UNITED STATES 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, 1995
Commission file numbers 33-72968, 33-67614,
33-47754, 33-84306, 33-71110 and 33-58536
American Skandia Life Assurance Corporation
Incorporated in the State of Connecticut 06-1241288
(IRS Employer Identification No.)
One Corporate Drive
Shelton, Connecticut 06484
Telephone Number (203) 926-1888
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No __
As of July 31, 1995, there were 25,000 shares of outstanding common stock,
par value $80 per share, of the registrant, consisting of 100 shares of
voting and 24,900 shares of non-voting common stock, all of which were owned
by American Skandia Investment Holding Corporation, a wholly-owned
subsidiary of Skandia Insurance Company Ltd., a Swedish corporation.
<PAGE>
American Skandia Life Assurance Corporation
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Financial Condition -
June 30, 1995 (unaudited)
and December 31, 1994 4
Statements of Operations (unaudited) -
Six Months Ended June 30, 1995
and June 30, 1994 5
Statements of Operations (unaudited) -
Three Months Ended June 30, 1995
and June 30, 1994 6
Statements of Cash Flows (unaudited) -
Six Months Ended June 30, 1995
and June 30, 1994 7
Notes to Unaudited Financial Statements 8
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Six Months Ended
June 30, 1995 10
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
</TABLE>
(2)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
(3)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
<S> <C> <C> <C> <C> <C>
JUNE 30, DECEMBER 31,
1995 1994
------------- -------------
(unaudited)
ASSETS
Investments:
Fixed maturities
- at amortized cost $ 10,126,990 $ 9,621,865
Investment in mutual funds
- at market value 1,390,742 840,637
Short-term investments
- at amortized cost 6,000,000 24,000,000
------------- -------------
Total investments 17,517,732 34,462,502
Cash and cash equivalents 7,065,919 23,909,463
Accrued investment income 170,500 173,654
Deferred acquisition costs 210,950,241 174,009,609
Receivable from affiliates 734,966 459,960
State insurance licenses 4,937,500 5,012,500
Other assets 1,592,534 1,261,513
Separate account assets 3,554,639,735 2,625,127,128
------------- -------------
Total Assets $3,797,609,127 $2,864,416,329
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future
contractowner benefits $ 21,218,031 $ 11,422,381
Annuity policy reserves 19,792,520 24,054,255
Income tax payable 0 36,999
Accounts payable and accrued expenses 21,421,545 31,753,380
Payable to affiliates 390,109 261,552
Payable to reinsurer 49,910,354 40,105,406
Short-term borrowing-parent 10,000,000 10,000,000
Surplus notes 69,000,000 69,000,000
Deferred contract charges 383,606 449,704
Separate account liabilities 3,554,639,735 2,625,127,128
------------- -------------
Total Liabilities 3,746,755,900 2,812,210,805
------------- -------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 71,623,932 71,623,932
Unrealized investment gains and losses 101,250 (41,655)
Accumulated deficit (22,871,955) (21,376,753)
------------- -------------
Total Shareholder's Equity 50,853,227 52,205,524
------------- -------------
Total Liabilities
and Shareholder's Equity $3,797,609,127 $2,864,416,329
============= =============
</TABLE>
See notes to unaudited financial statements
(4)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(unaudited)
<S> <C> <C> <C> <C>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
REVENUES:
Net investment income $ 985,963 $ 589,063
Annuity premium income 27,480 145,000
Annuity charges & fees 16,874,312 10,895,384
Net realized/unrealized
capital losses (16,452) (30,829)
Fee income 2,031,411 899,609
Other 25,178 2,849
----------- -----------
Total Revenues 19,927,892 12,501,076
----------- -----------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 252,581 182,611
Increase/(decrease) in
annuity policy reserves (3,601,298) 4,740,639
Return credited to
contractowners (net) 4,422,882 86,003
----------- -----------
1,074,165 5,009,253
----------- -----------
Expenses:
Underwriting, acquisition and
other insurance expenses 17,049,153 7,059,280
Amortization of insurance license 75,000 75,000
Interest expense 3,209,075 1,441,756
----------- -----------
20,333,228 8,576,036
----------- -----------
Total Benefits and Expenses 21,407,393 13,585,289
----------- -----------
Loss from operations
before federal income taxes (1,479,501) (1,084,213)
Income taxes 15,701 68,919
----------- -----------
Net loss $ (1,495,202) $ (1,153,132)
=========== ===========
</TABLE>
See notes to unaudited financial statements.
(5)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(unaudited)
<S> <C> <C> <C> <C>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
REVENUES:
Net investment income $ 434,273 $ 336,149
Annuity premium income 27,480 145,000
Annuity charges & fees 9,050,891 5,731,504
Net realized/unrealized
capital losses (370) (30,829)
Fee income 985,411 470,487
Other 2,696 1,786
---------- ----------
Total Revenues 10,500,381 6,654,097
---------- ----------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 136,762 93,044
Increase/(decrease) in
annuity policy reserves (3,576,189) 2,777,192
Return credited to
contractowners (net) 2,722,057 227,409
---------- ----------
(717,370) 3,097,645
---------- ----------
Expenses:
Underwriting, acquisition and
other insurance expenses 9,043,224 3,886,324
Amortization of insurance license 37,500 37,500
Interest expense 1,605,241 862,360
---------- ----------
10,685,965 4,786,184
---------- ----------
Total Benefits and Expenses 9,968,595 7,883,829
---------- ----------
Income (loss) from operations
before federal income taxes 531,786 (1,229,732)
Income taxes 300 28,036
---------- ----------
Net income (loss) $ 531,486 $(1,257,768)
========== ==========
</TABLE>
See notes to unaudited financial statements.
(6)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
(unaudited)
<S> <C> <C><C> <C> <C>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994
-------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (1,495,202) $ (1,153,132)
Adjustments to reconcile net income
to net cash used in operating activities:
Decrease in policy reserves (4,261,735) 5,625,782
Increase in policy and contract claims 0 21,723
Amortization of bond discount 9,164 11,029
Amortization of insurance licenses 75,000 75,000
(Increase)/decrease due to/due
from affiliates (146,449) 446,723
Change in other assets (331,021) (435,157)
(Increase)/decrease in accrued
investment income 3,154 (85,203)
(Increase) in accounts payables (10,368,834) (1,081,303)
Change in deferred acquisition cost (36,940,632) (44,307,401)
Change in deferred contract charges (66,098) 1,541
Realized loss on sale of investments 16,452 0
Unrealized gain on mutual funds 0 30,829
------------- ------------
Net cash used in operating activities (53,506,201) (40,849,569)
------------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (614,289) 0
Proceeds from maturity of fixed
maturity investments 100,000 0
Purchase of shares in mutual funds (992,953) (430,878)
Proceeds from sale of mutual funds 569,301 0
Purchase of short-term investments (162,500,000) (479,100,000)
Proceeds from sale of short-term
investments 180,500,000 498,500,000
Change in investments of separate
account assets (647,165,390) (743,546,497)
------------- ------------
Net cash used in investing activities (630,103,331) (724,577,375)
------------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital & surplus contributions from parent 0 0
Short term borrowing 0 0
Surplus notes 0 20,000,000
Payable to reinsurer 9,804,948 13,998,863
Proceeds from annuity sales 656,961,040 745,225,122
------------- ------------
Net cash provided by financing activities 666,765,988 779,223,985
------------- ------------
Net increase/(decrease) in cash &
cash equivalents (16,843,544) 13,797,041
------------- ------------
Cash and cash equivalents at
beginning of period 23,909,463 9,834,854
------------- ------------
Cash and cash equivalents at
end of period $ 7,065,919 $ 23,631,895
============= ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 52,700 $ 64,411
============= ============
Interest paid $ 363,667 $ 0
============= ============
See notes to unaudited financial statements.
</TABLE>
(7)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Financial Statements
June 30, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six
month period ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For
further information, refer to the financial statements and footnotes thereto
in the Company's audited financial statements for the year ended December
31, 1994.
2. SURPLUS NOTES
During 1994, the Company received $49 million from its parent in
exchange for four surplus notes, two in the amount of $10 million, one in
the amount of $15 million and one in the amount of $14 million, at interest
rates of 7.28%, 7.90%, 9.13% and 9.78%, respectively. Interest payable at
June 30, 1995 for these notes is $3,762,469.
During 1993, the Company received $20 million from its parent in
exchange for a surplus note in the amount of $20 million at a 6.84% interest
rate. Interest payable at June 30, 1995 is $2,086,200.
Payment of interest and repayment of principal for these notes require
approval of the Commissioner of Insurance of the State of Connecticut.
(8)
<PAGE>
3. REINSURANCE
The Company cedes reinsurance under a modified coinsurance arrangement.
The reinsurance arrangement provides additional capacity for growth in
supporting the cash flow strain from the Company's variable annuity
business. The reinsurance is effected under quota share contracts.
The effect of the reinsurance agreement on the Company's operations was
to reduce annuity charges and fee income. The effect on annuity charges and
fees for the period is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
June 30,
1995 1994
Gross $21,629,037 $12,722,044
Ceded 4,754,725 1,826,660
Net $16,874,312 $10,895,384
</TABLE>
Such ceded reinsurance does not relieve the Company from its
obligations to policyholders. The Company remains liable to its
policyholders for the portion reinsured to the extent that any reinsurer
does not meet the obligations assumed under the reinsurance agreement.
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1995
American Skandia Life Assurance Corporation (the Company) is a stock
insurance company domiciled in Connecticut with licenses in all 50 states.
It is a wholly-owned subsidiary of American Skandia Investment Holding
Corporation, whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company.
The Company is in the business of issuing annuity policies, and has been so
since its business inception in 1988. The Company currently offers the
following annuity products: a) certain deferred annuities that are
registered with the Securities and Exchange Commission, including variable
annuities and fixed interest rate annuities that include a market value
adjustment feature; b) certain other fixed deferred annuities that are not
registered with the Securities and Exchange Commission; and c) fixed and
adjustable immediate annuities.
The Company markets its products to broker-dealers and financial planners
through an internal field marketing staff. In addition, the Company markets
through and in conjunction with financial institutions such as banks that
are permitted directly, or through affiliates, to sell annuities.
Results of Operations
The Company's long term business plan was developed reflecting the current
sales and marketing approach. The sales volume for the six month period
ended June 30, 1995 and 1994 was $657 million and $745 million,
respectively. The first half year represents a decrease of 12% compared to
the same period last year which is a direct result of a drop in the overall
variable annuity marketplace. Assets grew $933 million or 33% since
December 31, 1994. This increase is a direct result of the sales volume
increasing separate account assets and deferred acquisition costs.
Liabilities grew $935 million or 33% as a result of the reserves required
for the increased sales activity and increased reinsurance to support the
acquisition costs of the Company's variable annuity business.
The Company experienced a net loss of $1.5 million after tax for the current
period which was in excess of plan. This loss is a result of the asset
performance relative to our liability structure for our market value
adjusted annuity as well as a higher than expected general expense relative
to sales volume. For the same period last year, the Company experienced a
net loss of $1.15 million which was greater than plan as a result of an
additional reserving to cover the guaranteed minimum death benefit exposure
in the Company's variable annuity contracts.
(10)
<PAGE>
Revenues:
Increasing volume of annuity sales results in higher assets under
management. The fees realized on assets under management has resulted in
annuity charges & fees to increase 55% and 148% over the periods ended June
30, 1995 and 1994 respectively.
Net investment income increased 67% and 30% over the periods ended June 30,
1995 and 1994 respectively. This was a result of an increase in the
Company's bonds and short term investments throughout the periods.
Fee income increased 126% and 167% for the periods ended June 30, 1995 and
1994 respectively, as a result of income from transfer agency type
activities.
Benefits:
Annuity benefits represent payments on annuity contracts with mortality
risks, this being the immediate annuity with life contingencies and
supplementary contracts with life contingencies.
Increase in annuity policy reserves represent change in reserves for the
immediate annuity with life contingencies, supplementary contracts with life
contingencies and guaranteed minimum death benefit. The significant
decrease for the period ended June 30, 1995 reflects a decrease in the
guaranteed minimum death benefit reserve on variable annuity contracts.
This decrease covers the escalating death benefit, in certain products,
which is reduced due to the good performance of the underlying mutual funds
within the variable annuity contract.
Return credited to contractowners represents revenues on the variable and
market value adjusted annuities offset by the benefit payments and change in
reserves required on this business. Also included are the benefit payments
and change in reserves on immediate annuity contracts without significant
mortality risks. The amount for the period June 30, 1995 reflects a lower
than expected separate account investment return on the market value
adjusted contracts in support of the benefits and required reserves.
(11)
<PAGE>
Expenses:
Underwriting, acquisition and other insurance expenses is made up of $25.3
million of commissions and $19.9 million of general expenses offset by the
net capitalization of deferred acquisition costs totaling $28.1 million.
This compares to the same period last year of $22.8 million of commissions
and $11 million of general expenses offset by the net capitalization of
deferred acquisition costs totaling $26.7 million.
Interest expense increased 123% over the same period last year as a result
of the increase in surplus notes.
Liquidity and Capital Resources
The liquidity requirement of ASLAC was met by cash from insurance
operations, investment activities and borrowings from ASLAC's parent.
The Company had significant growth during the first half 1995. The sales
volume of $657 million was made up of approximately 69% variable annuities
which carry a contingent deferred sales charge. This type of product causes
a temporary cash strain in that 100% of the proceeds are invested in
separate accounts supporting the product leaving a cash (but not capital)
strain caused by the acquisition costs for the new business. This cash
strain required the Company to look beyond the insurance operations and
investments of the Company. The Company extended its reinsurance agreements
(initiated in 1993 and 1994) with a large reinsurer in support of its cash
needs. The reinsurance agreements are modified coinsurance arrangements
where the reinsurer shares in the experience of a specific book of business.
The income and expense items presented above are net of reinsurance.
The Company is reviewing various options to fund the cash strain anticipated
from the acquisition costs on the expected future volume.
The tremendous growth of this young organization has depended on capital
support from its parent. In 1992 and 1993 the parent contributed the
capital needed to provide a strong capital base for the Company's planned
future growth.
As of June 30, 1995 and December 31, 1994, shareholder's equity was
$50,853,227 and $52,205,524 respectively, which includes the carrying value
of the state insurance licenses in the amount of $4,937,500 and $5,012,500
respectively.
ASLAC has long term surplus notes and short term borrowing with its parent.
No dividends have been paid to its parent company.
(12)
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. ACTION TAKEN BY SHAREHOLDER
Not applicable for this quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) ASLAC did not file any Report Form 8-K during the quarter
covered by this report.
(13)
<PAGE>
SIGNATURE
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.
American Skandia Life
Assurance Corporation
(Registrant)
by s/Thomas M. Mazzaferro
Thomas M. Mazzaferro
Senior Vice President and
Chief Financial Officer
August 4, 1995
(14)
<PAGE>
SIGNATURE
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.
American Skandia Life
Assurance Corporation
(Registrant)
by ________________________
Thomas M. Mazzaferro
Senior Vice President and
Chief Financial Officer
August 4, 1995
(14)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit
Number Description Location
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession None
(4) Instruments defining the rights of
security holders, including indentures None
(10) Material Contracts None
(11) Statement re computation of per share
earnings None
(15) Letter re unaudited interim financial
information None
(18) Letter re change in accounting
principles None
(19) Report furnished to security holders None
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(99) Additional exhibits None
</TABLE>
(15)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000881453
<NAME> AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1995 DEC-31-1994
<PERIOD-END> JUN-30-1995 JUN-30-1994
<DEBT-HELD-FOR-SALE> 0 0
<DEBT-CARRYING-VALUE> 10,126,990 9,621,865
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 1,390,742 840,637
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 17,517,732 34,462,502
<CASH> 7,065,919 23,909,463
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 210,950,241 174,009,609
<TOTAL-ASSETS> 3,797,609,127<F1> 2,864,416,329<F1>
<POLICY-LOSSES> 41,010,551 35,476,636
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 79,000,000 79,000,000
<COMMON> 2,000,000 2,000,000
0 0
0 0
<OTHER-SE> 48,853,227 50,205,524
<TOTAL-LIABILITY-AND-EQUITY> 3,797,609,127<F2> 2,864,416,329<F2>
0 0
<INVESTMENT-INCOME> 985,963 589,063
<INVESTMENT-GAINS> (16,452) (30,829)
<OTHER-INCOME> 18,958,381 11,942,842
<BENEFITS> 1,074,165 5,009,253
<UNDERWRITING-AMORTIZATION> 17,124,153 7,134,280
<UNDERWRITING-OTHER> 0 0
<INCOME-PRETAX> (1,479,501) (1,084,213)
<INCOME-TAX> 15,701 68,919
<INCOME-CONTINUING> (1,495,202) (1,153,132)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,495,202) (1,153,132)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
<FN>
<F1>Included in Total Assets are assets held in Separate Accounts of
$3,554,639,735 and $2,625,127,128 as of June 30, 1995 and December 31, 1994,
respectively.
<F2>Included in Total Liabilities and Equity are liabilities related to
Separate Accounts of $3,554,639,739 and $2,625,127,128 as of June 30, 1995 and
December 31, 1994, respectively.
</FN>
