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, 1996
Commission file numbers 33-88360, 33-89566, 33-89674,
33-89676, 33-89678, 33-91400,
333-00941, 333-00995 and 333-01021
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, 1996, 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 of Contents
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 1996 (unaudited)
and December 31, 1995 4
Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 1996
and March 31, 1995 5
Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 1996
and March 31, 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Three months ended
March 31, 1996 10
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit Index 16
(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.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------- ------------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities - at amortized cost $ 10,107,936 $ 10,112,705
Investment in mutual funds - at market value 1,883,770 1,728,875
Short-term investments - at amortized cost 0 15,700,000
--------------- ------------------
Total investments 11,991,706 27,541,580
Cash and cash equivalents 3,115,498 13,146,384
Accrued investment income 240,137 194,074
Fixed assets
(net of accumulated depreciation of $9,711 and $3,749) 179,436 82,434
Deferred acquisition costs 303,722,718 270,222,383
Reinsurance receivable 2,108,589 1,988,042
Receivable from affiliates 915,553 860,991
Income tax receivable 563,850 563,850
State insurance licenses 4,825,000 4,862,500
Other assets 1,494,892 1,589,006
Separate account assets 5,318,068,197 4,699,961,646
--------------- ------------------
Total Assets $ 5,647,225,576 $ 5,021,012,890
=============== ==================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 29,518,400 $ 30,493,018
Annuity policy reserves 19,867,069 19,386,490
Income tax payable 1,756,351 0
Accounts payable and accrued expenses 32,529,363 32,816,517
Payable to affiliates 0 314,699
Payable to reinsurer 69,748,547 64,995,470
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 103,000,000 103,000,000
Deferred contract charges 312,003 332,050
Separate account liabilities 5,318,068,197 4,699,961,646
--------------- ------------------
Total Liabilities 5,584,799,930 4,961,299,890
--------------- ------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 81,948,878 81,874,666
Unrealized investment gains and losses 71,339 111,359
Foreign currency translation (308,738) (328,252)
Accumulated deficit (21,285,833) (23,944,773)
--------------- ------------------
Total Shareholder's Equity 62,425,646 59,713,000
--------------- ------------------
Total Liabilities and Shareholder's Equity $ 5,647,225,576 $ 5,021,012,890
=============== ==================
</TABLE>
See notes to unaudited consolidated financial statements.
(4)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------------------- --------------------------
REVENUES:
<S> <C> <C> <C> <C>
Net investment income $ 455,022 $ 551,690
Annuity premium income 0 0
Annuity charges & fees 13,429,275 7,823,421
Net realized/unrealized capital gains/(losses) 92,072 (16,082)
Fee income 3,162,040 1,046,000
Other 14,450 22,482
-------------------------- --------------------------
Total Revenues 17,152,859 9,427,511
-------------------------- --------------------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 117,986 115,819
Increase/(decrease) in annuity policy reserves 173,873 (25,109)
Cost of minimum death benefit reinsurance 643,610 0
Return credited to contractowners 1,004,430 1,700,825
-------------------------- --------------------------
1,939,899 1,791,535
-------------------------- --------------------------
Expenses:
Underwriting, acquisition and other insurance expenses 8,516,327 8,005,929
Amortization of state insurance licenses 37,500 37,500
Interest expense 2,231,685 1,603,834
-------------------------- --------------------------
10,785,512 9,647,263
-------------------------- --------------------------
Total Benefits and Expenses 12,725,411 11,438,798
-------------------------- --------------------------
Income (loss) from operations
before federal income taxes 4,427,448 (2,011,287)
Income taxes 1,768,507 15,401
-------------------------- --------------------------
Net income (loss) $ 2,658,941 $ (2,026,688)
========================== ==========================
</TABLE>
See notes to unaudited consolidated financial statements.
(5)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
---------------------- ---------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 2,658,941 $ (2,026,688)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Increase/(decrease) in annuity policy reserves 480,579 (271,265)
Change in policy and contract claims 0 0
Amortization of bond discount 4,769 5,038
Amortization of insurance licenses 37,500 37,500
Decrease in due to/due from affiliates (369,261) 0
Change in income tax payable/receivable 1,756,351 0
Increase in other assets (2,888) (822,889)
Increase in accrued investment income (46,063) (57,149)
Increase in reinsurance receivable (120,547) 0
Decrease in accounts payables and accrued expenses (287,155) (8,559,509)
Change in deferred acquisition cost (33,500,335) (17,727,553)
Change in deferred contract charges (20,047) (35,725)
Change in foreign currency translation 19,514 0
Realized (gain)/loss on sale of investments (92,072) 16,082
Unrealized gain on mutual funds 0 0
---------------------- ---------------------
Net cash used in operating activities (29,480,714) (29,442,158)
---------------------- ---------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments 0 (506,094)
Proceeds from maturity of fixed maturity investments 0 0
Purchase of shares in mutual funds (937,792) (833,080)
Proceeds from sale of mutual funds 834,949 564,303
Purchase of short-term investments (78,000,000) (19,500,000)
Proceeds from sale of short-term investments 93,700,000 24,000,000
Change in investments of separate account assets (562,205,959) (308,708,760)
---------------------- ---------------------
Net cash used in investing activities (546,608,802) (304,983,631)
---------------------- ---------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 74,212 0
Short term borrowing 0 0
Surplus notes 0 0
Increase in payable to reinsurer 4,753,077 2,993,375
Proceeds from annuity sales 561,231,341 313,619,185
---------------------- ---------------------
Net cash provided by financing activities 566,058,630 316,612,560
---------------------- ---------------------
Net decrease in cash & cash equivalents (10,030,886) (17,813,229)
---------------------- ---------------------
Cash and cash equivalents at beginning of period 13,146,384 23,909,463
---------------------- ---------------------
Cash and cash equivalents at end of period $ 3,115,498 $ 6,096,234
====================== =====================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 0 $ 50,000
====================== =====================
Interest paid $ 341,250 $ 180,625
====================== =====================
</TABLE>
See notes to unaudited consolidated financial statements.
(6)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1996
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, 1996 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the
financial statements and footnotes thereto in the Company's audited
financial statements for the year ended December 31, 1995.
2. FOREIGN ENTITY
As of July 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate
parent Skandia Insurance Company, Ltd., a Swedish corporation. The
Company has a 99.9% ownership in Skandia Vida, S.A. de C.V. which is a
life insurance company domiciled in Mexico. This Mexican life insurer
is a start up company with expectations of selling long term savings
product within Mexico. Total shareholder's equity of Skandia Vida,
S.A. de C.V. is $858,530 as of March 31, 1996.
3. SURPLUS NOTES
During 1995, the Company received $34 million from its parent in
exchange for three surplus notes. The amounts were $10 million, $15
million and $9 million, at interest rates of 7.52%, 7.49% and 7.47%,
respectively. Interest payable at March 31, 1996 for these notes is
$644,027.
(7)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1996
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, 1996 for these notes is $1,075,999.
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, 1996 is $345,800.
Payment of interest and repayment of principal for these notes require
approval of the Commissioner of Insurance of the State of Connecticut.
4. REINSURANCE
The Company cedes reinsurance under modified co-insurance arrangements.
The reinsurance arrangements 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.
As of September 1995, the Company reinsured certain mortality risks.
These risks result from the Guaranteed Minimum Death Benefit feature in
the variable annuity products.
The effect of the reinsurance agreements on the Company's operations
was to reduce annuity charges and fee income, death benefit expense,
and reserve exposure. The effect of reinsurance is summarized as
follows:
For the period ended March 31, 1996
<TABLE>
<CAPTION>
Annuity Change in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
-------------- --------------- -----------------
<S> <C> <C> <C>
Gross $17,420,169 $294,420 $1,021,285
Ceded 3,990,894 120,547 16,855
------------- --------- ------------
Net $13,429,275 $173,873 $1,004,430
=========== ======== ==========
</TABLE>
(8)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1996
For the period ended March 31, 1995
Annuity
Charges & Fees
--------------
Gross $9,969,593
Ceded 2,146,172
----------
Net $7,823,421
==========
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
Three months ended March 31, 1996
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.
During 1995, Skandia Vida, S.A. de C.V. was formed by the ultimate parent
Skandia Insurance Company Ltd. The Company has a 99.9% ownership in Skandia
Vida, S.A. de C.V. which is a life insurance company domiciled in Mexico. This
Mexican life insurer is a start up company with expectations of selling long
term savings product within Mexico. Total shareholder's equity of Skandia Vida,
S.A. de C.V. is $858,530 and $881,648 as of March 31, 1996 and December 31,
1995, respectively.
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, 1996 and 1995 was $561 million and $314 million, respectively. This
represents an increase of 79% compared to the same period last year. This
increase is a direct result of the sales efforts by the Company coupled with an
overall increase in the variable annuity marketplace. Assets grew $626 million
or 12% since December 31, 1995. This increase is a direct result of the sales
volume increasing separate account assets and deferred acquisition costs.
Liabilities grew $624 million or 13% since December 31, 1995 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.
(10)
<PAGE>
The Company experienced a net gain of $2.7 million after tax for the current
period which was in excess of plan. This gain is a result of the strong sales
activity for the quarter.
In the same period last year, the Company experienced a net loss of $2 million
after tax. This loss was a result of the asset performance relative to the
liability structure for the market value adjusted annuity product along with a
strengthening of the reserves for this same business due to historically lower
spreads in the corporate bond market. In addition, the loss was attributable to
a higher level of general expense relative to sales volume.
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 72% for the three month period ended March 31, 1996. This is
compared to an increase of 55% for the three month period ended March 31, 1995.
Net investment income decreased 18% for the three month period ended March 31,
1996. This is compared to an increase of 118% for the three month period ended
March 31, 1995. The decrease is a result of the need to liquidate short term
investments to support cash needs. The increase is a result of an increase in
the Company's bonds and short term investments throughout the period.
Fee income increased 202% for the three month period ended March 31, 1996. This
is compared to an increase of 144% for the three month period ended March 31,
1995 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. In September 1995, the
Company entered into an agreement to reinsure the guaranteed minimum death
benefit exposure on most of the variable annuity contracts. The costs associated
with reinsuring the minimum death benefit reserve exceeded the change in the
minimum death benefit reserve by approximately $.5 million.
(11)
<PAGE>
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 comparative period reflects a lower than expected separate
account investment return on the market value adjusted contracts in support of
the benefits and required reserves.
Expenses:
Underwriting, acquisition and other insurance expenses is made up of $25.7
million of commissions and $11.9 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $29.1 million. This
compares to the same period last year 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.
Interest expense increased 39% over the same period last year as a result of the
increase in surplus notes.
Liquidity and Capital Resources
The liquidity requirement of the Company was met by cash from insurance
operations, investment activities and borrowings from the parent.
The Company had significant growth during the first quitter of 1996. The sales
volume of $561 million was made up of approximately 95% 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, 1994 and
1995). 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.
(12)
<PAGE>
As of March 31, 1996 and December 31, 1995, shareholder's equity was $62,425,646
and $59,713,000 respectively, which includes the carrying value of the state
insurance licenses in the amount of $4,825,000 and $4,862,500, respectively.
The Company has long term surplus notes and short term borrowing with its
parent. No dividends have been paid to its parent company.
(13)
<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) American Skandia Life Assurance Corporation did not
file any Report Form 8-K during the quarter covered
by this report.
(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 /s/Thomas M. Mazzaferro
--------------------------
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
May 10, 1996
(15)
<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
(16)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC396
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 10,107,936
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,883,770
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 11,991,706
<CASH> 3,115,498
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 303,722,718
<TOTAL-ASSETS> 5,647,225,576 <F1>
<POLICY-LOSSES> 49,385,469
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 113,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 60,425,646
<TOTAL-LIABILITY-AND-EQUITY> 5,647,225,576 <F2>
0
<INVESTMENT-INCOME> 455,022
<INVESTMENT-GAINS> 92,072
<OTHER-INCOME> 16,605,765
<BENEFITS> 1,939,899
<UNDERWRITING-AMORTIZATION> 8,553,827
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4,427,448
<INCOME-TAX> 1,768,507
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,658,941
<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
<FN>
<F1> Included in Total Assets are Assets Held in Separate Accounts of
$5,318,068,197.
<F2> Included in Total Liabilities and Equity are
Liabilities Related to Separate Accounts of $5,318,068,197.
</FN>
</TABLE>
