<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 March 31, 1997 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) 273-0123
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 April 30, 1997
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
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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......................... 10
Item 2. Management's Analysis of the Results of Operations.......... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures.................................................................... 18
</TABLE>
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.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31,
--------------------------
<S> <C> <C>
1997 1996
--------- ---------
Revenue:
Premiums $ 52.3 $ 34.0
Charges assessed against policyholders 109.7 92.0
Net investment income 267.8 257.6
Net realized capital gains 5.0 14.9
Other income 9.7 12.2
--------- ---------
Total revenue 444.5 410.7
Benefits and expenses:
Current and future benefits 272.0 236.9
Operating expenses 78.2 87.2
Amortization of deferred policy acquisition costs 19.9 17.5
--------- ---------
Total benefits and expenses 370.1 341.6
Income before income taxes 74.4 69.1
Income taxes 24.0 20.6
--------- ---------
Net income $ 50.4 $ 48.5
--------- ---------
--------- ---------
</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)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ---------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Investments:
Debt securities, available for sale, at fair value
(amortized cost: $12,378.5 and $12,539.1) $ 12,428.6 $ 12,905.5
Equity securities, available for sale:
Non-redeemable preferred stock (cost:$141.3 and $107.6) 152.1 119.0
Investment in affiliated mutual funds (cost:$64.2 and $77.3) 67.9 81.1
Common stock (cost:$0.0 and $0.0) 0.1 0.3
Short-term investments 45.5 34.8
Mortgage loans 12.9 13.0
Policy loans 408.4 399.3
-------------- ---------------
Total investments 13,115.5 13,553.0
Cash and cash equivalents 758.9 459.1
Accrued investment income 185.3 159.0
Premiums due and other receivables 32.6 26.6
Deferred policy acquisition costs 1,560.1 1,515.3
Reinsurance loan to affiliate 593.7 628.3
Other assets 32.6 33.7
Separate Accounts assets 16,460.1 15,318.3
-------------- ---------------
Total assets $32,738.8 $ 31,693.3
-------------- ---------------
-------------- ---------------
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $3,613.3 $ 3,617.0
Unpaid claims and claim expenses 37.4 28.9
Policyholders' funds left with the Company 10,529.2 10,663.7
-------------- ---------------
Total insurance reserve liabilities 14,179.9 14,309.6
Other liabilities 392.8 354.7
Income taxes:
Current 29.1 20.7
Deferred 62.1 80.5
Separate Accounts liabilities 16,460.1 15,318.3
-------------- ---------------
Total liabilities 31,124.0 30,083.8
-------------- ---------------
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 418.0 418.0
Net unrealized capital gains 13.6 60.5
Retained earnings 1,180.4 1,128.2
-------------- ---------------
Total shareholder's equity 1,614.8 1,609.5
-------------- ---------------
Total liabilities and shareholder's equity $32,738.8 $ 31,693.3
-------------- ---------------
-------------- ---------------
</TABLE>
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)
3 Months Ended March 31,
------------------------
1997 1996
-------- --------
Shareholder's equity, beginning of year $1,609.5 $1,583.0
Net change in unrealized capital gains (46.9) (75.9)
Net income 50.4 48.5
Other changes 1.8 -
-------- --------
Shareholder's equity, end of period $1,614.8 $1,555.6
-------- --------
-------- --------
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>
3 Months Ended March 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $50.4 $48.5
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Increase in accrued investment income (26.3) (10.9)
(Increase) decrease in premiums due and other receivables (3.2) 0.5
Increase in policy loans (9.1) (6.0)
Increase in deferred policy acquisition costs (44.8) (34.3)
Decrease in reinsurance loan to affiliate 34.6 9.5
Net increase in universal life account balances 63.6 53.0
Decrease in other insurance reserve liabilities (22.0) (52.4)
Net decrease in other liabilities and other assets (4.9) (85.3)
Increase in income taxes 18.4 11.8
Net accretion of discount on investments (16.9) (16.9)
Net realized capital gains (5.0) (14.9)
--------- ---------
Net cash provided by (used for) operating activities 34.8 (97.4)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 1,380.4 1,634.8
Equity securities 14.8 48.7
Mortgage loans 0.1 -
Investments maturities and collections of:
Debt securities available for sale 227.4 255.4
Short-term investments 10.4 10.0
Cost of investment purchases in:
Debt securities available for sale (1,376.5) (1,918.0)
Equity securities (33.8) (26.1)
Short-term investments (21.1) (19.5)
--------- ---------
Net cash provided by (used for) investing activities 201.7 (14.7)
--------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 390.2 429.9
Withdrawals of investment contracts (326.9) (332.0)
--------- ---------
Net cash provided by financing activities 63.3 97.9
--------- ---------
Net increase (decrease) in cash and cash equivalents 299.8 (14.2)
Cash and cash equivalents, beginning of period 459.1 568.8
--------- ---------
Cash and cash equivalents, end of period $758.9 $554.6
--------- ---------
--------- ---------
Supplemental cash flow information:
Income taxes paid, net $9.4 $12.0
--------- ---------
--------- ---------
</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., whose ultimate parent is Aetna Inc.
("Aetna").
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1996 financial information to conform to
the 1997 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. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes as presented in the Company's 1996 Annual Report
on Form 10-K. Certain financial information that is normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles, but that is not required for interim reporting
purposes, has been condensed or omitted.
2. FUTURE APPLICATION OF ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996 and provides accounting and reporting standards for
transfers of financial assets and extinguishments of liabilities.
FAS No. 125 is effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending are not effective until January 1, 1998. Provisions effective in 1997
did not have a material effect on the Company's financial position or results
of operations. The Company does not expect adoption of this statement for
provisions effective in 1998 to have a material effect on its financial
position or results of operations.
3. FINANCIAL INSTRUMENTS
The Company engages in hedging activities to manage interest rate and
price risks. Such hedging activities have principally consisted of using
off-balance sheet instruments such as futures and forward contracts and
interest rate swap agreements. There were no such contracts or agreements
open as of March 31, 1997.
7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
(Continued)
4. SEVERANCE AND FACILITIES CHARGES
In the second quarter of 1996, the Company was allocated severance
and facilities reserves from Aetna to reflect actions taken or to be taken to
reduce the level of corporate expenses and other costs previously absorbed by
Aetna's property-casualty operations.
In the third quarter of 1996, the Company established severance and
facilities reserves in the Financial Services and Individual Life Insurance
segments to reflect actions taken or to be taken in order to make its
businesses more competitive.
Activity for the three months ended March 31, 1997 within the severance
and facilities reserves (pretax, in millions) and positions eliminated
related to such actions were as follows:
<TABLE>
<CAPTION>
RESERVE POSITIONS
----------- -------------
<S> <C> <C>
Balance at December 31, 1996..................... $ 47.9 524
Actions taken (1)................................ (10.9) (88)
----------- -------------
Balance at March 31, 1997........................ $ 37.0 436
- ------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Includes $6.3 million of the Company's severance-related actions and $3.9
million of corporate allocation-related actions.
The Company's severance actions are expected to be substantially
completed by March 31, 1998. The corporate allocation actions and vacating of
certain leased office space are expected to be substantially completed in
1997.
5. RELATED PARTY TRANSACTIONS
Effective December 31, 1988, the Company entered into a reinsurance
agreement with Aetna Life Insurance Company ("Aetna Life") in which
substantially all of the non-participating individual life and annuity
business written by Aetna Life prior to 1981 was assumed by the Company.
Effective January 1, 1997, this agreement has been amended to transition
(based on underlying investment rollover in Aetna Life) from a modified
coinsurance to a coinsurance arrangement. As a result of this change,
reserves will be ceded to the Company from Aetna Life as investment rollover
occurs and the loan previously established will be reduced.
6. LITIGATION
The Company is involved in numerous lawsuits arising, for the most part,
in the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
8
<PAGE>
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may adversely
affect results of operations in future periods.
9
<PAGE>
INDEPENDENT AUDITOR'S 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 and Subsidiaries as of March 31,
1997, and the related condensed consolidated statements of income, changes in
shareholder's equity and cash flows for the three-month periods ended
March 31, 1997 and 1996. 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 and Subsidiaries as of December 31, 1996, 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 4, 1997, 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, 1996, 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
May 5, 1997
10
<PAGE>
ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
Consolidated Overview:
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31,
OPERATING SUMMARY (MILLIONS) 1997 1996
- ---------------------------------------------------------------- --------------- ----------
<S> <C> <C>
Premiums (1).................................................... $ 52.3 $ 34.0
Charges assessed against policyholders.......................... 109.7 92.0
Net investment income........................................... 267.8 257.6
Net realized capital gains...................................... 5.0 14.9
Other income.................................................... 9.7 12.2
--------------- ----------
Total revenue......................................... 444.5 410.7
--------------- ----------
Current and future benefits (1)................................. 272.0 236.9
Operating expenses.............................................. 78.2 87.2
Amortization of deferred policy acquisition costs............... 19.9 17.5
--------------- ----------
Total benefits and expenses........................... 370.1 341.6
--------------- ----------
Income before income taxes............................ 74.4 69.1
Income taxes.......................................... 24.0 20.6
--------------- ----------
Net income............................................ $ 50.4 $ 48.5
--------------- ----------
--------------- ----------
Net realized capital gains, net of tax (included above).... $ 3.2 $ 9.7
--------------- ----------
--------------- ----------
Deposits not included in premiums above:
Annuities--fixed options................................... $ 280.2 $ 307.3
Annuities--variable options................................ 818.1 659.3
Individual Life Insurance.................................. 120.5 102.8
--------------- ----------
Total................................................ $ 1,218.8 $ 1,069.4
--------------- ----------
--------------- ----------
Assets under management: (2) (3)
Annuities--fixed options................................... $ 11,767.9 $ 11,156.3
Annuities--variable options................................ 15,047.7 11,514.4
--------------- ----------
Subtotal Annuities.................................... 26,815.6 22,670.7
Other investment advisory (4).............................. 2,102.8 1,106.5
--------------- ----------
Financial Services.................................... 28,918.4 23,777.2
Individual Life Insurance.................................. 2,894.4 2,645.7
--------------- ----------
Total................................................ $ 31,812.8 $ 26,422.9
--------------- ----------
--------------- ----------
Individual life insurance coverage issued....................... $ 1,393.8 $ 1,242.7
--------------- ----------
--------------- ----------
Individual life insurance coverage in force..................... $ 42,923.9 $ 40,357.9
--------------- ----------
--------------- ----------
</TABLE>
- ------------------------
(1) Includes $16.4 million and $19.9 million for the three months ended March
31, 1997 and 1996, respectively, for annuity contracts converting from
the accumulation phase to payout options with life contingencies.
(2) Excludes net unrealized capital gains of $50.1 million and $301.8 million at
March 31, 1997 and 1996, respectively.
(3) Includes $4,989.3 million and $3,167.0 million at March 31, 1997 and 1996,
respectively, of assets held and managed by unaffiliated mutual funds.
(4) March 31, 1997 includes $950.3 million of assets under management related to
business previously written by an affiliate.
OVERVIEW
The Company's net income for the three months ended March 31, 1997
increased 4% compared with the same period a year ago. Excluding net realized
capital gains, results for the three months ended March 31, 1997 increased $8
million or 22% from the prior period reflecting improved earnings from both
the financial services and life insurance segments.
Assets under management, excluding the amount related to business
previously written by an affiliate, increased by 17% primarily due to
continued business growth through deposits and appreciation in the stock
market.
11
<PAGE>
Of the $11.8 billion and $11.2 billion of fixed annuity assets under
management at March 31, 1997 and 1996, respectively, 25% and 23%,
respectively, were fully guaranteed and 75% and 77%, respectively, were
experience rated. The average annualized earned rate on investments
supporting fully guaranteed contracts was 7.9% and 8.0% and the average
annualized earned rate on investments supporting experience rated contracts
was 8.1% and 8.2% for the three months ended March 31, 1997 and 1996,
respectively. The average annualized credited rate on fully guaranteed
contracts was 6.7% and 6.6% and the average annualized credited rate on
experience rated contracts was 6.0% for each of the three months ended March
31, 1997 and 1996, respectively. The resulting annualized interest margins on
fully guaranteed contracts were 1.2% and 1.4% and on experience rated
contracts were 2.1% and 2.2% for the three months ended March 31, 1997 and
1996.
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 the Company's 1996 Annual
Report on Form 10-K.
12
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SEGMENT RESULTS
Financial Services:
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31,
OPERATING SUMMARY (MILLIONS) 1997 1996
- ---------------------------------------------------------------- --------------- ----------
<S> <C> <C>
Premiums (1) $ 17.8 $ 22.0
Charges assessed against policyholders 57.5 45.6
Net investment income 217.6 210.5
Net realized capital gains 4.6 13.7
Other income 9.3 10.7
--------------- ----------
Total revenue 306.8 302.5
--------------- ----------
Current and future benefits (1) 179.3 177.5
Operating expenses 64.5 71.0
Amortization of deferred policy acquisition costs 13.8 6.4
--------------- ----------
Total benefits and expenses 257.6 254.9
--------------- ----------
Income before income taxes 49.2 47.6
--------------- ----------
Income taxes 14.9 14.6
--------------- ----------
Net income $ 34.3 $ 33.0
--------------- ----------
--------------- ----------
Net realized capital gains, net of tax (included above) $ 3.0 $ 8.9
--------------- ----------
--------------- ----------
Deposits not included in premiums above:
Annuities--fixed options $ 280.2 $ 307.3
Annuities--variable options 818.1 659.3
--------------- ----------
Total $ 1,098.3 $ 966.6
--------------- ----------
--------------- ----------
Assets under management: (2) (3)
Annuities--fixed options $ 11,767.9 $ 11,156.3
Annuities--variable options 15,047.7 11,514.4
--------------- ----------
Subtotal Annuities 26,815.6 22,670.7
Other investment advisory (4) 2,102.8 1,106.5
--------------- ----------
Total $ 28,918.4 $ 23,777.2
--------------- ----------
--------------- ----------
</TABLE>
- ------------------------
(1) Includes $16.4 million and $19.9 million for the three months ended March
31, 1997 and 1996, respectively, for annuity contracts converting from
the accumulation phase to payout options with life contingencies.
(2) Excludes net unrealized capital gains of $51.7 million and $275.7 million at
March 31, 1997 and 1996, respectively.
(3) Includes $4,888.9 million and $3,126.2 million at March 31, 1997 and 1996,
respectively, of assets held and managed by unaffiliated mutual funds.
(4) March 31, 1997 includes $950.3 million of assets under management related to
business previously written by an affiliate.
Net income in the Financial Services segment for the three months ended
March 31, 1997 increased 4% compared with the same period a year ago.
Excluding net realized capital gains, results for the three months ended
March 31, 1997 increased $7 million or 30% when compared with the same period
a year ago. The increase in earnings reflects increased charges assessed
against policyholders primarily from increased assets under management.
Assets under management, excluding the amount related to business previously
written by an affiliate, increased primarily due to continued business growth
through deposits and appreciation in the stock market. Earnings for the three
months ended March 31, 1997 also reflect a 9% decrease in operating expenses
when compared with the same period a year ago, reflecting cost savings from
previous restructurings.
13
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Individual Life Insurance:
<TABLE>
<CAPTION>
3 MONTHS ENDED MARCH 31,
OPERATING SUMMARY (MILLIONS) 1997 1996
- ------------------------------------------------------------------------ --------------- ----------
<S> <C> <C> <C> <C>
Premiums $ 34.5 $ 12.0
Charges assessed against policyholders 52.2 46.4
Net investment income 50.2 47.1
Net realized capital gains 0.4 1.2
Other income 0.4 1.5
--------------- ----------
Total revenue 137.7 108.2
--------------- ----------
Current and future benefits 92.7 59.4
Operating expenses 13.7 16.2
Amortization of deferred policy acquisition costs 6.1 11.1
--------------- ----------
Total benefits and expenses 112.5 86.7
--------------- ----------
Income before income taxes 25.2 21.5
Income taxes 9.1 6.0
--------------- ----------
Net income $ 16.1 $ 15.5
--------------- ----------
--------------- ----------
Net realized capital gains, net of tax (included above) $ 0.2 $ 0.8
--------------- ----------
--------------- ----------
Deposits not included in premiums above:
Individual Life Insurance $ 120.5 $ 102.8
--------------- ----------
--------------- ----------
Assets under management: (1) (2)
Individual Life Insurance $ 2,894.4 $ 2,645.7
--------------- ----------
--------------- ----------
Individual life insurance coverage issued $ 1,393.8 $ 1,242.7
--------------- ----------
--------------- ----------
Individual life insurance coverage in force $ 42,923.9 $ 40,357.9
--------------- ----------
--------------- ----------
</TABLE>
- ------------------------
(1) Excludes net unrealized capital losses of $1.6 million and net unrealized
capital gains of $26.1 million at March 31, 1997 and 1996, respectively.
(2) Includes $100.4 million and $40.8 million at March 31, 1997 and 1996,
respectively, of assets held and managed by unaffiliated mutual funds.
Net income in the Individual Life Insurance segment for the three months
ended March 31, 1997 increased 4% compared with the same period a year ago.
Excluding net realized capital gains, earnings for the three months ended
March 31, 1997 increased $1 million or 8% when compared with the same period
a year ago. The increase in earnings reflects increased charges assessed
against policyholders primarily from increased individual life insurance
coverage in force, as well as lower operating expenses resulting from cost
savings associated with previous restructurings. Such increases were
partially offset by unfavorable mortality experience.
Premiums and current and future benefits reflect $22.5 million for the
three months ended March 31, 1997 related to the transition of the
reinsurance agreement with Aetna Life from a modified coinsurance to a
coinsurance arrangement (see Note 5 of the Condensed Notes to Consolidated
Financial Statements).
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:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(MILLIONS) 1997 1996
- ------------------------------------------------------------------- ---------- ------------
<S> <C> <C>
Debt securities, available for sale, at fair value................. $ 12,428.6 $ 12,905.5
Equity securities, available for sale:
Non-redeemable preferred stock..................................... 152.1 119.0
Investment in affiliated mutual funds.............................. 67.9 81.1
Common stock....................................................... 0.1 0.3
Short-term investments............................................. 45.5 34.8
Mortgage loans..................................................... 12.9 13.0
Policy loans....................................................... 408.4 399.3
---------- ------------
Total Investments.................................................. $ 13,115.5 $ 13,553.0
---------- ------------
---------- ------------
</TABLE>
At both March 31, 1997 and December 31, 1996, the Company's carrying value
of investments in debt securities represented 95% of total general account
invested assets. At March 31, 1997 and December 31, 1996, $9.9 billion and $10.3
billion, respectively, or 80% 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 at both March 31, 1997 and December 31,
1996 was AA-.
<TABLE>
<CAPTION>
DEBT SECURITIES INVESTMENTS BY MARKET
DEBT SECURITIES QUALITY RATINGS SECTOR
AT MARCH 31, 1997 AT MARCH 31, 1997
- ------------------------------- -------------------------------------------
<S> <C>
AAA 46.1% U.S. Corporate Securities 38.1%
Residential Mortgage- Backed
AA 9.7 Securities 25.0
Foreign Securities--U.S. Dollar
A 24.4 Denominated 13.9
Commercial/Multifamily
BBB 12.4 Mortgage-
BB 5.1 Backed Securities 8.8
B and Below 2.3 Asset-Backed Securities 7.3
100.0% U.S. Treasuries/Agencies 6.9
100.0%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
DEBT SECURITIES INVESTMENTS BY MARKET
DEBT SECURITIES QUALITY RATINGS SECTOR
AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
- ------------------------------- -------------------------------------------
<S> <C>
AAA 47.3% U.S. Corporate Securities 36.8%
Residential Mortgage- Backed
AA 10.5 Securities 24.6
Foreign Securities--U.S. Dollar
A 23.9 Denominated 15.2
BBB 11.9 U.S. Treasuries/Agencies 8.4
Commercial/Multifamily
BB 4.3 Mortgage-
B and Below 2.1 Backed Securities 8.0
100.0% Asset-Backed Securities 6.9
Other 0.1
100.0%
</TABLE>
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, it is not expected to result in liability 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) NAIC IRIS RATIOS
The NAIC IRIS ratios cover 12 categories of financial data with
defined usual ranges for each category. The ratios are intended to
separate out, for further review, those insurers who might warrant
special attention. At December 31, 1996, the Company had one ratio
falling outside the usual range. The Company does not have any
significant subsidiaries.
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)
May 14, 1997 By /s/ Deborah Koltenuk
(Date) Deborah Koltenuk
Vice President and Treasurer, Corporate
Controller
(Chief Accounting Officer)
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
MARCH 31, 1997 FOR AETNA LIFE INSURANCE AND ANNUITY COMPANY.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 12,429
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 220
<MORTGAGE> 13
<REAL-ESTATE> 0
<TOTAL-INVEST> 13,116
<CASH> 759
<RECOVER-REINSURE> 14
<DEFERRED-ACQUISITION> 1,560
<TOTAL-ASSETS> 32,739
<POLICY-LOSSES> 3,613
<UNEARNED-PREMIUMS> 1
<POLICY-OTHER> 36
<POLICY-HOLDER-FUNDS> 10,529
<NOTES-PAYABLE> 0
0
0
<COMMON> 3
<OTHER-SE> 1,612
<TOTAL-LIABILITY-AND-EQUITY> 32,739
52
<INVESTMENT-INCOME> 268
<INVESTMENT-GAINS> 5
<OTHER-INCOME> 10
<BENEFITS> 272
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 74
<INCOME-TAX> 24
<INCOME-CONTINUING> 50
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50
<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>
