<PAGE>
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 March 31, 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 April 30, 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 -
March 31, 1995 (unaudited)
and December 31, 1994 4
Statements of Operations (unaudited) -
Three Months Ended March 31, 1995
and March 31, 1994 5
Statements of Cash Flows (unaudited) -
Three Months Ended March 31, 1995
and March 31, 1994 6
Notes to Unaudited Financial Statements 7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Three Months Ended
March 31, 1995 9
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit Index 14
</TABLE>
(2)
PART I. FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
(3)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Financial Statements
March 31, 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 three month period
ended March 31, 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 March 31, 1995 for
these notes is $2,682,667.
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 March 31, 1995 is $1,740,400.
Payment of interest and repayment of principal for these notes require
approval of the Commissioner of Insurance of the State of Connecticut.
(7)
<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 a quota share contract.
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>
March 31,
<S> <C><C> <C><C>
1995 1994
---------- ----------
Gross $9,969,593 $5,783,181
Ceded 2,146,172 619,301
---------- ----------
Net $7,823,421 $5,163,880
========== ==========
</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.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1995
American Skandia Life Assurance Corporation (ASLAC) 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
(ASIHC), 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 three month period
ended March 31, 1995 and 1994 was $314 million and $337 million respectively.
The first quarter represents a decrease of 7% compared to the same period last
year however that is compared to a drop of 26% in the variable annuity
marketplace for the same period. Assets grew $374 million or 13% since
December 31, 1994. This increase is a direct result of the sales volume
increasing separate account assets and deferred acquisition costs.
Liabilities grew $376 million or 13% 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 after tax for the current period which was
in excess of plan. This loss is a result of the performance of our assets
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 achieved profits of $105,000 which was
less than anticipated as a result of an additional reserving to cover the
guaranteed minimum death benefit exposure in the Company's variable annuity
contracts.
(9)
<PAGE>
Revenues:
Increasing sale 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 52% and 179% over the periods ended March
31, 1995 and 1994 respectively.
Net investment income increased 118% and decreased 15% over the periods ended
March 31, 1995 and 1994 respectively. The increase in 1995 was a result of an
increase in short term investments throughout the period. The decrease in
1994 was a result of liquidating investments to support the cash needs
required to fund the acquisition costs on the variable annuity business.
Fee income increased 144% and 191% for the periods ended March 31, 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 increase
for the period ended March 31, 1994 reflects the required increase in the
guaranteed minimum death benefit reserve on variable annuity contracts. This
increase covers the escalating death benefit, in certain products, which was
further enhanced as a result of poor 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 result for the period reflects a lower than expected
separate account investment return on the market value adjusted contracts in
support of the benefits and required reserves.
(10)
<PAGE>
Expenses:
Underwriting, acquisition and other insurance expenses is made up of $11
million of commissions and $9.7 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $12.7 million. This
compares to the same period last year of $13.7 million of commissions and $8.5
million of general expenses offset by the net capitalization of deferred
acquisition costs totaling $18.4 million.
Interest expense increased 177% over the same period last year as a result of
a $49 million 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 quarter of 1995. The
sales volume of $314 million was made up of approximately 65% 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 March 31, 1995 and December 31, 1994, shareholder's equity was
$50,220,360 and $52,205,524 respectively, which includes the carrying value of
the state insurance licenses in the amount of $4,975,000 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.
(11)
<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.
(12)
<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
May 12, 1995
(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 ________________________
Thomas M. Mazzaferro
Senior Vice President and
Chief Financial Officer
May 12, 1995
(13)
<PAGE>
EXHIBIT INDEX
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
(14)
