<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996 Commission file number 33-23376
Aetna Life Insurance and Annuity Company
(Exact name of registrant as specified in its charter)
Connecticut 71-0294708
(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) 273-0978
None
Former name, former address and former fiscal year if changed since last report
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 JULY 31, 1996
- -------------- ------------------
Common Stock,
par value $50 55,000
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
TABLE OF CONTENTS
PAGE
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income............................. 3
Consolidated Balance Sheets................................... 4
Consolidated Statements of Changes in Shareholder's Equity.... 5
Consolidated Statements of Cash Flows......................... 6
Condensed Notes to Consolidated Financial Statements.......... 7
Independent Auditors' Review Report........................... 8
Item 2. Management's Analysis of the Results of Operations......... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 17
Item 6. Exhibits and Reports on Form 8-K........................... 17
Signatures......................................................... 18
(2)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
<TABLE>
<CAPTION>
Consolidated Statements of Income
(millions)
3 Months Ended June 30, 6 Months Ended June 30,
----------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Premiums $ 18.1 $ 38.5 $ 32.2 $ 70.7
Charges assessed against policyholders 98.2 76.0 190.2 150.9
Net investment income 254.5 246.1 512.1 481.9
Net realized capital gains 2.2 5.9 17.1 11.0
Other income 13.0 9.8 25.2 22.5
------ ------ ------ ------
Total revenue 386.0 376.3 776.8 737.0
Benefits and expenses:
Current and future benefits 224.3 227.4 441.3 437.9
Operating expenses 90.8 76.8 178.6 155.5
Amortization of deferred policy acquisition
costs 11.2 10.1 28.7 22.5
Facilities and severance charge 14.0 - 14.0 -
------ ------ ------ ------
Total benefits and expenses 340.3 314.3 662.6 615.9
Income before federal income taxes 45.7 62.0 114.2 121.1
Federal income taxes 11.0 20.4 31.0 39.2
------ ------ ------ ------
Net income $34.7 $41.6 $83.2 $81.9
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(3)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
June 30, December 31,
Assets 1996 1995
- ------- ---- ----
Investments:
Debt securities, available for sale:
(amortized cost: $12,251.6 and $11,923.7) $12,406.3 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $79.3 and $51.3) 84.0 57.6
Investment in affiliated mutual funds
(cost: $116.8 and $173.4) 140.0 191.8
Common stock (cost: $6.9) - 8.2
Short-term investments 15.1 15.1
Mortgage loans 21.0 21.2
Policy loans 353.1 338.6
--------- ----------
Total investments 13,019.5 13,353.3
Cash and cash equivalents 489.7 568.8
Accrued investment income 166.6 175.5
Premiums due and other receivables 28.7 37.3
Deferred policy acquisition costs 1,419.9 1,341.3
Reinsurance loan to affiliate 640.8 655.5
Other assets 23.1 26.2
Separate Accounts assets 13,094.2 10,987.0
--------- ----------
Total assets $28,882.5 $27,144.9
--------- ----------
--------- ----------
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits $ 3,506.2 $ 3,594.6
Unpaid claims and claim expenses 29.6 27.2
Policyholders' funds left with the Company 10,262.6 10,500.1
--------- ----------
Total insurance reserve liabilities 13,798.4 14,121.9
Other liabilities 308.4 259.2
Federal income taxes:
Current 2.3 24.2
Deferred 110.6 169.6
Separate Accounts liabilities 13,094.2 10,987.0
--------- ----------
Total liabilities 27,313.9 25,561.9
--------- ----------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and
outstanding) 2.8 2.8
Paid-in capital 407.6 407.6
Net unrealized capital gains 36.4 132.5
Retained earnings 1,121.8 1,040.1
--------- ----------
Total shareholder's equity 1,568.6 1,583.0
--------- ----------
Total liabilities and shareholder's
equity $28,882.5 $27,144.9
--------- ----------
--------- ----------
See Condensed Notes to Consolidated Financial Statements.
(4)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
6 Months Ended June 30,
-----------------------
1996 1995
---- ----
Shareholder's equity, beginning of period $1,583.0 $1,088.5
Net change in unrealized capital gains and losses (96.1) 291.4
Net income 83.2 81.9
Common stock dividends declared (1.5) -
-------- --------
Shareholder's equity, end of period $1,568.6 $1,461.8
-------- --------
-------- --------
See Condensed Notes to Consolidated Financial Statements.
(5)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
6 Months Ended June 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $83.2 $81.9
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Decrease (increase) in accrued investment income 8.9 (7.4)
(Increase) decrease in premiums due and other
receivables (0.4) 3.3
Increase in policy loans (14.5) (35.7)
Increase in deferred policy acquisition costs (78.6) (89.5)
Decrease in reinsurance loan to affiliate 14.7 22.1
Net increase in universal life account balances 105.3 111.4
(Decrease) increase in other insurance reserve
liabilities (119.3) 15.3
Net increase in other liabilities and other assets 29.5 59.7
(Decrease) increase in federal income taxes (28.4) 1.0
Net accretion of discount on investments (33.7) (32.1)
Net realized capital gains (17.1) (11.0)
------- -------
Net cash (used for) provided by operating
activities (50.4) 119.0
------- -------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 2,840.8 2,337.9
Equity securities 96.8 77.8
Mortgage loans 0.2 4.3
Investment maturities and collections of:
Debt securities available for sale 470.8 259.5
Short-term investments 19.4 86.6
Cost of investment purchases in:
Debt securities available for sale (3,540.9) (3,339.7)
Equity securities (53.0) (118.2)
Short-term investments (19.5) (9.5)
------- -------
Net cash used for investing activities (185.4) (701.3)
------- -------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 781.6 977.4
Withdrawals of investment contracts (623.4) (531.0)
Dividends paid to shareholder (1.5) -
------- -------
Net cash provided by financing activities 156.7 446.4
------- -------
Net decrease in cash and cash equivalents (79.1) (135.9)
Cash and cash equivalents, beginning of period 568.8 623.3
------- -------
Cash and cash equivalents, end of period $489.7 $487.4
------- -------
------- -------
Supplemental cash flow information:
Income taxes paid, net $60.3 $38.1
------- -------
------- -------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(6)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly-owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. (collectively, the "Company"). Aetna Life
Insurance and Annuity Company is a wholly-owned subsidiary of Aetna Retirement
Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly-owned subsidiary of Aetna
Retirement Services, Inc., which is a wholly-owned subsidiary of Aetna
Services, Inc. ("Aetna") (formerly Aetna Life and Casualty Company).
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1995 financial information to conform to
the 1996 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. FACILITIES AND SEVERANCE CHARGES
Aetna recorded a facilities and severance charge in the second quarter of
1996, primarily as a result of actions taken or expected to be taken to
reduce the level of corporate expenses and other costs previously absorbed
by Aetna's property-casualty operations. The cost allocated to the Company
associated with this charge was $9.1 million after tax ($14.0 million
pretax).
3. DIVIDENDS
The Company paid $1.5 million in cash dividends to HOLDCO in the second
quarter of 1996.
4. COMMITMENTS
At June 30, 1996, the Company had commitments to purchase investments for
$104.8 million, the fair market value of which is $105.4 million.
(7)
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Aetna Life Insurance and Annuity Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Aetna Life Insurance and Annuity Company as of June 30, 1996, and the
related condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1996 and 1995, and the related condensed
consolidated statements of changes in shareholder's equity and cash flows for
the six-month periods then ended. 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 Insurance and Annuity
Company as of December 31, 1995, and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for the year then
ended (not presented herein); and in our report dated February 6, 1996, 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, 1995, is fairly presented, in
all material respects, in relation to the balance sheet from which it has
been derived.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
July 25, 1996
(8)
<PAGE>
Item 2. Management's Analysis of the Results of Operations
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
Operating Summary (millions) 1996 1995 1996 1995
- ---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums $ 18.1 $ 38.5 $ 32.2 $ 70.7
Charges assessed against policyholders 98.2 76.0 190.2 150.9
Net investment income 254.5 246.1 512.1 481.9
Net realized capital gains 2.2 5.9 17.1 11.0
Other income 13.0 9.8 25.2 22.5
-------- ------ -------- ---------
Total revenue 386.0 376.3 776.8 737.0
-------- ------ -------- ---------
Current and future benefits 224.3 227.4 441.3 437.9
Operating expenses 90.8 76.8 178.6 155.5
Amortization of deferred policy acquisition costs 11.2 10.1 28.7 22.5
Facilities and severance charge 14.0 - 14.0 -
-------- ------ -------- ---------
Total benefits and expenses 340.3 314.3 662.6 615.9
-------- ------ -------- ---------
Income before federal income taxes 45.7 62.0 114.2 121.1
Federal income taxes 11.0 20.4 31.0 39.2
-------- ------ -------- ---------
Net income $ 34.7 $ 41.6 $ 83.2 $ 81.9
-------- ------ -------- ---------
-------- ------ -------- ---------
Net realized capital gains, net of tax
(included above) $ 1.4 $ 3.8 $ 11.1 $ 7.1
-------- ------ -------- ---------
-------- ------ -------- ---------
Deposits not included in premiums above:
Fully guaranteed $ 90.4 $105.9 $ 154.2 $ 199.2
Experience-rated 426.1 335.0 753.5 661.9
Non-guaranteed 686.7 351.5 1,364.9 708.2
-------- ------ -------- ---------
Total $1,203.2 $792.4 $ 2,272.6 $ 1,569.3
-------- ------ -------- ---------
-------- ------ -------- ---------
Assets under management: (1) (2)
Fully guaranteed $ 3,376.8 $ 3,135.6
Experience-rated 10,569.5 9,878.5
Non-guaranteed 13,679.5 9,456.8
--------- ---------
Total $27,625.8 $22,470.9
--------- ---------
--------- ---------
</TABLE>
(1) Excludes net unrealized capital gains of $154.8 million and $463.9
million at June 30, 1996 and 1995, respectively.
(2) Includes $3,772.3 million and $1,399.1 million at June 30, 1996 and 1995,
respectively, of assets held and managed by unaffiliated mutual funds.
OVERVIEW
The Company's net income for the three and six months ended June 30, 1996
decreased by 17% and increased by 2%, respectively, compared with the same
periods a year ago. Excluding net realized capital gains, results for the
three and six months ended June 30, 1996 decreased 12% and 4%, respectively,
from the same periods a year ago. Such decreases reflected an after-tax
facilities and severance charge of $9.1 million allocated to the Company by
Aetna in the second quarter of 1996 (see Note 2 of the Condensed Notes to
Consolidated Financial Statements). Excluding net realized capital gains and
the second quarter 1996 facilities and severance charge, earnings for the
three and six months ended June 30, 1996 increased 12% and 9%, respectively,
from the same periods a year ago.
(9)
<PAGE>
Second quarter and year-to-date earnings in 1996 benefited from an increase in
charges assessed against policyholders primarily due to the growth in assets
under management resulting from continued business growth and overall
improvement in the stock market, as well as overall increased interest
margins. Partially offsetting such favorable increases in charges assessed
against policyholders were increased operating expenses. The increase in
operating expenses primarily reflects continued business growth and
investments in nontraditional distribution channels (e.g., broker/dealers and
banks).
The average earned rate on investments supporting fully guaranteed contracts
was 7.9% and 8.1% and the average earned rate on investments supporting
experience rated contracts was 8.1% and 8.2% for the six months ended June
30, 1996 and 1995, respectively. The average credited rate on fully
guaranteed contracts was 6.6% and 6.8% and the average credited rate on
experience rated contracts was 6.1% and 6.3% for the six months ended June
30, 1996 and 1995, respectively. The resulting interest margins on fully
guaranteed contracts were 1.3% and 1.3% and on experience rated contracts
were 2.0% and 1.9% for the six months ended June 30, 1996 and 1995,
respectively.
The duration of the investment portfolios supporting the Company's
liabilities is regularly monitored and adjusted in order to maintain an
aggregate duration that is within 0.5 years of the estimated duration of the
underlying liabilities. For additional information regarding the Company's
asset/liability management practices please see General Account Investments
on page 15.
Aetna continues to conduct strategic and financial reviews of all of its
continuing operations in order to make them more competitive. Such reviews
may result in additional restructuring actions in 1996, although the amount
of any such changes cannot be estimated at this time.
(10)
<PAGE>
SEGMENT RESULTS
FINANCIAL SERVICES SEGMENT
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
Operating Summary (millions) 1996 1995 1996 1995
- ---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums $ 6.5 $ 25.8 $ 8.6 $ 45.5
Charges assessed against policyholders 48.0 35.5 93.6 69.5
Net investment income 208.1 202.8 418.6 396.5
Net realized capital gains 1.4 7.0 15.1 11.4
Other income 11.7 8.6 22.4 19.5
-------- ------ -------- ---------
Total revenue 275.7 279.7 558.3 542.4
-------- ------ -------- ---------
Current and future benefits 168.2 180.6 325.8 343.6
Operating expenses 74.2 61.9 145.6 126.7
Amortization of deferred policy acquisition costs 0.9 0.8 7.3 2.3
-------- ------ -------- ---------
Total benefits and expenses 243.3 243.3 478.7 472.6
-------- ------ -------- ---------
Income before federal income taxes 32.4 36.4 79.6 69.8
Federal income taxes 8.2 10.2 22.4 19.3
-------- ------ -------- ---------
Net income (1) $ 24.2 $ 26.2 $ 57.2 $ 50.5
-------- ------ -------- ---------
-------- ------ -------- ---------
Net realized capital gains, net of tax
(included above) $ 0.9 $ 4.5 $ 9.8 $ 7.4
-------- ------ -------- ---------
-------- ------ -------- ---------
Deposits not included in premiums above:
Fully guaranteed $ 90.4 $105.9 $ 154.2 $ 199.2
Experience-rated 341.7 247.7 585.2 493.8
Non-guaranteed 665.2 339.9 1,324.5 688.4
-------- ------ -------- ---------
Total $1,097.3 $693.5 $ 2,063.9 $ 1,381.4
-------- ------ -------- ---------
-------- ------ -------- ---------
Assets under management: (2) (3)
Fully guaranteed $ 2,782.1 $ 2,522.1
Experience-rated 8,636.5 8,275.2
Non-guaranteed 13,512.0 9,353.1
---------- --------
Total $24,930.6 $20,150.4
--------- ---------
--------- ---------
</TABLE>
(1) Excludes any effect of corporate facilities and severance charge recorded
in the second quarter of 1996 which is not directly allocable to the
segment.
(2) Excludes net unrealized capital gains of $145.8 million and $398.9 million
at June 30, 1996 and 1995, respectively.
(3) Includes $3,717.1 million and $1,381.3 million at June 30, 1996 and 1995,
respectively, of assets held and managed by unaffiliated mutual funds.
Net income in the Financial Services segment for the three and six months
ended June 30, 1996 decreased by 8% and increased by 13%, respectively,
compared with the same periods a year ago. Excluding net realized capital
gains, earnings for the three and six months ended June 30, 1996 increased 7%
and 10%, respectively, from the same periods a year ago.
Second quarter and year-to-date earnings in 1996 benefited from an increase in
charges assessed against policyholders primarily due to the growth in assets
under management resulting from continued business growth and overall
improvement in the stock market, as well as overall increased interest
margins. Partially offsetting such favorable increases in charges assessed
against policyholders were increased operating expenses.
(11)
<PAGE>
Premiums, related to annuity contracts containing life contingencies,
decreased 75% and 81% during the three and six months ended June 30, 1996,
respectively, compared to the same periods in 1995 primarily because the
Company ceased writing structured settlement annuities in the fourth quarter
of 1995. The cessation of writing this product did not and is not expected
to have a material effect on results of the segment.
Charges assessed against policyholders for annuity contracts increased 35%
during both the three and six months ended June 30, 1996, respectively,
compared to the same periods in 1995 reflecting the increase in assets under
management.
Net investment income increased 3% and 6% during the three and six months
ended June 30, 1996, respectively, compared to the same periods in 1995
reflecting the increase in assets under management.
Current and future benefits decreased 7% and 5% during the three and six
months ended June 30, 1996, respectively, compared to the same periods in
1995 primarily reflecting the cessation of writing the structured settlement
product discussed above, partially offset by continued business growth.
Operating expenses increased 20% and 15% during the three and six months
ended June 30, 1996, respectively, compared to the same periods in 1995. The
increase primarily reflects continued business growth and investments in
nontraditional distribution channels (e.g., broker/dealers and banks).
(12)
<PAGE>
LIFE INSURANCE SEGMENT
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
Operating Summary (millions) 1996 1995 1996 1995
- ---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums $ 11.6 $ 12.7 $ 23.6 $ 25.2
Charges assessed against policyholders 50.2 40.5 96.6 81.4
Net investment income 46.4 43.3 93.5 85.4
Net realized capital gains (losses) 0.8 (1.1) 2.0 (0.4)
Other income 1.3 1.2 2.8 3.0
-------- ------ -------- ---------
Total revenue 110.3 96.6 218.5 194.6
-------- ------ -------- ---------
Current and future benefits 56.1 46.8 115.5 94.3
Operating expenses 16.6 14.9 33.0 28.8
Amortization of deferred policy acquisition costs 10.3 9.3 21.4 20.2
-------- ------ -------- ---------
Total benefits and expenses 83.0 71.0 169.9 143.3
-------- ------ -------- ---------
Income before federal income taxes 27.3 25.6 48.6 51.3
Federal income taxes 7.7 10.2 13.5 19.9
-------- ------ -------- ---------
Net income (1) $ 19.6 $ 15.4 $ 35.1 $ 31.4
-------- ------ -------- ---------
-------- ------ -------- ---------
Net realized capital gains (losses),
net of tax (included above) $ 0.5 $ (0.7) $ 1.3 $ (0.3)
-------- ------ -------- ---------
-------- ------ -------- ---------
Deposits not included in premiums above:
Experience-rated $ 84.4 $ 87.3 $ 168.3 $ 168.1
Non-guaranteed 21.5 11.6 40.4 19.8
-------- ------ -------- ---------
Total $ 105.9 $ 98.9 $ 208.7 $ 187.9
-------- ------ -------- ---------
-------- ------ -------- ---------
Assets under management: (2) (3)
Fully guaranteed $ 594.7 $ 613.5
Experience-rated 1,933.0 1,603.3
Non-guaranteed 167.5 103.7
---------- --------
Total $ 2,695.2 $ 2,320.5
--------- ---------
--------- ---------
</TABLE>
(1) Excludes any effect of corporate facilities and severance charge recorded
in the second quarter of 1996 which is not directly allocable to the
segment.
(2) Excludes net unrealized capital gains of $9.0 million and $65.0 million
at June 30, 1996 and 1995, respectively.
(3) Includes $55.2 million and $17.8 million at June 30, 1996 and 1995,
respectively, of assets held and managed by unaffiliated mutual funds.
Net income in the Life insurance segment for the three and six months ended
June 30, 1996 increased by 27% and by 12%, respectively, compared with the
same periods a year ago. Excluding net realized capital gains, earnings for
the three and six months ended June 30, 1996 increased 19% and 7%,
respectively, from the same periods a year ago.
Second quarter and year-to-date earnings in 1996 benefited from increased
charges assessed against policyholders and increased net investment income,
partially offset by increases in current and future benefits and operating
expenses.
Charges assessed against policyholders for universal life insurance increased
24% and 19% for the three and six months ended June 30, 1996, respectively,
compared to the same periods in 1995 reflecting an increase in the volume of
business in force.
Net investment income increased 7% and 9% for the three and six months ended
June 30, 1996, respectively, compared to the same periods in 1995 reflecting
an increase in universal life assets under management primarily as a result
of continued business growth.
(13)
<PAGE>
Current and future benefits increased 20% and 22% for the three and six
months ended June 30, 1996, respectively, compared to the same periods in
1995 reflecting higher credited interest and higher benefit payments to
policyholders due to the increase in universal life business.
Operating expenses increased 11% and 15% for the three and six months ended
June 30, 1996, respectively, compared to the same periods in 1995 primarily
reflecting continued business growth.
(14)
<PAGE>
GENERAL ACCOUNT INVESTMENTS
The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of
these investments is monitored, and investment purchases and sales are
executed with the objective of having adequate funds available to satisfy the
Company's maturing liabilities. The risks associated with investments
supporting experience-rated products are assumed by those customers subject
to, among other things, certain minimum guarantees.
The Company's invested assets were comprised of the following:
June 30, December 31,
(Millions) 1996 1995
- ---------- -------- ------------
Debt securities, available for sale $12,406.3 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock 84.0 57.6
Investment in affiliated mutual funds 140.0 191.8
Common stock - 8.2
Short-term investments 15.1 15.1
Mortgage loans 21.0 21.2
Policy loans 353.1 338.6
--------- ---------
Total Investments $13,019.5 $13,353.3
--------- ---------
--------- ---------
At June 30, 1996 and December 31, 1995, the Company's carrying value of
investments in debt securities represented 95% of total general account
invested assets for both periods. At June 30, 1996 and December 31, 1995,
$9.8 billion and $10.0 billion, respectively, or 79% of total debt securities
supported experience-rated products for both periods.
It is management's objective that the portfolio of debt securities be of high
quality and be well-diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies, and, if
not externally rated, are rated by the Company on a basis believed to be
similar to that used by the rating agencies. The average quality rating of
the Company's debt security portfolio was AA- at both June 30, 1996 and
December 31, 1995.
Debt Securities Quality Ratings Debt Securities Investments by Market
at June 30, 1996 Sector at June 30, 1996
- ------------------------------ --------------------------------------
AAA 45.0% U.S. Corporate Securities 42.3%
AA 11.2 Residential Mortgage-Backed
A 26.1 Securities 24.0
BBB 11.6 Foreign Securities - U.S. Dollar
BB 4.3 Denominated 12.8
B and Below 1.8 Commercial/Multifamily Mortgage-
----- Backed Securities 7.6
100.0% Asset-Backed Securities 7.0
----- U.S. Treasuries/Agencies 5.9
----- Other 0.4
-----
100.0%
-----
-----
(15)
<PAGE>
Debt Securities Quality Ratings Debt Securities Investments by Market
at December 31, 1995 Sector at December 31, 1995
- ------------------------------ --------------------------------------
AAA 46.0% U.S. Corporate Securities 44.7%
AA 11.7 Residential Mortgage-Backed
A 25.4 Securities 25.2
BBB 11.7 Foreign Securities - U.S. Dollar
BB 4.0 Denominated 11.1
B and Below 1.2 Asset-Backed Securities 7.9
----- Commercial/Multifamily Mortgage-
100.0% Backed Securities 6.1
----- U.S. Treasuries/Agencies 4.6
----- Other 0.4
-----
100.0%
-----
-----
(16)
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its Board of Directors know of no material legal proceedings
pending to which the Company is a party or which would materially affect the
Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
(17)
<PAGE>
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 INSURANCE AND ANNUITY COMPANY
(Registrant)
August 14, 1996 By /s/ Deborah Koltenuk
- -------------------- -----------------------------
(Date) Deborah Koltenuk
Vice President, Treasurer, and
Corporate Controller
(18)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10Q FOR THE FISCAL QUARTER ENDED
JUNE 30, 1996 FOR AETNA LIFE INSURANCE AND ANNUITY COMPANY AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 12,406
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 224
<MORTGAGE> 21
<REAL-ESTATE> 0
<TOTAL-INVEST> 13,020
<CASH> 490
<RECOVER-REINSURE> 9
<DEFERRED-ACQUISITION> 1,420
<TOTAL-ASSETS> 28,883
<POLICY-LOSSES> 3,506
<UNEARNED-PREMIUMS> 1
<POLICY-OTHER> 29
<POLICY-HOLDER-FUNDS> 10,263
<NOTES-PAYABLE> 0
0
0
<COMMON> 3
<OTHER-SE> 1,566
<TOTAL-LIABILITY-AND-EQUITY> 28,883
32
<INVESTMENT-INCOME> 512
<INVESTMENT-GAINS> 17
<OTHER-INCOME> 25
<BENEFITS> 441
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 114
<INCOME-TAX> 31
<INCOME-CONTINUING> 83
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
