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 September 30, 1997
Commission file numbers: 33-62791, 33-62953, 33-88360,
33-89676, 33-89678, 33-91400, 333-00995,
333-02867, 333-24989, 333-25733 and 333-25761
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 October 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 -
September 30, 1997 (unaudited)
and December 31, 1996 4
Consolidated Statements of Operations (unaudited) -
Nine months ended September 30, 1997
and September 30, 1996 5
Consolidated Statements of Operations (unaudited) -
Three months ended September 30, 1997
and September 30, 1996 6
Consolidated Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1997
and September 30, 1996 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Nine months ended
September 30, 1997 13
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
Exhibit Index 19
(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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Investments:
Fixed maturities - at amortized cost $ 9,372,956 $ 10,090,369
Fixed maturities - at market value 97,176,622 87,369,724
Investment in mutual funds - at market value 6,287,266 2,637,731
Short-term investments - at amortized cost 26,000,000 18,100,000
-------------- ----------------
Total investments 138,836,844 118,197,824
Cash and cash equivalents 13,363,425 14,199,412
Accrued investment income 2,005,209 1,958,546
Fixed assets 336,778 229,780
Deferred acquisition costs 595,020,251 438,640,918
Reinsurance receivable 1,337,549 2,167,818
Receivable from affiliates 1,522,474 691,532
Deferred income taxes 24,471,319 17,217,582
State insurance licenses 4,600,000 4,712,500
Other assets 4,163,724 2,207,171
Separate account assets 11,628,297,471 7,734,439,793
---------------- ---------------
Total Assets $ 12,413,955,044 $ 8,334,662,876
================ ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 41,495,995 $ 36,245,936
Annuity policy reserves 21,242,319 21,238,749
Income taxes payable 2,333,713 1,124,151
Accounts payable and accrued expenses 90,829,661 65,198,965
Payable to affiliates 65,011,358 685,724
Future fees payable to parent 100,937,537 47,111,936
Payable to reinsurer 90,943,161 79,000,262
Short-term borrowing 10,000,000 10,000,000
Surplus notes 213,000,000 213,000,000
Deferred contract charges 181,269 272,329
Separate account liabilities 11,628,297,471 7,734,439,793
---------------- ---------------
Total Liabilities 12,264,272,484 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 123,198,061 122,250,117
Unrealized investment gains and losses, net 858,421 (319,631)
Foreign currency translation, net (316,347) (263,706)
Retained earnings 23,942,425 2,678,251
--------------- ---------------
Total Shareholder's Equity 149,682,560 126,345,031
--------------- --------------
Total Liabilities and Shareholder's Equity $ 12,413,955,044 $ 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>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
REVENUES:
<S> <C> <C>
Annuity charges & fees $ 85,051,449 $ 47,915,563
Fee income 19,309,148 11,382,138
Net investment income 6,026,646 1,008,040
Annuity premium income 795,042 100,000
Net realized capital gains 84,617 110,784
Other 188,111 26,963
------------- -------------
Total Revenues 111,455,013 60,543,488
------------- -------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 1,464,570 490,771
Increase/(decrease) in annuity policy reserves (280,205) 389,033
Cost of minimum death benefit reinsurance 3,256,884 2,060,736
Return credited to contractowners (7,540,458) (2,175,208)
------------- -------------
(3,099,209) 765,332
------------- -------------
Expenses:
Underwriting, acquisition and other insurance expenses 64,884,324 30,684,238
Amortization of state insurance licenses 112,500 112,500
Interest expense 18,066,407 7,600,213
------------- -------------
83,063,231 38,396,951
------------- -------------
Total Benefits and Expenses 79,964,022 39,162,283
------------- -------------
Income from operations
before income taxes 31,490,991 21,381,205
Income taxes 10,226,817 8,488,261
------------- -------------
Net income $ 21,264,174 $ 12,892,944
============= =============
</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>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
REVENUES:
<S> <C> <C>
Annuity charges & fees $ 33,219,774 $ 18,019,812
Fee income 7,545,509 4,340,025
Net investment income 2,031,187 270,092
Annuity premium income 215,042 0
Net realized capital gains 20,553 5,606
Other 122,056 6,329
------------ ------------
Total Revenues 43,154,121 22,641,864
------------ ------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 248,959 274,779
Increase/(decrease) in annuity policy reserves (1,454,354) (145,897)
Cost of minimum death benefit reinsurance 1,445,511 727,974
Return credited to contractowners (2,824,484) (929,214)
------------ ------------
(2,584,368) (72,358)
------------ ------------
Expenses:
Underwriting, acquisition and other insurance expenses 26,701,795 13,921,268
Amortization of state insurance licenses 37,500 37,500
Interest expense 7,024,476 3,120,727
------------ ------------
33,763,771 17,079,495
------------ ------------
Total Benefits and Expenses 31,179,403 17,007,137
------------ ------------
Income from operations
before income taxes 11,974,718 5,634,727
Income taxes 3,353,306 3,096,214
------------ ------------
Net income $ 8,621,412 $ 2,538,513
============ ============
</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>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 21,264,174 $ 12,892,944
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in annuity policy reserves 3,570 544,233
Amortization of bond discount 56,397 16,486
Amortization of insurance licenses 112,500 112,500
Change in receivable from/payable to affiliates 63,494,692 20,460,804
Change in income tax payable/receivable 1,209,562 1,239,637
Increase in other assets (2,063,551) (387,438)
Increase in accrued investment income (46,663) (145,903)
Decrease/(Increase) in reinsurance receivable 830,269 (422,926)
Increase in accounts payable and accrued expenses 25,630,696 15,378,774
Increase in deferred acquisition costs (156,379,333) (119,777,413)
Decrease in deferred contract charges (91,060) (56,564)
Change in foreign currency translation, net (80,986) 8,821
Deferred income taxes (7,859,728) 0
Realized gain on sale of investments (84,617) (110,784)
--------------- ---------------
Net cash provided by (used in) operating activities (54,004,078) (70,246,829)
--------------- ---------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (13,723,543) (219,434)
Proceeds from maturity of fixed maturity investments 5,755,550 215,000
Purchase of shares in mutual funds (4,248,877) (1,706,624)
Proceeds from sale of mutual funds 1,318,458 1,087,803
Net (purchase)/sale of short-term investments (7,900,000) (104,000,000)
Change in investments of separate account assets (2,779,722,388) (1,957,479,048)
--------------- ---------------
Net cash used in investing activities (2,798,520,800) (2,062,102,303)
--------------- ---------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 947,944 1,192,556
Surplus notes 0 40,000,000
Increase in future fees payable to parent 53,825,601 0
Decrease in payable to reinsurer 11,942,899 11,368,412
Proceeds from annuity sales 2,784,972,447 1,958,602,691
--------------- ---------------
Net cash provided by financing activities 2,851,688,891 2,011,163,659
--------------- ---------------
Net decrease in cash and cash equivalents (835,987) (121,185,473)
--------------- ---------------
Cash and cash equivalents at beginning of period 14,199,412 13,146,384
--------------- ---------------
Cash and cash equivalents at end of period $ 13,363,425 $ (108,039,089)
=============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 17,776,982 $ 7,235,276
=============== ==============
Interest paid $ 11,711,001 $ 2,528,697
=============== ==============
</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
September 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 nine month period ended September
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
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 $1,372,352 as of September 30, 1997.
(8)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
September 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 September 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 September 30, 1997 amounted to $10,164,525, of
which $2,930,990 has been approved for payment.
(9)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
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 addition, on July 23, 1997 the Company
entered into a similar transaction with its Parent, effective June 1,
1997, with respect to a designated block of deferred annuity contracts
issued during the period March 1, 1996 through April 30, 1997. In
connection with these transactions ("Transaction 1996-1" and
"Transaction 1997-1," respectively), the Parent issued collateralized
notes in two private placements which are secured by the rights to
receive future fees and charges purchased from the Company.
Under the terms of the Purchase Agreements for Transaction 1996-1 and
Transaction 1997-1, 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 and 8 years, respectively). The Company did not
sell the right to receive future fees and charges after the expiration
of the surrender charge periods.
The proceeds from the sales have been recorded as liabilities and are
being amortized over the remaining surrender charge periods of the
designated contracts using the interest method. The present value at
September 1, 1996 and June 1, 1997 (both discounted at 7.5%), of future
fees and charges expected to be realized on the designated contracts
under Transaction 1996-1 and Transaction 1997-1 was $50,221,438 and
$58,766,633, respectively. Interest expense of $3,495,205 and
$1,073,420 for Transaction 1996-1 and Transaction 1997-1, respectively
has been included in the statement of operations for the period ended
September 30, 1997.
(10)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
Expected payments of future fees payable to Parent are as follows:
Period Ending
December 31,
1997 $ 7,923,587
1998 16,290,712
1999 17,066,794
2000 17,796,013
2001 14,938,219
2002 10,419,509
2003 9,411,281
Thereafter 7,091,422
------------
Total $100,937,537
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 Agreements, subject to certain terms and conditions.
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.
(11)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
September 30, 1997
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:
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Increase (Decrease)
Annuity in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
Gross $101,999,925 ($1,110,474) ($7,561,239)
Ceded 16,948,476 (830,269) 20,781
------------ ------------ ------------
Net $ 85,051,449 ($280,205) ($7,540,458)
============ ============ ============
Nine Months Ended September 30, 1996
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
Gross $60,649,937 $811,959 ($2,077,777)
Ceded 12,734,374 422,926 97,431
----------- -------- ------------
Net $47,915,563 $389,033 ($2,175,208)
=========== ======== ============
</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.
(12)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended September 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 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 nine month periods ended
September 30, 1997 and 1996 was $2,785 million and $1,959 million, respectively,
an increase of 42%. 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 $4,079 million or 49% 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 $4,056 million or 49% since
December 31, 1996 as a result of the additional reserves required for the
increased sales activity and market growth of separate account assets, execution
of a second transaction in which the Company sold certain rights to future fees
and charges to the Parent (see note 4 to the unaudited consolidated financial
statements), and an increase in the amounts payable to affiliates and reinsurers
in support of the acquisition costs of the Company's variable annuity business.
(13)
<PAGE>
The Company experienced a net gain of $21.3 million after tax for the current
period which was $8.4 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 nine
months ended September 30, 1997, expense levels below those expected for the
level of sales activity and an increased asset base, which generates additional
fee revenue.
Revenues:
Increasing annuity sales volume and strong market performance results in greater
assets under management. Growth in assets under management has resulted in a 71%
increase in annuity charges & fees for the nine month period ended September 30,
1997. This is compared to an increase of 75% for the nine month period ended
September 30, 1996.
Fee income includes income earned for transfer agency type activities. This
income increased 70% for the nine month period ended September 30, 1997 compared
to an increase of 234% for the nine month period ended September 30, 1996. These
increases are driven by the continued growth in assets under management.
Net investment income increased 498% for the nine month period ended September
30, 1997. This is compared to a decrease of 21% for the nine month period ended
September 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 (decrease) 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. In September 1997, this reinsurance was extended to cover
certain new variable annuity products introduced over the last twelve months.
For the periods ended September 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 $2.0 million and $1.6 million,
respectively.
(14)
<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, along with the
reversal of the December 31, 1996 $1.8 million timing difference. The result for
the same period in 1996 reflects higher than expected separate account
investment return on the market value adjusted contracts.
Expenses:
Underwriting, acquisition and other insurance expenses consists of $140.0
million of commissions and $70.8 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $145.9 million. This
compares to $96 million of commissions and $43.1 million of general expenses
offset by the net capitalization of deferred acquisition costs totaling $108.4
million for the same period last year.
Interest expense increased 138% over the same period last year as a result of
the 1996 increase in surplus notes of $110 million along with the December 1996
and July 1997 sales of future fee revenue, which totaled $50.2 million and $58.8
million, respectively.
Income tax expense was $10.2 million for the period ended September 30, 1997,
compared with $8.5 million for the same period last year. The effective Federal
income tax rates for the periods were 32% and 40% respectively. The 1997
effective rate is lower than the Federal statutory income tax rate due to
permanent differences, including the dividends received deduction. The 1996
effective rate was higher 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 nine
months 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, sale of future fee revenues and advances from
the parent. The Company had significant growth during the nine month period in
1997. The sales volume of $2,785 million was made up of approximately 92%
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 and
was advanced $65 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.
(15)
<PAGE>
In addition, 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 were 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 June 1, 1997 (discounted at 7.5%), of
future fees and charges expected to be realized on the designated contracts was
$58,766,633
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 September 30, 1997 and December 31, 1996, shareholder's equity was $149.7
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.
(16)
<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) A report on Form 8-K was filed on September 10, 1997, setting
out information required under Item 4 of such form, "Reporting
a Change in External Auditors."
(17)
<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
November 14, 1997
(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 ________________________
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
November 14, 1997
(18)
<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
(19)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC997
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<C> <S>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 97,176,622
<DEBT-CARRYING-VALUE> 106,549,578
<DEBT-MARKET-VALUE> 106,580,613
<EQUITIES> 6,287,266
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 138,836,844
<CASH> 13,363,425
<RECOVER-REINSURE> 1,337,549
<DEFERRED-ACQUISITION> 595,020,251
<TOTAL-ASSETS> 12,413,955,044 <F1>
<POLICY-LOSSES> 62,738,314
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 147,682,560
<TOTAL-LIABILITY-AND-EQUITY> 12,413,955,044 <F2>
795,042
<INVESTMENT-INCOME> 6,026,646
<INVESTMENT-GAINS> 84,617
<OTHER-INCOME> 104,548,708 <F3>
<BENEFITS> (3,099,209)
<UNDERWRITING-AMORTIZATION> 22,719,567
<UNDERWRITING-OTHER> 42,164,757
<INCOME-PRETAX> 31,490,991
<INCOME-TAX> 10,226,817
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,264,174
<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
$11,628,297,471.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $11,628,297,471.
<F3> Other income includes annuity charges and fees of $85,051,449 and fee
income of $19,309,148.
</FN>
</TABLE>
