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, 1997
Commission file numbers: 33-62791, 33-62953, 33-88360, 33-89566,
33-89676, 33-89678, 33-91400,
333-25733, 333-00995, 333-25761, 333-02867 and 333-24989
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, 1997, 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 -
June 30, 1997 (unaudited)
and December 31, 1996 4
Consolidated Statements of Operations (unaudited) -
Six months ended June 30, 1997
and June 30, 1996 5
Consolidated Statements of Operations (unaudited) -
Three months ended June 30, 1997
and June 30, 1996 6
Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 1997
and June 30, 1996 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Six months ended
June 30, 1997 14
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Exhibit Index 20
(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>
<S> <C> <C>
JUNE 30, DECEMBER 31,
1997 1996
-------------------- -----------------------
(unaudited)
ASSETS
Investments:
Fixed maturities - at amortized cost $ 9,375,850 $ 10,090,369
Fixed maturities - at market value 86,910,161 87,369,724
Investment in mutual funds - at market value 5,272,036 2,637,731
Short-term investments - at amortized cost 32,996,300 18,100,000
-------------------- -----------------------
Total investments 134,554,347 118,197,824
Cash and cash equivalents 17,037,179 14,199,412
Accrued investment income 2,263,580 1,958,546
Fixed assets 287,214 229,780
Deferred acquisition costs 537,679,557 438,640,918
Reinsurance receivable 1,319,558 2,167,818
Receivable from affiliates 4,458,491 691,532
Deferred income taxes 21,009,619 17,217,582
State insurance licenses 4,637,500 4,712,500
Other assets 2,861,605 2,207,171
Separate account assets 9,972,069,209 7,734,439,793
-------------------- -----------------------
Total Assets $ 10,698,177,859 $ 8,334,662,876
==================== =======================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 40,055,589 $ 36,245,936
Annuity policy reserves 21,616,876 21,238,749
Income taxes payable 1,433,713 1,124,151
Accounts payable and accrued expenses 78,046,167 65,198,965
Payable to affiliates 92,208,588 685,724
Future fees payable to parent 44,828,479 47,111,936
Payable to reinsurer 85,221,661 79,000,262
Short-term borrowing 10,000,000 10,000,000
Surplus notes 213,000,000 213,000,000
Deferred contract charges 199,217 272,329
Separate account liabilities 9,972,069,209 7,734,439,793
-------------------- -----------------------
Total Liabilities 10,558,679,499 8,208,317,845
-------------------- -----------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 123,055,117 122,250,117
Unrealized investment gains and losses, net (720,347) (319,631)
Foreign currency translation, net (157,423) (263,706)
Retained earnings 15,321,013 2,678,251
-------------------- -----------------------
Total Shareholder's Equity 139,498,360 126,345,031
-------------------- -----------------------
Total Liabilities and Shareholder's Equity $ 10,698,177,859 $ 8,334,662,876
==================== =======================
</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>
<S> <C> <C>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------- ------------------
REVENUES:
Annuity charges & fees $ 51,831,675 $ 29,895,751
Fee income 11,763,639 7,042,113
Net investment income 3,995,459 737,948
Net realized capital gains 64,064 105,178
Annuity premium income 580,000 100,000
Other 66,055 20,634
-------------------- ----------------
Total Revenues 68,300,892 37,901,624
-------------------- ----------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 1,215,611 215,992
Increase in annuity policy reserves 1,174,149 534,930
Cost of minimum death benefit reinsurance 1,811,373 1,332,762
Return credited to contractowners (4,715,974) (1,245,994)
-------------------- ----------------
(514,841) 837,690
-------------------- ----------------
Expenses:
Underwriting, acquisition and other insurance expenses 38,182,529 16,762,970
Amortization of state insurance licenses 75,000 75,000
Interest expense 11,041,931 4,479,486
-------------------- ----------------
49,299,460 21,317,456
-------------------- -------------------
Total Benefits and Expenses 48,784,619 22,155,146
-------------------- -------------------
Income from operations
before income taxes 19,516,273 15,746,478
Income taxes 6,873,511 5,392,047
-------------------- ----------------
Net income $ 12,642,762 $ 10,354,431
==================== ================
</TABLE>
See notes to unaudited consolidated financial statements.
(5)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------- -----------------
REVENUES:
Annuity charges & fees $ 27,463,051 $ 16,466,476
Fee income 6,239,382 3,880,073
Net investment income 2,626,776 282,926
Net realized capital gains 43,460 13,106
Annuity premium income 305,000 100,000
Other 48,116 6,184
--------------- ---------------
Total Revenues 36,725,785 20,748,765
--------------- ---------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 1,070,924 98,006
Increase in annuity policy reserves 390,599 361,057
Cost of minimum death benefit reinsurance 935,295 689,152
Return credited to contractowners 2,029,600 (2,250,424)
--------------- ---------------
4,426,418 (1,102,209)
--------------- ---------------
Expenses:
Underwriting, acquisition and other insurance expenses 20,499,063 8,246,643
Amortization of state insurance licenses 37,500 37,500
Interest expense 5,502,357 2,247,801
--------------- --------------
26,038,920 10,531,944
--------------- --------------
Total Benefits and Expenses 30,465,338 9,429,735
--------------- ---------------
Income from operations
before income taxes 6,260,447 11,319,030
Income taxes 2,613,660 3,623,540
--------------- ---------------
Net income $ 3,646,787 $ 7,695,490
=============== ===============
</TABLE>
See notes to unaudited consolidated financial statements.
(6)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 12,642,762 $ 10,354,431
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Increase in annuity policy reserves 378,127 875,444
Amortization of bond discount 50,648 10,416
Amortization of insurance licenses 75,000 75,000
Change in receivable from/payable to affiliates 87,755,905 (539,211)
Change in income tax payable/receivable 309,562 1,907,590
Change in other assets (711,868) 25,562
Increase in accrued investment income (305,034) (41,773)
Change in reinsurance receivable 848,260 (343,022)
Increase in accounts payable and accrued expenses 12,847,202 8,456,621
Increase in deferred acquisition cost (99,038,639) (78,651,174)
Decrease in deferred contract charges (73,112) (36,196)
Decrease in foreign currency translation, net 163,512 3,447
Deferred income taxes (3,633,497) 0
Realized gain on sale of investments (64,064) (105,178)
----------------- -----------------
Net cash provided by (used in) operating activities 11,244,764 (58,008,043)
----------------- -----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments 0 (219,434)
Proceeds from maturity of fixed maturity investments 200,000 215,000
Purchase of shares in mutual funds (3,369,679) (1,432,901)
Proceeds from sale of mutual funds 1,106,387 1,024,378
Net (purchase)/sale of short-term investments (14,896,300) 8,700,000
Change in investments of separate account assets (1,733,356,331) (1,285,596,823)
----------------- -----------------
Net cash used in investing activities (1,750,315,923) (1,277,309,780)
----------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 805,000 581,482
Surplus notes 0 40,000,000
Decrease in future payable fees to parent (2,283,457) 0
Increase in payable to reinsurer 6,221,399 8,494,975
Proceeds from annuity sales 1,737,165,984 1,286,001,887
----------------- -----------------
Net cash provided by financing activities 1,741,908,926 1,335,078,344
----------------- -----------------
Net decrease in cash and cash equivalents 2,837,767 (239,479)
----------------- -----------------
Cash and cash equivalents at beginning of period 14,199,412 13,146,384
----------------- -----------------
Cash and cash equivalents at end of period $ 17,037,179 $ 12,906,905
================= =================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 10,197,446 $ 3,472,302
================= =================
Interest paid $ 4,501,751 $ 341,250
================= =================
</TABLE>
See notes to unaudited consolidated financial statements.
(7)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
American Skandia Life Assurance Corporation (the Company) 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,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto in the
Company's audited consolidated financial statements for the year ended
December 31, 1996.
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
products within Mexico. Total shareholder's equity of Skandia Vida,
S.A. de C.V. is $1,632,363 as of June 30, 1997.
(8)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
3. SURPLUS NOTES
The Company has issued surplus notes to American Skandia Investment
Holding Corporation (the "Parent") in exchange for cash. Surplus notes
outstanding as of June 30, 1997 were as follows.
Issue Date Amount Interest Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
-----------
Total $213,000,000
Payment of interest and repayment of principal for these notes is
subject to certain conditions and requires approval by the Insurance
Commissioner of the State of Connecticut.
Interest accrued at June 30, 1997 amounted to $10,194,209, of which
$4,414,379 has been approved for payment.
4. FUTURE FEES PAYABLE TO PARENT
On December 17, 1996 the Company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges
expected to be realized on the variable portion of a designated block
of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent
issued collateralized notes in a private placement which are secured by
the rights to receive future fees and charges purchased from the
Company.
(9)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be
realized over the remaining surrender charge period of the designated
contracts (generally, 6.5 years). The Company did not sell the right to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds from the sale have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value at
September 1, 1996 (discounted at 7.5%), of future fees and charges
expected to be realized on the designated contracts was $50,221,438.
Interest expense of $2,092,688 has been included in the statement of
operations.
Expected payments of future fees payable to Parent are as follows:
Period Ending
December 31, Amount
1997 $ 7,025,070
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
-----------
Total $44,828,479
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
On July 23, 1997 the Company closed a similar transaction in which it
raised $58,766,633. For further discussion see Note 6, Subsequent
Event.
(10)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
5. REINSURANCE
The Company cedes reinsurance under modified co-insurance arrangements.
The reinsurance arrangements provide 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 Company reinsures certain mortality risks pertaining to 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:
Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $62,467,438 $ 325,889 ($4,736,755)
Ceded 10,635,763 (848,260) 20,781
------------ ------------- --------------
Net $51,831,675 $1,174,149 ($4,715,974)
=========== ============ ===========
Six Months Ended June 30, 1996
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
Gross $38,120,495 $877,952 ($1,206,035)
Ceded 8,224,744 343,022 39,959
------------- --------- -------------
Net $29,895,751 $534,930 ($1,245,994)
=========== ======== ===========
</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.
(11)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
6. SUBSEQUENT EVENT
On July 23, 1997 the Company sold to its Parent, effective June 1,
1997, certain rights to receive future fees and charges expected to be
realized on the variable portion of a designated block of deferred
annuity contracts issued during the period March 1, 1996 through April
30, 1997. In connection with this transaction, the Parent issued
collateralized notes in a private placement which are secured by the
rights to receive future fees and charges purchased from the Company.
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges expected to be realized over the
remaining surrender charge period of the designated contracts
(generally, 8 years). The Company did not sell the right to receive
future fees and charges after the expiration of the surrender charge
period.
The proceeds from the sale will be recorded as a liability and will be
amortized over the remaining surrender charge period of the designated
contracts using the interest method. The present value at June 1, 1997
(discounted at 7.5%), of future fees and charges expected to be
realized on the designated contracts was $58,766,633
Expected payments of future fees payable to Parent are as follows:
Period Ending
December 31, Amount
1997 $ 3,556,092
1998 6,508,154
1999 7,064,520
2000 7,734,955
2001 8,526,105
2002 9,027,506
2003 9,257,879
2004 6,657,084
2005 434,338
-----------
Total $58,766,633
(12)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
(13)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended June 30, 1997
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 through an internal field marketing staff to
broker-dealers, financial planners 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 periods ended June
30, 1997 and 1996 was $1,737 million and $1,286 million, respectively, an
increase of 35%. This increase is a direct result of the marketing efforts by
the Company coupled with an overall increase in the variable annuity
marketplace. Assets grew $2,364 million or 28% since December 31, 1996. This
increase is a direct result of the sales volume increasing separate account
assets and deferred acquisition costs combined with the strong performance of
the stock market over the same period, which also has contributed to the growth
in separate account assets. Liabilities grew $2,350 million or 29% since
December 31, 1996 as a result of the reserves required for the increased sales
activity and market growth of separate account assets as well as an increase in
the amounts payable to affiliates and reinsurance to support the acquisition
costs of the Company's variable annuity business.
(14)
<PAGE>
The Company experienced a net gain of $12.6 million after tax for the current
period which was $2.3 million greater than the same period last year, and in
excess of plan. This gain is a result of the strong sales activity for the six
months ended June 30, 1997, expense levels consistent with sales activity and an
increased asset base, which generates additional fee revenue.
Revenues:
Increasing annuity sales volume results in greater assets under management.
Growth in assets under management has resulted in a 73% increase in annuity
charges & fees for the six month period ended June 30, 1997. This is compared to
an increase of 77% for the six month period ended June 30, 1996.
Fee income includes income earned for transfer agency type activities. This
income increased 67% for the six month period ended June 30, 1997 compared to an
increase of 247% for the six month period ended June 30, 1996. These increases
are driven by the continued increase in assets under management.
Net investment income increased 441% for the six month period ended June 30,
1997. This is compared to a decrease of 25% for the six month period ended June
30, 1996. The current period increase is the result of increased investment
holdings for the period. The prior period decrease is a result of the need to
liquidate short term investments to support cash needs.
Annuity premium income represents sales of immediate annuities with life
contingencies.
Benefits:
Annuity benefits represent payments on annuity contracts with mortality risks:
immediate annuities with life contingencies and supplementary contracts with
life contingencies.
The increase in annuity policy reserves represents the change in reserves for
immediate annuities with life contingencies, supplementary contracts with life
contingencies and the guaranteed minimum death benefit on variable annuities. In
September 1995, the Company entered into an agreement to reinsure the guaranteed
minimum death benefit exposure on most of its variable annuity contracts. For
both periods ended June 30, 1997 and 1996, the costs associated with reinsuring
the minimum death benefit reserve exceeded the change in the minimum death
benefit reserve by approximately $1.0 million.
(15)
<PAGE>
Return credited to contractowners represents revenues on variable and market
value adjusted annuities offset by benefit payments and change in reserves
required on this business. Also included are benefit payments and change in
reserves on immediate annuities and supplemental contracts without significant
mortality risks. The result for the current period reflects a higher than
expected separate account investment return on the market value adjusted
contracts in support of the benefits and required reserves combined with the
reversal of the effect of December 31, 1996 bond market fluctuations which had
adversely impacted 1996 results by $1.8 million. While the assets relating to
the market value adjusted contracts reflected the market interest rate
fluctuations which occurred on December 31, 1996, the liabilities were based on
interest rates set for new contracts which are generally based on the prior
day's interest rates. During the first week of 1997, interest rates were
established for new contracts, thereby bringing the liabilities relating to the
market value adjusted contracts in line with the related assets. A similar
situation occurred at June 30, 1997, which adversely affected June 30, 1997
results by $1.4 million and will reverse on July 1, 1997.
Expenses:
Underwriting, acquisition and other insurance expenses consists of $87.4 million
of commissions and $44.1 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $93.3 million. This
compares to $61.6 million of commissions and $25.5 million of general expenses
offset by the net capitalization of deferred acquisition costs totaling $70.3
million for the same period last year.
Interest expense increased 146% over the same period last year as a result of
the 1996 increase in surplus notes of $110 million.
Income tax expense was $6.9 million for the period ended June 30, 1997, compared
with $5.4 million for the same period last year. The effective Federal income
tax rates for the periods were 35% and 34% respectively. The 1996 effective rate
was lower than the Federal statutory income tax rate due to an increase in the
deferred tax valuation allowance offset by permanent differences. Such allowance
was released at December 31, 1996. Management believes that based on the taxable
income produced in 1996 and the first half of 1997 as well as the continued
growth in annuity products, the Company will produce sufficient taxable income
in the future to realize its deferred tax assets.
Liquidity and Capital Resources
The liquidity requirement of the Company was met by cash from insurance
operations, investment activities and advances from the parent.
(16)
<PAGE>
The Company had significant growth during the six month period in 1997. The
sales volume of $1,737 million was made up of approximately 93% 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. To this end, the Company extended its reinsurance agreements (initiated
in 1993, 1994 and 1995) and was advanced $91 million by the parent. 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.
While the tremendous growth of this young organization has depended on capital
support from its parent, the Company expects to use borrowing, reinsurance and
the sale of future fee revenues to fund the cash strain anticipated from the
acquisition costs on expected future sales volume.
As of June 30, 1997 and December 31, 1996, shareholder's equity was $139.5
million and $126.3 million, respectively, which includes the carrying value of
the state insurance licenses in the amount of $4.6 million and $4.7 million
respectively.
The Company has long term surplus notes and short term borrowing with its
parent. No dividends have been paid to its parent company.
On July 23, 1997 the Company closed a second transaction in which it sold future
fee revenues to its Parent. The $58.8 million proceeds raised by this
transaction were used to reduce the $91 million advance from the Parent. For
further discussion of this transaction, refer to Note 6, Subsequent Event of the
Notes to Unaudited Consolidated Financial Statements.
(17)
<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 on Form 8-K during the quarter
covered by this report.
(18)
<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
August 13, 1997
(19)
<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
(20)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC697
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 86,910,161
<DEBT-CARRYING-VALUE> 97,714,146
<DEBT-MARKET-VALUE> 96,758,656
<EQUITIES> 5,272,036
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 134,554,347
<CASH> 17,037,179
<RECOVER-REINSURE> 1,319,558
<DEFERRED-ACQUISITION> 537,679,557
<TOTAL-ASSETS> 10,698,177,859 <F1>
<POLICY-LOSSES> 61,672,465
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 137,498,360
<TOTAL-LIABILITY-AND-EQUITY> 10,698,177,859 <F2>
580,000
<INVESTMENT-INCOME> 3,995,459
<INVESTMENT-GAINS> 64,064
<OTHER-INCOME> 63,661,369 <F3>
<BENEFITS> (514,841)
<UNDERWRITING-AMORTIZATION> 12,352,651
<UNDERWRITING-OTHER> 25,904,878
<INCOME-PRETAX> 19,516,273
<INCOME-TAX> 6,873,511
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,642,762
<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
$9,972,069,209.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $9,972,069,209.
<F3> Other income includes annuity charges and fees of $51,831,675 and fee
income of $11,763,639.
</FN>
</TABLE>
