the total recorded investment are impaired loans of $347.3 million
for which no specific reserves are considered necessary.
<TABLE>
<CAPTION>
Total
Recorded Specific
(Millions) Investment Reserves
_________________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 921.9 $ 234.2
Supporting experience rated products 607.8 169.2
Supporting remaining products 530.1 94.2
___________________________
Total Impaired Loans $ 2,059.8 $ 497.6
_________________________________________________________________________
___________________________
</TABLE>
The activity in the specific and general reserves as of September 30,
1995 is summarized below:
<TABLE>
<CAPTION>
General
Reserve
Allocated to Charged Balance
Balance at Experience Balance at to net Charged at
December 31, 1994 Rated December 31, 1994, realized to other Principal September 30,
(Millions) as reported Products (1) as adjusted loss accounts(2) Write-offs 1995 (3)
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Supporting
discontinued
products $ 372.1 $ - $ 372.1 $ - $ 25.1 $ (89.0) $ 308.2
Supporting
experience
rated
products 156.1 208.5 364.6 - (22.7) (68.5) 273.4
Supporting
remaining
products 255.9 - 255.9 8.8 - (89.1) 175.6
______________________________________________________________________________________________
Total $ 784.1 $ 208.5 $ 992.6 $ 8.8 $ 2.4 $ (246.6) $ 757.2
___________________________________________________________________________________________________________
______________________________________________________________________________________________
<FN>
(1) The general reserve at December 31, 1994 excluded reserves of $208.5 million related to experience
rated products.
(2) Reflects additions to (releases of) reserves related to assets supporting experience rated products and
discontinued products which do not affect the company's results of operations.
(3) Total reserves at September 30, 1995 included $497.6 million of specific reserves and $259.6 million of
a general reserve.
Note: $261.5 million of general reserve related to performing loans at December 31, 1994 were reclassified
to specific reserves as a result of the adoption of FAS No. 114.
</TABLE>
The company accrues interest income on impaired loans to the
extent it is deemed collectible and the loan continues to perform
under its original or restructured contractual terms. Interest
income on problem loans is generally recognized on a cash basis.
Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.
<PAGE> 16
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Investments (Continued)
Income earned (pretax) and received on the average recorded
investment in impaired loans for the three and nine months ended
September 30, 1995, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
______________________________ ______________________________
Average Average
Impaired Income Income Impaired Income Income
(Millions) Loans Earned Received Loans Earned Received
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Supporting discontinued products $ 995.4 $ 22.1 $ 22.5 $ 1,026.2 $ 61.8 $ 61.6
Supporting experience rated products 790.6 14.9 13.8 805.3 41.1 40.4
Supporting remaining products 497.7 7.5 8.1 558.3 25.0 26.3
_______________________________________________________________
Total $ 2,283.7 $ 44.5 $ 44.4 $ 2,389.8 $ 127.9 $ 128.3
_____________________________________________________________________________________________________
_______________________________________________________________
</TABLE>
(7) Federal and Foreign Income Taxes
Net unrealized capital gains and losses are presented in
shareholders' equity net of deferred taxes. During the nine months
ended September 30, 1995, the company moved from a net unrealized
capital loss position of $1,071.5 million at December 31, 1994, to a
net unrealized capital gain position of $401.4 million at September
30, 1995, primarily due to decreases in interest rates. As a result,
all valuation allowances previously established related to deferred
tax assets on these capital losses were reversed, which had no impact
on net income for the three and nine months ended September 30, 1995.
(8) Reinsurance
Ceded earned premiums were $.4 billion and $.3 billion for three
months ended September 30, 1995 and 1994, respectively, and $.9
billion for both the nine months ended September 30, 1995 and 1994.
Ceded current and future benefits were $.3 billion and $.2 billion
for the three months ended September 30, 1995 and 1994, respectively,
and $.9 billion for both the nine months ended September 30, 1995 and
1994.
(9) Debt
The company has credit facilities aggregating $1 billion with a
group of worldwide banks. One $500 million facility terminates in
July 1996. Another $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 $5.0 billion. These facilities also support
the company's commercial paper borrowing program.
<PAGE> 17
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(9) Debt (Continued)
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.
A subsidiary of the company may offer and sell up to an additional
$225 million of preferred securities under a shelf registration
statement declared effective by the SEC.
(10) Off-Balance-Sheet Financial Instruments
(Including Derivative Financial Instruments)
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. (Please see General
Account Investments - Use of Derivatives and Other Investments on
pages 43 and 44 of the Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 18 of the
company's 1994 Annual Report to Shareholders for a description of
the company's hedging activities). The notional amounts, carrying
values and estimated fair values of the company's off-balance-
sheet financial instruments are as follows (in millions):
<TABLE>
<CAPTION>
Carrying
Value
Notional Asset Fair
September 30, 1995 Amount (Liability) Value
_______________________________________________________________________________
<S> <C> <C> <C>
Foreign exchange forward contracts - sell:
Related to net investments in foreign
affiliates $ 192.7 $ (5.6) $ (6.9)
Related to investments in non-dollar
denominated assets 235.5 (2.9) (3.0)
Foreign exchange forward contracts - buy:
Related to net investments in foreign
affiliates 16.3 3.1 2.6
Related to investments in non-dollar
denominated assets 26.1 0.4 0.4
Futures contracts to purchase investments 52.3 (0.2) (0.2)
Futures contracts to sell investments 224.8 - -
Interest rate swaps:
Unrecognized gains 423.0 - 21.8
Unrecognized losses 380.0 - (13.9)
Forward swap agreement 100.0 - 0.2
</TABLE>
<PAGE> 18
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(11) Supplemental Cash Flow Information
Significant non-cash investing and financing activities include
acquisition of real estate through foreclosures (including in-
substance foreclosures) of mortgage loans amounting to $227
million and $462 million for the nine months ended September 30,
1995 and 1994, respectively.
(12) Earnings Per Share
Earnings per share are computed using net income divided by the
weighted average number of common shares outstanding, (including
common share equivalents). The increase in the number of common
shares outstanding for the three months ended September 30, 1995
is primarily due to options exercised in the period. There is not
a significant difference between primary and fully diluted
earnings per share.
(13) Commitments and Contingent Liabilities
Environmental and Asbestos-Related Claims
The company added $750 million ($487.5 million, after-tax)
to environmental-related claims reserves in the second quarter of
1995. In the opinion of management, the company's reserves for
environmental-related claims at September 30, 1995 represent the
company's best estimate of its ultimate environmental-related
liability, based on currently known facts, current law (including
Superfund), current technology, and assumptions considered
reasonable where facts are not known. Due to the significant
uncertainties and related management judgment involved in
estimating the company's environmental liability, no assurances
can be given that the environmental reserve represents the amount
that will ultimately be paid by the company for all environmental-
related losses. The amount ultimately paid could differ
materially from the company's currently recorded reserve as legal
and factual issues are clarified, but any difference cannot be
reasonably estimated at this time.
<PAGE> 19
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
Reserving for asbestos-related claims is subject to significant
uncertainties and management is currently unable to make a
reasonable estimate as to the ultimate amount of losses or a
reasonable range of losses for all asbestos-related claims and
related litigation expenses. However, reserves for asbestos
liabilities are being evaluated by management as the company
continues to gather and analyze new information and reassess its
reserving techniques for these claims in order to determine
whether it can better estimate its liability. Adjustments may be
made to such reserves as loss patterns develop and other
information is obtained.
Environmental and asbestos-related loss and loss adjustment
expense reserves, as reflected on the Consolidated Balance Sheet,
were as follows (before reinsurance and net of discount on certain
environmental and asbestos settlements, in millions):
<TABLE>
<CAPTION>
September 30,
1995
____________________________________________________
<S> <C>
Environmental Liability $ 1,067.4
Asbestos Bodily Injury* 421.9
Asbestos Property Damage* 30.2
___________
Total Environmental and
Asbestos-Related Reserves $ 1,519.5
____________________________________________________
___________
<FN>
* Includes $107.4 million and $12.6 million of property-casualty reserves
transferred to asbestos bodily injury and asbestos property damage reserves,
respectively.
</TABLE>
(14) Litigation
The company is continuously involved in numerous 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 such litigation cannot be determined
at this time, such litigation, net of reserves established
therefore 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.
<PAGE> 20
Independent Auditors' Review Report
The Board of Directors
Aetna Life and Casualty Company:
We have reviewed the accompanying condensed consolidated balance
sheet of Aetna Life and Casualty Company and Subsidiaries as of
September 30, 1995, and the related condensed consolidated
statements of income for the three-month and nine-month periods
ended September 30, 1995 and 1994, and the related condensed
consolidated statements of shareholders' equity and cash flows for
the nine-month periods ended September 30, 1995 and 1994. These
condensed consolidated financial statements are the responsibility
of the company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Aetna Life
and Casualty Company and Subsidiaries as of December 31, 1994, and
the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 7, 1995, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1994, is
fairly presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
October 26, 1995
<PAGE> 21
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Results of Operations
__________________________________
<TABLE>
<CAPTION>
Operating Summary
(Millions, except per share data) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................. $ 2,856.0 $ 2,858.7 (.1)% $ 8,610.7 $ 8,440.0 2.0%
Net investment income................ 1,118.4 1,111.2 .6 3,344.9 3,358.7 (.4)
Fees and other income................ 495.3 454.7 8.9 1,478.0 1,381.1 7.0
Net realized capital losses.......... (.5) (31.7) 98.4 (32.8) (51.0) 35.7
_________ _________ _________ _________
Total revenue.................... 4,469.2 4,392.9 1.7 13,400.8 13,128.8 2.1
Current and future benefits.......... 2,991.4 3,136.9 (4.6) 9,881.2 9,369.0 5.5
Operating expenses................... 969.8 863.3 12.3 2,866.8 2,745.3 4.4
Amortization of deferred policy
acquisition costs................... 191.6 214.8 (10.8) 575.4 592.0 (2.8)
_________ _________ _________ _________
Total benefits and expenses...... 4,152.8 4,215.0 (1.5) 13,323.4 12,706.3 4.9
_________ _________ _________ _________
Income before income taxes........... 316.4 177.9 77.9 77.4 422.5 (81.7)
Income taxes......................... 104.3 48.5 115.1 1.4 115.0 (98.8)
_________ _________ _________ _________
Net income....................... $ 212.1 $ 129.4 63.9 $ 76.0 $ 307.5 (75.3)
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital losses,
net of tax (included above)......... $ (.5) $ (20.2) 97.5 $ (20.0) $ (35.7) 44.0
_________ _________ _________ _________
_________ _________ _________ _________
Net income per common share.......... $ 1.86 $ 1.15 61.7 $ .67 $ 2.73 (75.5)
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Overview
________
The company reported net income of $212 million and $76 million for
the three and nine months ended September 30, 1995, respectively,
compared with net income of $129 million and $308 million for the
same periods a year ago. The company's earnings (after-tax) adjusted
for additions to environmental-related claims reserves and net
realized capital losses follow (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 1995 1994
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net income................................... $ 212.1 $ 129.4 $ 76.0 $ 307.5
Less:
Additions to environmental-related
claims reserves (1)..................... - (30.2) (505.7) (127.8)
Net realized capital losses............... (.5) (20.2) (20.0) (35.7)
_______ _______ _______ _______
Adjusted earnings............................ $ 212.6 $ 179.8 $ 601.7 $ 471.0
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
(1) Please see the company's Form 10-Q for the quarter ended June 30, 1995 for discussions of
additions to environmental-related claims reserves.
</TABLE>
The company's adjusted earnings increased $33 million and $131
million for the three and nine months ended September 30, 1995,
respectively, as compared with the same periods in 1994. The
following significant factors impact the comparison of adjusted
earnings:
Catastrophe losses (after-tax and net of reinsurance) for the three
and nine months ended September 30, 1995 were $13 million and $51
million, respectively, compared with $28 million and $181 million,
respectively, for the same periods a year ago. Catastrophe losses
for the nine months ended September 30, 1994 related primarily to the
Los Angeles earthquake and the severe winter weather.
<PAGE> 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Overview (Continued)
____________________
Reductions of prior year loss reserves in the personal auto
business of $61 million (after-tax) for the nine months ended
September 30, 1994.
Results in 1995 also reflected increased operating expenses in the
health care business as a result of the migration of customers
from traditional health care products to the more resource-
intensive managed care business and the company's increased
investment in managed care, and in the Aetna Life Insurance &
Annuity segment as a result of continued business growth and costs
associated with the implementation of a new contract
administration system. Partially offsetting these increases in
operating expenses are overall reductions due to actions taken by
management in prior years to lower costs.
Net Realized Capital Gains and Losses
Net realized after-tax capital gains and losses included in net
income, supporting discontinued products, and allocable to
experience rated pension contractholders were as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 1995 1994
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net realized capital gains (losses)
from sales................................. $ (.5) $ (1.4) $ (22.6) $ 26.0
Realized capital gains (losses)
from changes in reserves for mortgage
loans and real estate...................... - (17.9) 2.6 (59.9)
Realized capital losses from write-downs
of debt and equity securities.............. - (.9) - (1.8)
_______ _______ ________ _______
Net realized capital losses included
in net income.............................. $ (.5) $ (20.2) $ (20.0) $ (35.7)
_______ _______ ________ _______
_______ _______ ________ _______
Net realized capital gains (losses)
on assets supporting discontinued
products (excluded above).................. $ 2.3 $ (60.5) $ (3.3) $(114.8)
_______ _______ ________ _______
_______ _______ ________ _______
Net realized capital gains (losses)
allocable to experience rated pension
contractholders (excluded above)........... $ 40.9 $ (16.9) $ 48.2 $ (88.5)
_______ _______ ________ _______
_______ _______ ________ _______
</TABLE>
Net realized capital losses from sales for the nine months ended
September 30, 1995 include $23 million resulting from the write-
down to estimated fair market value of the company's investment in
a consolidated subsidiary, Aetna Re-Insurance Company (U.K.) Ltd.,
which it intends to sell. Net realized capital gains from sales
for the nine months ended September 30, 1994 include a $14 million
gain resulting from the sale of a portion of an unconsolidated
subsidiary.
Strategic Outlook
The company continues to review strategic options for all of its
businesses, which may result in acquisitions, sales or spinoffs.
As of the date hereof, the company is exploring all of these
options, including having discussions concerning the possible sale
of its property-casualty business. No assurances can be made that
there will be any transaction.
<PAGE> 23
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Aetna Health Plans
__________________
<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 1,501.3 $ 1,476.4 1.7% $ 4,457.8 $ 4,233.0 5.3%
Net investment income............... 95.5 86.2 10.8 276.7 255.6 8.3
Fees and other income............... 318.0 296.7 7.2 961.6 894.5 7.5
Net realized capital losses......... (5.0) (6.2) 19.4 (15.1) (23.6) 36.0
_________ _________ _________ _________
Total revenue.................... 1,909.8 1,853.1 3.1 5,681.0 5,359.5 6.0
Current and future benefits......... 1,271.6 1,257.4 1.1 3,818.0 3,569.3 7.0
Operating expenses.................. 525.1 451.2 16.4 1,509.0 1,360.0 11.0
Amortization of deferred policy
acquisition costs.................. 5.4 14.9 (63.8) 18.6 29.6 (37.2)
_________ _________ _________ _________
Total benefits and expenses...... 1,802.1 1,723.5 4.6 5,345.6 4,958.9 7.8
_________ _________ _________ _________
Income before income taxes.......... 107.7 129.6 (16.9) 335.4 400.6 (16.3)
Income taxes........................ 39.1 47.3 (17.3) 123.7 146.9 (15.8)
_________ _________ _________ _________
Net income.......................... $ 68.6 $ 82.3 (16.6) $ 211.7 $ 253.7 (16.6)
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital losses,
net of tax (included above)........ $ (3.3) $ (4.2) 21.4 $ (9.6) $ (15.4) 37.7
_________ _________ _________ _________
_________ _________ _________ _________
Self-funded benefit payments
administered for customers other
than Medicare...................... $ 3,053.3 $ 3,206.0 (4.8) $ 9,466.2 $ 9,243.7 2.4
_________ _________ _________ _________
_________ _________ _________ _________
Benefit payments administered for
Medicare........................... $ 3,531.6 $ 3,381.9 4.4 $10,444.2 $ 9,899.2 5.5
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Aetna Health Plans' net income for the three and nine months ended
September 30, 1995 decreased by $14 million and $42 million,
respectively, compared with the same periods a year ago.
Excluding net realized capital losses, results for the three and
nine months ended September 30, 1995 decreased $15 million and $48
million, respectively, from the prior year.
Third quarter and year-to-date 1995 results reflected increased
operating expenses and unfavorable medical claim experience
(included in current and future benefits) reflecting an increase
in medical trend (utilization and costs of medical care) in
indemnity and preferred provider lines of business. The growth in
operating expenses is primarily attributable to the migration of
customers from traditional health care products to the more
resource-intensive managed care business, investments in managed
care-related systems and the development of primary care physician
practices. These increased expenses are consistent with the
company's continued focus on a strategy for investing in managed
care.
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Aetna Health Plans (Continued)
______________________________
Premiums and fees and other income increased 3% and 6% during the
three and nine months ended September 30, 1995 compared with the
same periods in 1994, primarily resulting from growth in managed
care members, modest price increases and a movement toward higher
revenue products, such as point-of-service and health maintenance
organizations.
The number of members covered under health care arrangements was
15.6 million at September 30, 1995 and December 31, 1994. The
number of managed care members was 7.9 million and 7.0 million at
September 30, 1995 and December 31, 1994, respectively. Included
in the number of members at September 30, 1995 and December 31,
1994 were approximately .7 million members covered under a
contract with the Civilian Health and Military Program of the
Uniformed Services ("Champus"). Champus has awarded renewal of
the contract to another provider. The company has commenced
litigation challenging such renewal, based on issues related to
the process by which renewal of the contract was awarded. Even if
such litigation is unsuccessful, the company would remain the
primary provider under the contract until March 31, 1996.
<PAGE> 25
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Aetna Life Insurance & Annuity
______________________________
<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 37.7 $ 37.0 1.9% $ 129.7 $ 111.7 16.1%
Net investment income............... 259.5 233.5 11.1 763.1 714.1 6.9
Fees and other income............... 86.9 76.9 13.0 258.0 233.3 10.6
Net realized capital gains (losses). 8.7 2.7 - 17.9 (2.0) -
_________ _________ _________ ________
Total revenue.................... 392.8 350.1 12.2 1,168.7 1,057.1 10.6
Current and future benefits......... 245.6 220.5 11.4 723.6 667.2 8.5
Operating expenses.................. 70.1 59.2 18.4 213.8 178.4 19.8
Amortization of deferred policy
acquisition costs.................. 6.9 12.0 (42.5) 27.9 32.5 (14.2)
_________ _________ _________ _________
Total benefits and expenses...... 322.6 291.7 10.6 965.3 878.1 9.9
_________ _________ _________ _________
Income before income taxes.......... 70.2 58.4 20.2 203.4 179.0 13.6
Income taxes........................ 23.9 18.3 30.6 67.1 58.1 15.5
________ _________ _________ _________
Net income.......................... $ 46.3 $ 40.1 15.5 $ 136.3 $ 120.9 12.7
________ _________ _________ _________
________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)........ $ 5.6 $ 1.5 - $ 11.6 $ (1.5) -
_________ _________ _________ _________
_________ _________ _________ _________
Deposits not included in premiums
above (1).......................... $ 966.9 $ 777.4 24.4 $ 2,817.1 $ 2,447.5 15.1
_________ _________ _________ _________
_________ _________ _________ _________
<FN>
(1) Under Financial Accounting Standard No. 97, certain deposits are not included in premiums or revenue.
</TABLE>
Aetna Life Insurance & Annuity's net income for the three and nine
months ended September 30, 1995 increased $6 million and $15
million, respectively, from the same periods a year ago.
Excluding net realized capital gains and losses, results for the
three and nine months ended September 30, 1995 increased $2
million as compared to the same periods a year ago.
Third quarter and year-to-date results in 1995 reflected an
increase in fees assessed against policyholders and increased net
investment income related to the growth in assets under management
offset by an increase in operating expenses. The increase in
operating expenses primarily reflects continued business growth.
Operating expenses for the nine months ended September 30, 1995
also include increased costs associated with the implementation of
a new contract administration system.
Assets under management were $24.3 billion and $19.3 billion, at
September 30, 1995 and 1994, respectively. Included in assets
under management are net unrealized capital gains of approximately
$460 million and net unrealized capital losses of approximately
$230 million at September 30, 1995 and 1994, respectively.
<PAGE> 26
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Large Case Pensions
___________________
<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 16.4 $ 47.1 (65.2)% $ 199.6 $ 147.3 35.5%
Net investment income............... 450.6 514.2 (12.4) 1,396.1 1,528.9 (8.7)
Fees and other income............... 32.7 29.9 9.4 100.8 93.2 8.2
Net realized capital gains (losses). 1.4 (7.5) - 7.3 (21.5) -
_________ _________ _________ _________
Total revenue.................... 501.1 583.7 (14.2) 1,703.8 1,747.9 (2.5)
Current and future benefits......... 449.7 537.8 (16.4) 1,550.0 1,636.2 (5.3)
Operating expenses.................. 18.7 20.8 (10.1) 61.8 65.2 (5.2)
_________ _________ _________ _________
Total benefits and expenses...... 468.4 558.6 (16.1) 1,611.8 1,701.4 (5.3)
_________ _________ _________ _________
Income before income taxes.......... 32.7 25.1 30.3 92.0 46.5 97.8
Income taxes........................ 10.9 6.9 58.0 30.2 10.3 193.2
_________ _________ _________ _________
Net income.......................... $ 21.8 $ 18.2 19.8 $ 61.8 $ 36.2 70.7
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)....... $ .8 $ (4.8) - $ 4.6 $ (13.7) -
_________ _________ _________ _________
_________ _________ _________ _________
Deposits not included in premiums
above (1)......................... $ 351.2 $ 447.4 (21.5) $ 1,260.9 $ 1,430.3 (11.8)
_________ _________ _________ _________
_________ _________ _________ _________
<FN>
(1) Under Financial Accounting Standard No. 97, certain deposits are not included in premiums or revenue.
</TABLE>
Large Case Pensions' net income for the three and nine months
ended September 30, 1995 increased by $4 million and $26 million,
respectively, compared with the same periods a year ago.
Excluding net realized capital gains and losses, results for the
three and nine months ended September 30, 1995 decreased $2
million and increased $7 million, respectively, from the prior
year.
Results for the three and nine months ended September 30, 1995
primarily reflected an increase in fees and other income and in
net interest margins and a reduction in operating expenses. Such
favorable results for the three months ended September 30, 1995
were more than offset by the effects of reducing net investment
income as a result of returning capital to the parent company.
Assets under management were $47.0 billion and $47.8 billion, at
September 30, 1995 and 1994, respectively. Included in assets
under management are net unrealized capital gains of approximately
$400 million and net unrealized capital losses of approximately
$400 million at September 30, 1995 and 1994, respectively.
The increase in year-to-date 1995 premiums primarily related to
additional premiums from existing contractholders and did not have
a material effect on results.
<PAGE> 27
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Large Case Pensions (Continued)
_______________________________
Experience rated contractholder and participant withdrawals and
transfers were as follows (excluding contractholder transfers to
other company products) (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 1995 1994
____ ____ ____ ____
<S> <C> <C> <C> <C>
Scheduled contract maturities
and benefit payments: (1)......... $ 228.6 $ 274.6 $ 734.6 $ 776.5
________ ________ ________ ________
________ ________ ________ ________
Contractholder withdrawals other
than scheduled contract maturities
and benefit payments.............. $ 55.8 $ 70.0 $ 244.4 $ 382.0
________ ________ ________ ________
________ ________ ________ ________
Participant withdrawals............ $ 36.1 $ 96.6 $ 133.7 $ 205.2
________ ________ ________ ________
________ ________ ________ ________
<FN>
(1) Includes payments made upon contract maturity and other amounts distributed in accordance
with contract schedules.
</TABLE>
The company is exploring sale or other alternatives for certain
portions of its large case pension investment management and
advisory business conducted through its subsidiary, Aeltus
Investment Management. Such business contributed $4 million and
$11 million to Large Case Pensions' net income for the three and
nine months ended September 30, 1995, respectively, as compared to
$3 million and $12 million for the same periods a year ago.
Discontinued Products
Results of discontinued fully guaranteed large case pension
products (guaranteed investment contracts ("GICs") and single-
premium annuities ("SPAs")) for the three and nine months ended
September 30, 1995 and 1994 were charged to the reserve for
anticipated future losses 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. Management believes the reserve for
anticipated losses at September 30, 1995 is adequate to provide for
future losses associated with these products. To the extent that
actual future losses differ from anticipated future losses, the
company's results of operations would be affected. (Please refer
to the company's 1994 Annual Report to Shareholders for a more
complete discussion of the reserve for anticipated future losses on
discontinued products.)
<PAGE> 28
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Large Case Pensions (Continued)
_______________________________
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, on which interest is accrued at the discount rates
used to calculate the loss on discontinuance, will be funded, net
of taxes on the accrued interest, from invested assets supporting
Large Case Pensions. The offsetting payable, on which interest is
similarly accrued, was established in continuing products. The
interest on such payable generally offsets the investment income on
the assets available to fund the shortfall. At September 30, 1995,
for GICs and SPAs, the receivables from continuing operations, net
of the related deferred taxes payable on the accrued interest
income of $12 million and $18 million, respectively, were $413
million and $468 million, respectively. As of September 30, 1995,
no funding had taken place.
Results of discontinued products were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1995
________________________________ _______________________________
GICs SPAs Total GICs SPAs Total
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
(Negative) Positive interest
margin (1).......................... $ (11.0) $ 1.8 $ (9.2) $ (30.3) $ (1.6) $ (31.9)
Net realized capital gains (losses)... (8.2) 10.5 2.3 (28.4) 25.1 (3.3)
Interest earned on receivable from
continuing operations............... 3.3 5.0 8.3 9.9 14.9 24.8
Other, net............................ .8 .9 1.7 1.5 2.6 4.1
________ ________ ________ ________ ________ ________
Results of discontinued products,
after-tax........................... $ (15.1) $ 18.2 $ 3.1 $ (47.3) $ 41.0 $ (6.3)
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Results of discontinued products,
pretax............................... $ (21.8) $ 27.3 $ 5.5 $ (69.1) $ 60.1 $ (9.0)
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Net realized capital gains (losses)
from sales of bonds, after-tax,
included above....................... $ 4.8 $ 10.2 $ 15.0 $ (4.2) $ 33.3 $ 29.1
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1994 1994
________________________________ _______________________________
GICs SPAs Total GICs SPAs Total
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Negative interest margin (1).......... $ (22.2) $ (.1) $ (22.3) $ (64.6) $ (2.3) $ (66.9)
Net realized capital losses........... (47.8) (12.7) (60.5) (85.0) (29.8) (114.8)
Interest earned on receivable from
continuing operations............... 3.1 4.6 7.7 9.3 13.6 22.9
Other, net............................ (.6) 1.2 .6 2.9 6.2 9.1
________ ________ ________ ________ ________ ________
Results of discontinued products,
after-tax........................... $ (67.5) $ (7.0) $ (74.5) $ (137.4) $ (12.3) $ (149.7)
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Results of discontinued products,
pretax.............................. $ (103.1) $ (7.3) $ (110.4) $ (211.5) $ (18.8) $ (230.3)
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Net realized capital losses from
sales of bonds, after-tax,
included above....................... $ (17.6) $ (3.1) $ (20.7) $ (26.3) $ (11.3) $ (37.6)
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
<FN>
(1) Represents the amount by which interest credited to holders of fully guaranteed large case pension
contracts exceeds or is less than interest earned on invested assets supporting such contracts.
</TABLE>
<PAGE> 29
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Large Case Pensions (Continued)
_______________________________
The activity in the reserve for anticipated future losses on
discontinued products was as follows (pretax, in millions):
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
________________________________________
GICs SPAs Total
____ ____ ________
<S> <C> <C> <C>
Reserve at December 31, 1994...... $ 345.6 $ 651.4 $ 997.0
Results of discontinued products.. (69.1) 60.1 (9.0)
________ ________ ________
Reserve at September 30, 1995..... $ 276.5 $ 711.5 $ 988.0
________ ________ ________
________ ________ ________
</TABLE>
At September 30, 1995 and December 31, 1994, estimated future
after-tax capital losses of $104 million and $128 million ($159
million and $196 million, pretax), respectively, attributable
primarily to mortgage loans and real estate supporting GICs, and
$40 million and $48 million ($61 million and $73 million, pretax),
respectively, attributable primarily to mortgage loans and real
estate supporting SPAs were expected to be charged to the reserve
for future losses.
Distributions on GICs and SPAs were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1995
________________________________ _______________________________
GICs SPAs Total GICs SPAs Total
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Scheduled contract maturities,
GIC settlements and benefit
payments (1)...................... $ 411.2 $ 135.7 $ 546.9 $1,670.5 $ 397.9 $2,068.4
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Participant directed withdrawals... $ 24.6 $ - $ 24.6 $ 73.9 $ - $ 73.9
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1994 1994
________________________________ _______________________________
GICs SPAs Total GICs SPAs Total
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Scheduled contract maturities
and benefit payments (1).......... $ 424.0 $ 135.6 $ 559.6 $1,507.7 $ 399.5 $1,907.2
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
Participant directed withdrawals... $ 29.8 $ - $ 29.8 $ 155.9 $ - $ 155.9
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
<FN>
(1) Includes payments made upon contract maturity, early settlement of GIC liabilities in 1995
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.
(Please see "General Account Investments" on page 35 for a
discussion of investments supporting discontinued products.)
<PAGE> 30
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Property-Casualty
_________________
<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 1,025.6 $ 1,078.3 (4.9)% $ 3,075.7 $ 3,289.7 (6.5)%
Net investment income............... 234.4 209.7 11.8 671.4 631.6 6.3
Fees and other income............... 22.0 26.6 (17.3) 65.0 89.1 (27.0)
Net realized capital losses......... (3.8) (21.1) 82.0 (38.8) (4.9) -
_________ _________ ________ _________
Total revenue.................... 1,278.2 1,293.5 (1.2) 3,773.3 4,005.5 (5.8)
Current and future benefits......... 783.2 915.2 (14.4) 3,132.1 2,881.4 8.7
Operating expenses.................. 195.2 185.2 5.4 589.9 659.4 (10.5)
Amortization of deferred policy
acquisition costs.................. 159.4 173.0 (7.9) 474.9 488.9 (2.9)
_________ _________ ________ _________
Total benefits and expenses...... 1,137.8 1,273.4 (10.6) 4,196.9 4,029.7 4.1
_________ _________ ________ _________
Income (loss) before income taxes... 140.4 20.1 - (423.6) (24.2) -
Income taxes (benefits)............. 40.9 (5.9) - (173.5) (44.0) -
_________ _________ _________ _________
Net income (loss)................... $ 99.5 $ 26.0 - $ (250.1) $ 19.8 -
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital losses,
net of tax (included above)........ $ (2.0) $ (10.8) 81.5 $ (20.3) $ (2.1) -
_________ _________ _________ _________
_________ _________ _________ _________
Statutory combined loss and
expense ratio...................... 109.6% 125.7% - 134.6% 125.2% -
_________ _________ _________ _________
_________ _________ _________ _________
Statutory combined loss and
expense ratio (1).................. 109.6% 121.2% - 109.4% 119.1% -
_________ _________ _________ _________
_________ _________ _________ _________
GAAP combined loss and expense
ratio.............................. 107.8% 113.9% - 133.8% 119.7% -
_________ _________ _________ _________
_________ _________ _________ _________
GAAP combined loss and expense
ratio (1).......................... 107.8% 109.6% - 108.6% 113.6% -
_________ _________ _________ _________
_________ _________ _________ _________
Catastrophe loss ratio
(included in combined ratios above) 1.9% 4.1% - 2.5% 8.2% -
_________ _________ _________ _________
_________ _________ _________ _________
<FN>
(1) Excludes the effect of additions to environmental-related claims reserves.
</TABLE>
Property-Casualty's earnings (after-tax) adjusted for additions to
environmental-related claims reserves and net realized capital
losses follow (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 1995 1994
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net income (loss)............................ $ 99.5 $ 26.0 $(250.1) $ 19.8
Less:
Additions to environmental-related
claims reserves (1)..................... - (30.2) (505.7) (127.8)
Net realized capital losses............... (2.0) (10.8) (20.3) (2.1)
_______ _______ _______ _______
Adjusted earnings............................ $ 101.5 $ 67.0 $ 275.9 $ 149.7
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
(1) Please see the company's Form 10-Q for the quarter ended June 30, 1995 for discussions of additions
to environmental-related claims reserves.
</TABLE>
<PAGE> 31
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Property-Casualty (Continued)
_____________________________
Property-Casualty's adjusted earnings for the three and nine
months ended September 30, 1995 increased $35 million and $126
million, respectively, as compared with the same periods in 1994.
The following significant factors impact the comparison of
adjusted earnings:
Catastrophe losses (after-tax and net of reinsurance) for the
three and nine months ended September 30, 1995 were $13 million
and $51 million ($31 million and $148 million pretax and before
reinsurance), respectively, compared with $28 million and $181
million ($58 million and $446 million pretax and before
reinsurance), respectively, for the same periods a year ago.
Catastrophe losses for the nine months ended September 30, 1994
included $171 million ($434 million pretax and before reinsurance)
from the Los Angeles earthquake and the severe winter weather.
Reductions of prior year loss reserves in the personal auto
business of $61 million (after-tax) for the nine months ended
September 30, 1994.
Results in 1995 also reflected a reduction in the level of ongoing
operating expenses, primarily due to actions taken by management
in prior years to lower costs, a reduction in losses due to the
transfer of additional risk through restructured and expanded
reinsurance programs and higher net investment income. Results
for the three and nine months ended September 30, 1994 reflected a
reduction in operating expenses of $13 million from non-recurring
items.
Premium revenue for the three and nine months ended September 30,
1995 was approximately 5% and 7%, respectively, lower than in the
same periods a year ago, due primarily to the transferring of
additional risk through restructured and expanded reinsurance
programs, and reductions in residual market business assumed as a
result of exiting certain markets.
Net realized capital losses (after-tax) for the nine months ended
September 30, 1995 include $23 million resulting from the write-
down to estimated fair market value of the company's investment in
a consolidated subsidiary, Aetna Re-Insurance Company (U.K.) Ltd.,
which it intends to sell.
Management continues to evaluate personal auto market conditions
in each state and attempts to maintain or increase the company's
presence in those states that offer acceptable returns and reduce
its presence in those remaining states where the company is unable
to earn acceptable returns.
Catastrophe losses (pretax and before reinsurance) associated with
Hurricane Opal, which occurred subsequent to September 30, 1995,
are currently estimated to be approximately $27 million. The
related losses (after-tax and net of reinsurance) are not expected
to be material to the company.
<PAGE> 32
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Property-Casualty (Continued)
_____________________________
Property-Casualty Reserves
For a full discussion of property-casualty reserves, including
environmental and asbestos-related reserves, please see the
company's 1994 Annual Report to Shareholders and Form 10-K for the
year ended December 31, 1994, and Forms 10-Q for the quarters ended
March 31, 1995 and June 30, 1995. See also Notes 3 and 13 of the
Condensed Notes to Financial Statements on pages 9 and 18 herein.
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. Over the last few years,
asbestos bodily injury claims also have been filed by plaintiffs
against entities (including insureds of the company) that
installed 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 on product liability claims.
As described in the company's 1994 Annual Report to Shareholders,
a case involving one such major producer that had exhausted
applicable policy limits on asbestos products claims and asserted
coverage under policy provisions for other types of liability had
been submitted to binding arbitration. That case was settled in
the third quarter, and the company obtained a release from the
insured for all current and future asbestos bodily injury claims
and certain asbestos property damage claims (along with all
environmental claims) under existing policies in exchange for
fixed, scheduled cash payments over time, which were recorded on a
discounted basis. In connection with this settlement, $120
million of property-casualty reserves not previously classified as
covering asbestos-related claims were transferred to asbestos
reserves. No amounts were transferred from environmental
reserves, and the environmental-related portion of the settlement
was covered by existing environmental reserves. As a result, this
settlement did not affect results of operations in the third
quarter of 1995. As part of the settlement, the company also
agreed, among other things, to make insurance coverage available
to the insured in the year 2000 (on a one-time basis), for a
percentage of all asbestos defense and indemnity claim payments
made by the insured during the years 2000 through 2007. The
company's payment obligations would be subject to annual dollar
caps. Given the uncertainty as to whether the insured will elect
to purchase this additional insurance, no related premiums or
losses have been recorded by the company at this time.
Although there is inadequate history from which the company can
estimate its ultimate liability for all non-products asbestos
claims, the company believes that the settlement of this major case
has materially reduced its exposure to such claims. Reserving for
asbestos-related claims is subject to significant uncertainties and
management is currently unable to make a reasonable estimate as to
the ultimate amount of losses or a reasonable range of losses for
all asbestos-related claims and related litigation expenses.
However, reserves for asbestos liabilities are being evaluated by
management as the company continues to gather and analyze new
information and reassess its reserving techniques for these claims
in order to determine whether it can better estimate its liability.
Adjustments may be made to such reserves as loss patterns develop
and other information is obtained.
<PAGE> 33
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
International
_____________
<TABLE>
<CAPTION>
Operating Summary
(Millions) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 275.0 $ 219.9 25.1% $ 747.9 $ 658.3 13.6%
Net investment income............... 76.1 68.7 10.8 231.5 225.3 2.8
Fees and other income............... 35.2 24.1 46.1 90.9 69.2 31.4
Net realized capital gains (losses). (1.8) - - (3.5) 5.9 -
_________ _________ _________ _________
Total revenue.................... 384.5 312.7 23.0 1,066.8 958.7 11.3
Current and future benefits......... 241.3 200.8 20.2 657.5 599.4 9.7
Operating expenses.................. 89.0 72.0 23.6 269.4 247.8 8.7
Amortization of deferred policy
acquisition costs.................. 19.9 14.9 33.6 54.0 41.0 31.7
_________ _________ _________ _________
Total benefits and expenses...... 350.2 287.7 21.7 980.9 888.2 10.4
_________ _________ _________ _________
Income before income taxes.......... 34.3 25.0 37.2 85.9 70.5 21.8
Income taxes........................ 11.8 7.3 61.6 25.7 22.5 14.2
_________ _________ _________ ________
Net income.......................... $ 22.5 $ 17.7 27.1 $ 60.2 $ 48.0 25.4
_________ _________ _________ _________
_________ _________ _________ __________
Net realized capital gains (losses),
net of tax (included above)........ $ (1.5) $ .7 - $ (4.0) $ 3.5 -
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
International's net income for the three and nine months ended
September 30, 1995 increased $5 million and $12 million compared
with the same periods a year ago. Excluding net realized capital
gains and losses, results for the three and nine months ended
September 30, 1995 increased $7 million and $20 million,
respectively, from the same periods a year ago. The improvement
in results primarily reflected increased earnings in the Pacific
Rim and Chile.
During the third quarter of 1994, the company changed its
accounting for its Korean affiliate from the consolidated basis of
accounting to the equity basis of accounting. The company
recognized revenue of $98 million and benefits and expenses of $98
million for the nine months ended September 30, 1994 from the
affiliate. During the first quarter of 1995, the company sold its
interest in the affiliate at book value.
During the first quarter of 1995, the company increased its
ownership in several of its Chilean operating subsidiaries. The
effects of this increased ownership are not expected to materially
impact the results of the segment.
<PAGE> 34
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Corporate
_________
<TABLE>
<CAPTION>
Operating Summary
(Millions, after-tax) Three Months Ended September 30, Nine Months Ended September 30,
________________________________ _______________________________
1995 1994 % Change 1995 1994 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Interest expense............. $ 18.0 $ 15.5 16.1% $ 53.9 $ 43.1 25.1%
Other expense................ 28.6 39.4 (27.4) 90.0 128.0 (29.7)
</TABLE>
The increase in interest expense of $3 million and $11 million for
the three and nine months ended September 30, 1995 compared to the
same periods a year ago resulted from the issuance by a subsidiary
of $275 million of 9 1/2 % cumulative monthly income preferred
securities in November 1994. Other expense for the nine months
ended September 30, 1995 included after-tax capital losses of $2
million. After-tax capital losses were less than $1 million for
the three months ended September 30, 1995. Included in other
expenses for the three and nine months ended September 30, 1994
were after-tax capital losses of $3 million and $7 million,
respectively. Excluding net realized capital losses, the decrease
in other expenses in 1995 resulted from a reduction of corporate
staff area expenses associated with the company's 1994
restructuring.
<PAGE> 35
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments
___________________________
The company's invested assets were comprised of the following, net
of impairment reserves:
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
_________________________________________________________________________________
<S> <C> <C>
Debt securities:
Held for investment, at amortized
cost (fair value $1,916.1 and $1,991.2) $ 1,888.1 $ 2,000.8
Available for sale, at fair value
(amortized cost $38,104.8 and $36,984.2) 39,210.7 35,110.7
Equity securities, at fair value
(cost $1,181.9 and $1,326.9) 1,652.1 1,655.6
Short-term investments 866.7 450.4
Mortgage loans 10,446.1 11,843.6
Real estate 1,654.5 1,545.7
Policy loans 593.7 533.8
Other 1,026.6 1,152.7
________________________________________________________________________________
Total invested assets $ 57,338.5 $ 54,293.3
________________________________________________________________________________
______________________________
</TABLE>
Please refer to the company's 1994 Annual Report to Shareholders
for a description of the company's investment objectives and
policies.
The change in invested assets from December 31, 1994 to September
30, 1995 primarily reflected appreciation of debt securities due
to a decrease in interest rates, partially offset by a decrease in
mortgage loans. Debt securities included net unrealized capital
gains of $1.1 billion at September 30, 1995, compared with net
unrealized capital losses of $1.9 billion at December 31, 1994.
Of such net unrealized capital gains at September 30, 1995, net
gains of $266 million and $461 million related to assets
supporting discontinued products and experience rated pension
contractholders, respectively. The decrease in mortgage loans
principally reflected prepayments, payments at maturity on
mortgage loans, foreclosures and the company's adoption of FAS
Nos. 114 and 118 on January 1, 1995.
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 reserve on
discontinuance of products.
<PAGE> 36
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Debt Securities
As of September 30, 1995 and December 31, 1994, the company's
investments in debt securities represented 72% and 68%,
respectively, of total general account invested assets and were as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
____________________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 5,760.3 $ 6,155.0
Supporting experience rated products 13,339.9 11,770.5
Supporting remaining products 21,998.6 19,186.0
_____________________________
Total $41,098.8 $37,111.5
_____________________________
_____________________________
</TABLE>
Included in the company's total debt security balances were the
following categories of debt securities:
<TABLE>
<CAPTION>
(Millions) September 30, 1995
_______________________________________________________________________________________________________
"Below Investment "Problem" Debt "Potential Problem"
Grade" Debt Securities Securities Debt Securities
______________________ ______________ ___________________
<S> <C> <C> <C>
Total $1,727.9 $ 52.9 $ 142.1
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 26.7% 8.7% 48.8%
Supporting experience rated products 35.3 23.1 28.7
Supporting remaining products 38.0 68.2 22.5
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
December 31, 1994
________________________________________________________________
"Below Investment "Problem" Debt "Potential Problem"
Grade" Debt 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%
________ ________ ________
________ ________ ________
</TABLE>
"Below investment grade" debt 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.
<PAGE> 37
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
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.
"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
was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
(Millions) 1995 1994 1995 1994
__________________________________________________________________________________
<S> <C> <C> <C> <C>
Allocable to discontinued products $ .4 $ 1.0 $ 1.2 $ 2.9
Allocable to experience rated products .2 .2 .9 .6
Allocable to remaining products 1.1 .9 2.5 3.6
</TABLE>
At September 30, 1995 and December 31, 1994, the carrying value
(fair value) of collateralized mortgage obligations ("CMOs") was
$3.4 billion. 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 September 30, 1995 and December 31, 1994, approximately 75% and
82%, 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 September 30, 1995 and December 31, 1994,
approximately 70% and 74%, 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).
Z-tranches, which amounted to approximately 13% and 8% of the
company's CMO holdings at September 30, 1995 and December 31,
1994, respectively, receive principal payments from the underlying
mortgage pool only after all other priority classes have been
retired.
<PAGE> 38
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Mortgage Loans
During the first nine months of 1995, the mortgage loan portfolio
was reduced 12% to $10.4 billion, net of impairment reserves. The
company's mortgage loan investments, net of impairment reserves,
supported the following types of business:
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
_______________________________________________________________________
<S> <C> <C>
Supporting discontinued products $ 3,931.0 $ 4,294.9
Supporting experience rated products 2,966.1 3,652.1
Supporting remaining products 3,549.0 3,896.6
_____________________________
Total $10,446.1 $11,843.6
_____________________________
_____________________________
</TABLE>
During the first nine months of 1995, 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. Mortgage loans, net of impairment reserves, now
represent 18% of total general account invested assets, down from
38% in 1990. During this period, the principal balance of the
mortgage portfolio was reduced by 52%. The principal balance of
mortgage loans decreased $1.4 billion since December 31, 1994
primarily reflecting the effect of repayments of maturing loans
and loan prepayments and foreclosures.
During 1994, 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 possess 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
$247 million and collateral with a fair market value of $169
million were foreclosed upon in the first nine months of 1995. 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 September 30, 1995 and December 31, 1994, there were $211
million and $193 million, respectively, of in-substance
foreclosures (net of write-offs of $177 million and $136 million,
respectively).
<PAGE> 39
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Included in the company's total mortgage loan balances were the
following categories of mortgage loans:
<TABLE>
<CAPTION>
(Millions) September 30, 1995
____________________________________________________________________________________________________________
Restructured Potential
Problem Loans Loans Problem Loans* Total
_____________ ____________ ______________ _____
<S> <C> <C> <C> <C>
Total $ 382.1 $ 576.2 $1,101.5 $2,059.8
________ ________ ________ ________
________ ________ ________ ________
Percentage of total:
Supporting discontinued products 22.8% 49.3% 50.0%
Supporting experience rated products 42.2 26.7 26.5
Supporting remaining products 35.0 24.0 23.5
________ ________ ________
100.0% 100.0% 100.0%
________ ________ ________
________ ________ ________
Impairment reserves (1) $ 757.2**
________
________
Impairment reserves as
a percentage of total 36.8%
________
________
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%
________
________
<FN>
(1) Please see Note 6 of Condensed Notes to Financial Statements for composition of
impairment reserves between specific and general impairment reserves.
* In connection with the company's adoption of FAS Nos. 114 and 118 on January 1, 1995
(Please see Note 6 of Condensed Notes to Financial Statements), management has revised
the definition of "potential problem loans". (Please see "potential problem loans"
on page 40.)
** The general reserve at December 31, 1994 excluded reserves of approximately $208.5
million related to experience rated products. Had such reserves been included, total
reserves would have been $992.6 million. In connection with the company's adoption
of FAS Nos. 114 and 118, the general reserve at September 30, 1995 included such reserves,
related to experience rated products. The inclusion of these reserves did not impact
earnings or shareholders' equity.
</TABLE>
"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 decreased to $286 million at September 30,
1995 from $422 million at December 31, 1994.
<PAGE> 40
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
"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 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.
(Please see the company's 1994 Annual Report to Shareholders for a
complete description of the company's restructuring program.)
During the three and nine months ended September 30, 1995, a loan
which had been restructured, with a carrying value of $11 million
(net of write-offs of $3 million) and with a current yield of 9%
was classified as performing.
In connection with the company's adoption of FAS Nos. 114 and 118
on January 1, 1995 (please see Note 6 of Condensed Notes to
Financial Statements), management has revised the definition of
"potential problem loans" to include all loans which are
performing pursuant to existing terms and are considered likely to
become classified as problem or restructured loans. Prior to
January 1, 1995, potential problem loans were performing loans
which management believed were likely to become classified as
problem or restructured loans in the next 12 months or so. As a
result of the revised definition, potential problem loans at
September 30, 1995 are approximately $346 million higher than they
would have been had the definition not been changed. Potential
problem 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 loans requires significant judgment as to likely future
market conditions and developments specific to individual
properties and borrowers. Provision for losses that management
believes are likely to arise from such potential problem loans is
included in the specific impairment reserves. (Please see Note 6
of Condensed Notes to Financial Statements for a discussion of
mortgage loan impairment reserves.)
<PAGE> 41
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
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 September 30 and the portion thereof actually
recorded as income were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
(Millions) 1995 1994 1995 1994
___________________________________________________________________________________
<S> <C> <C> <C> <C>
Income which would have been
recorded under original terms
of loans $ 24.7 $ 59.2 $ 75.2 $ 166.5
Income recorded 14.4 22.9 44.1 83.4
_______ _______ _______ _______
Lost investment income $ 10.3 $ 36.3 $ 31.1 $ 83.1
_______ _______ _______ _______
_______ _______ _______ _______
Lost investment income allocated to
investments supporting discontinued
products (included above) $ 3.8 $ 12.2 $ 10.3 $ 29.7
_______ _______ _______ _______
_______ _______ _______ _______
Lost investment income allocated to
investments supporting experience
rated pension products
(included above) $ 3.5 $ 12.4 $ 11.5 $ 25.4
_______ _______ _______ _______
_______ _______ _______ _______
Lost investment income allocated to
investments supporting remaining
products (included above) $ 3.0 $ 11.7 $ 9.3 $ 28.0
_______ _______ _______ _______
_______ _______ _______ _______
</TABLE>
<PAGE> 42
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Real Estate
The company's equity real estate balances, net of write-downs and
reserves, were as follows:
<TABLE>
<CAPTION>
(Millions) September 30, 1995
________________________________________________________________________________________________
Investment Properties Total Equity
Real Estate Held for Sale Real Estate
___________ _____________ ____________
<S> <C> <C> <C>
Total $ 398.2 $1,256.3 (1) $1,654.5
________ ________ ________
________ ________ ________
Percentage of total:
Supporting discontinued products 16.7% 48.9%
Supporting experience rated products 6.8 22.7
Supporting remaining products 76.5 28.4
________ ________
100.0% 100.0%
________ ________
________ ________
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%
________ ________
________ ________
<FN>
(1) Includes $210.6 million and $193.4 million of in-substance foreclosures at
September 30, 1995 and December 31, 1994, respectively. (Please see "Mortgage Loans"
on page 38 for discussion of in-substance foreclosures.)
</TABLE>
All real estate acquired through foreclosure, including in-
substance foreclosures, is classified as properties held for sale.
These properties were carried at 62% and 60% of the company's cash
investment (unpaid mortgage balance plus capital additions) at
September 30, 1995 and December 31, 1994, respectively.
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.
<PAGE> 43
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Total real estate write-downs and valuation reserves on properties
included in the company's equity real estate balances were as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
___________________________________________________________________________
<S> <C> <C>
Allocable to discontinued products $ 364.5 $ 376.0
Allocable to experience rated products 206.9 179.6
Allocable to remaining products 227.7 206.6
________ ________
Total $ 799.1 $ 762.2
________ ________
________ ________
</TABLE>
For the periods shown below, total after-tax net realized capital
(gains) losses from real estate write-downs and changes in the
valuation reserves were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
(Millions) 1995 1994 1995 1994
_____________________________________________________________________________________
<S> <C> <C> <C> <C>
Allocable to discontinued products (1) $ 13.0 $ - $ 13.0 $ 13.8
Allocable to experience
rated products (2) - (.1) - 4.5
Allocable to remaining products - .1 (10.8) (*) (.3)
<FN>
(1) Write-downs and impairment expense allocable to discontinued products are
charged against the reserve for future losses and do 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.
(*) Includes a $12.8 million realized capital gain related to the reversal of
valuation reserves in the second quarter of 1995 on a foreclosed property that
appreciated in value.
</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, viewed separately, subject the company to
varying degrees of market and credit risk. However, when used for
hedging, the expectation is that these instruments would reduce
overall market risk. Market risk is the possibility 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 10
of Condensed Notes to Financial Statements for a discussion of the
company's hedging activities.)
<PAGE> 44
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
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 $41.1 billion debt securities
portfolio, as of September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
_____________________________________________________________________________
<S> <C> <C>
Collateralized mortgage obligations:............ $ 3,260.6 $ 3,378.6
Interest-only strips (included above)......... 15.6 26.8
Principal-only strips (included above)........ 49.4 62.2
Treasury and agency strips:
Principal..................................... 694.3 701.6
Interest...................................... 104.8 108.5
Structured notes (1)............................ 95.0 98.9
Warrants to purchase debt securities (2)........ 2.8 3.1
Mandatorily convertible preferred stock......... 3.7 3.7
<FN>
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
(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>
<PAGE> 45
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources
_______________________________
As a result of the addition by the company of $750 million
($488 million, after-tax) to the environmental-related
claims reserves in the second quarter of 1995, the company intends
to contribute additional capital to the company's property-
casualty subsidiaries in order to restore capital levels
(including risk-based capital), to appropriate levels for
regulatory and other purposes, consistent with year-end 1994.
Such infusion of capital of up to $450 million will be made by
year-end 1995. The company currently expects to generate the
funding for such capital contributions initially through short-
term parent company borrowings.
Cash and cash equivalents at September 30, 1995 and December 31,
1994 were $2.6 billion and $3.0 billion, respectively. For the
nine months ended September 30, 1995, net cash provided by
operating activities was $113 million. Net cash used for
operating activities was $8 million during the first nine months
of 1994.
For the first nine months of 1995, net cash provided by investing
activities was $84 million and included a net increase in debt
securities of $827 million, offset by $1.0 billion from maturities
and repayments of mortgage loans. Net cash provided by investing
activities of $1.9 billion for nine months ended September 30,
1994 included a net decrease in debt securities of $305 million
and $1.7 billion from maturities and repayments of mortgage loans.
Short-term borrowings are used from time to time to provide for
timing differences between receipts and disbursements in various
portfolios. The maximum amount of domestic short-term borrowings
outstanding during the first nine months of 1995 was $185 million.
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 due to tight
lending practices by banks and other financial institutions over
the past several years. Of the $907 million of mortgage loans
scheduled to mature during the first nine months of 1995, $489
million were not paid as scheduled, a substantial portion of which
supported large case pension liabilities. Of the loans not paid
as scheduled, $260 million were extended at interest rates at
least equal to current market (average rate of 10% over an average
extension period of 5 years), $214 million were under forbearance
(continuing to make payments under original loan terms) or under
discussion with borrowers at September 30, 1995 and $15 million
were foreclosed upon. Of the $214 million of loans under
forbearance or under discussion with borrowers, $92 million were
classified as problem or restructured loans at September 30, 1995.
Despite various indications that liquidity is returning to certain
real estate markets, the company expects it will continue to
extend or refinance maturing loans in the portfolio.
Pursuant to shelf registration statements declared effective by
the Securities and Exchange Commission, the company may offer and
sell up to $550 million of various types of securities, and Aetna
Capital L.L.C., a subsidiary of the company, may offer and sell up
to an additional $225 million of preferred securities.
<PAGE> 46
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
___________________________________________
Dividends Declared
On September 29, 1995, the Board of Directors declared a quarterly
dividend of $.69 per share of common capital stock for
shareholders of record at the close of business on October 27,
1995, payable November 15, 1995.
New Accounting Pronouncements
_____________________________
Please see Note 2 of Condensed Notes to Financial Statements for a
discussion of recently issued accounting pronouncements.
<PAGE> 47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The company is continuously involved in numerous 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 such litigation cannot be determined
at this time, such litigation, net of reserves established
therefore 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.
Item 5. Other Information.
(a) Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
The following table sets forth the company's ratio of earnings to
fixed charges and ratio of earnings to combined fixed charges and
preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Years ended December 31
____________________________________
September 30, 1995 1994 1993 1992 1991 1990
__________________ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.... 1.59 4.60 (a) .42(b) 2.13 3.03
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 1.59 4.60 (a) .42(b) 2.13 3.03
<FN>
(a) The company 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 company's 1994 Annual Report to
Shareholders.) For the nine months ended September 30, 1995 and
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> 48
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(12) Statement Re Computation of Ratios.
(12.1) Computation of ratio of earnings to fixed charges and
ratio of earnings to combined fixed charges and
preferred stock dividends for the nine months ended
September 30, 1995 and for the years ended December 31,
1994, 1993, 1992, 1991 and 1990.
(15) Letter Re Unaudited Interim Financial Information.
(15.1) Letter from KPMG Peat Marwick LLP acknowledging
awareness of the use of a report on unaudited
interim financial information, dated
October 27, 1995.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Aetna Life and Casualty Company
_______________________________
(Registrant)
Date October 27, 1995 By /s/ Robert J. Price
________________________
(Signature)
Robert J. Price
Vice President and
Corporate Controller
(Chief Accounting Officer)
<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>
Nine Months Ended Years Ended December 31,
______________________________________________________
(Millions) September 30, 1995 1994 1993 1992 1991 1990
__________________ ____ ____ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations........... $ 77.4 $ 658.3 $(1,147.4) $ (121.4) $ 243.5 $ 459.6
Add back fixed charges........... 150.2 186.1 171.0 194.3 221.5 229.0
Minority interest................ 11.4 11.4 7.0 8.6 5.9 4.9
________ _________ _________ ________ ________ ________
Income (loss) as adjusted..... $ 239.0 $ 855.8 $ (969.4) $ 81.5 $ 470.9 $ 693.5
________ _________ _________ ________ ________ ________
________ _________ _________ ________ ________ ________
Fixed charges:
Interest on indebtedness....... $ 88.5(1) $ 98.6(1)$ 77.4 $ 81.4 $ 110.9 $ 119.9
Portion of rents representative
of interest factor............ 61.7 87.5 93.6 112.9 110.6 109.1
________ _________ _________ ________ ________ ________
Total fixed charges........... $ 150.2 $ 186.1 $ 171.0 $ 194.3 $ 221.5 $ 229.0
________ _________ _________ ________ ________ ________
________ _________ _________ ________ ________ ________
Preferred stock dividend
requirements.................... - - - - - -
________ _________ _________ ________ ________ ________
Total combined fixed charges
and preferred stock dividend
requirements.................... $ 150.2 $ 186.1 $ 171.0 $ 194.3 $ 221.5 $ 229.0
________ _________ _________ ________ ________ ________
________ _________ _________ ________ ________ ________
Ratio of earnings to fixed
charges......................... 1.59 4.60 (5.67) 0.42 2.13 3.03
________ _________ _________ ________ ________ ________
________ _________ _________ _________ ________ ________
Ratio of earnings to combined
fixed charges and preferred
stock dividends................. 1.59 4.60 (5.67) 0.42 2.13 3.03
________ _________ _________ ________ ________ ________
________ _________ _________ ________ ________ ________
<FN>
(1) Includes the dividends paid to preferred shareholders of a subsidiary.
(See Note 11 of Notes to Financial Statements in the company's 1994 Annual
Report to Shareholders.)
</TABLE>
<PAGE> 1
Letter Re: Unaudited Interim Financial Information
___________________________________________________
Aetna Life and Casualty Company
Hartford, Connecticut
Gentlemen:
Re: Registration Statements No. 2-73911, 2-91514, 33-12993,
33-49543, 33-50427, 33-52819, 33-52819-01 and 33-62893
With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
October 26, 1995 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered a part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11
of the Act.
By /s/ KPMG PEAT MARWICK LLP
___________________________
(Signature)
KPMG Peat Marwick LLP
Hartford, Connecticut
October 27, 1995
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the Form 10-Q for the quarterly period
ended September 30, 1995 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 39,211
<DEBT-CARRYING-VALUE> 1,888
<DEBT-MARKET-VALUE> 1,916
<EQUITIES> 1,652
<MORTGAGE> 10,446
<REAL-ESTATE> 1,655
<TOTAL-INVEST> 57,339
<CASH> 2,581
<RECOVER-REINSURE> 5,226
<DEFERRED-ACQUISITION> 2,175
<TOTAL-ASSETS> 101,653
<POLICY-LOSSES> 17,958
<UNEARNED-PREMIUMS> 1,642
<POLICY-OTHER> 18,062
<POLICY-HOLDER-FUNDS> 23,624
<NOTES-PAYABLE> 1,121
<COMMON> 1,426
0
0
<OTHER-SE> 5,475
<TOTAL-LIABILITY-AND-EQUITY> 101,653
8,611
<INVESTMENT-INCOME> 3,345
<INVESTMENT-GAINS> (33)
<OTHER-INCOME> 1,478
<BENEFITS> 9,881
<UNDERWRITING-AMORTIZATION> 575
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 77
<INCOME-TAX> 1
<INCOME-CONTINUING> 76
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-PRIMARY> .67
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>There is not a significant difference between primary and fully diluted
earnings per share.
</FN>
</TABLE>
