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, 1998
Commission file numbers: 33-62791, 33-62953, 33-88360,
33-89676, 33-89678, 33-91400, 333-00995,
333-02867, 333-24989, 333-25733, 333-25761 and 333-26695.
American Skandia Life Assurance Corporation
Incorporated in the State of Connecticut
06-1241288
(Federal 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 May 14, 1998, 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, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 1998
and March 31, 1997 4
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1998
and March 31, 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of
Operations - Three months ended
March 31, 1998 12
PART II. OTHER INFORMATION:
Item 4. Action Taken by Shareholder 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Exhibit Index 19
(2)
<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> <C>
MARCH 31, DECEMBER 31,
1998 1997
------------------- ---------------------
(unaudited)
ASSETS
Investments:
Fixed maturities - at amortized cost $ 9,311,341 $ 9,366,671
Fixed maturities - at fair value 125,987,348 108,323,668
Investment in mutual funds - at fair value 6,622,432 6,710,851
Policy Loans 855,652 687,267
------------------- ---------------------
Total investments 142,776,773 125,088,457
Cash and cash equivalents 62,069,379 81,974,204
Accrued investment income 2,530,177 2,441,671
Fixed assets 380,164 356,153
Deferred acquisition costs 670,726,371 628,051,995
Reinsurance receivable 1,320,774 3,120,221
Receivable from affiliates 1,126,289 1,910,895
Income tax receivable - current - 1,047,493
Income tax receivable - deferred 26,525,213 26,174,369
State insurance licenses 4,525,000 4,562,500
Other assets 4,200,679 2,524,581
Separate account assets 13,958,429,039 12,095,163,569
------------------- ---------------------
Total Assets $ 14,874,609,858 $ 12,972,416,108
=================== =====================
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 42,744,881 $ 43,204,443
Policy reserves 21,116,000 24,414,999
Income tax payable 532,172 -
Drafts outstanding 31,242,537 19,277,706
Accounts payable and accrued expenses 96,171,826 71,190,019
Payable to affiliates 3,81l,466 584,283
Future fees payable to parent 225,814,585 233,033,818
Payable to reinsurer 79,880,260 78,126,227
Short-term borrowing 10,000,000 10,000,000
Surplus notes 213,000,000 213,000,000
Separate account liabilities 13,958,429,039 12,095,163,569
------------------- ---------------------
Total Liabilities 14,682,742,766 12,787,995,064
------------------- ---------------------
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 152,589,729 151,527,229
Retained earnings 36,298,148 30,225,784
Accumulated other comprehensive income 979,215 668,031
------------------- ---------------------
Total Shareholder's Equity 191,867,092 184,421,044
------------------- ---------------------
Total Liabilities and Shareholder's Equity $ 14,874,609,858 $ 12,972,416,108
=================== =====================
</TABLE>
See notes to unaudited consolidated financial statements.
(3)
<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
MARCH 31, 1998 MARCH 31, 1997
-------------------- -----------------------
REVENUES:
Annuity charges and fees $ 39,785,695 $ 24,368,624
Fee income 10,687,660 5,524,257
Net investment income 3,261,541 1,368,683
Annuity premium income 50,000 275,000
Net realized capital gains 156,332 20,604
Other 69,867 17,939
-------------------- -----------------------
Total Revenues 54,011,095 31,575,107
-------------------- -----------------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 366,431 144,687
Increase in annuity policy reserves 238,191 783,550
Cost of minimum death benefit reinsurance 1,369,079 876,078
Return credited to contractowners 1,666,993 (6,745,574)
-------------------- -----------------------
3,640,694 (4,941,259)
-------------------- -----------------------
Expenses:
Underwriting, acquisition and other insurance expenses 34,254,872 17,683,466
Amortization of state insurance licenses 37,500 37,500
Interest expense 8,831,244 5,539,574
-------------------- -----------------------
43,123,616 23,260,540
-------------------- -----------------------
Total Benefits and Expenses 46,764,310 18,319,281
-------------------- -----------------------
Income from operations before income taxes 7,246,785 13,255,826
Income tax expense 1,174,421 4,259,851
-------------------- -----------------------
Net income $ 6,072,364 $ 8,995,975
==================== =======================
</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 CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------------- ----------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 6,072,364 $ 8,995,975
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase/(decrease) in policy reserves (3,298,999) 2,469,190
Amortization of bond discount 20,212 18,153
Amortization of insurance licenses 37,500 37,500
Change in receivable from/payable to affiliates 4,011,789 52,055,515
Change in income tax receivable/payable 1,579,665 3,514,385
Increase in other assets (1,700,109) (323,105)
(Increase)/decrease in accrued investment income (88,506) 275,787
(Increase)/decrease in reinsurance receivable 1,799,447 (1,469,249)
Increase in deferred acquisition costs, net (42,674,376) (49,515,067)
Increase in income tax receivable - deferred (518,403) (228,711)
Increase/(decrease) in accounts payable and accrued expenses 24,294,733 (9,233,922)
Increase in drafts outstanding 11,964,831 -
Change in foreign currency translation, net 8,831 26,822
Realized gain on sale of investments (156,332) (20,604)
---------------------- --------------------
Net cash provided by operating activities 1,352,647 6,602,669
-------------------- ----------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturity investments (17,736,089) (4,886,075)
Proceeds from sale and maturity of fixed maturity investments 50,000 200,000
Purchase of shares in mutual funds (3,833,340) (1,434,810)
Proceeds from sale of shares in mutual funds 4,605,530 178,104
Increase in policy loans (168,385) -
Change in investments of separate account assets (849,287,100) (867,715,012)
-------------------- ----------------------
Net cash used in investing activities (866,369,384) (873,657,793)
-------------------- ----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 1,062,500 130,000
Decrease in future fees payable to parent (6,532,159) (2,269,749)
Increase in payable to reinsurer 1,754,033 3,340,628
Proceeds from annuity sales 848,827,538 866,040,450
-------------------- ----------------------
Net cash provided by financing activities 845,111,912 867,241,329
-------------------- ----------------------
Net (decrease)/increase in cash and cash equivalents (19,904,825) 186,205
-------------------- ----------------------
Cash and cash equivalents at beginning of period 81,974,204 14,199,412
-------------------- ----------------------
Cash and cash equivalents at end of period $ 62,069,379 $ 14,385,617
==================== ======================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ - $ 43,000
==================== ======================
Interest paid $ 3,903,716 $ 3,180,309
==================== ======================
</TABLE>
See notes to unaudited consolidated financial statements.
(5)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. 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
three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
B. New Accounting Pronouncement
As of January 1, 1998 the Company adopted Statement of
Financial Accounting Standards ("SFAS") 130, "Reporting
Comprehensive Income". SFAS 130 sets standards for the
reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no
impact on the Company's financial position or net income. SFAS
130 requires unrealized gains and losses on the Company's
available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately
in shareholder's equity to be included in other comprehensive
income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS 130.
(6)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
The components of comprehensive income, net of tax, for the three months
ended March 31, 1998 and 1997 were as follows:
1998 1997
---- ----
Net income $6,072,364 $8,995,975
Other comprehensive income:
Unrealized investment gains and
losses 305,444 (1,448,082)
Foreign currency translation 5,740 (24,961)
---------- -----------
Other comprehensive income 311,184 (1,473,043)
---------- -----------
Comprehensive income $6,383,548 $7,522,932
========== ==========
The components of accumulated other comprehensive income, net of tax,
as of March 31, 1998 and December 31, 1997 were as follows:
1998 1997
---- ----
Unrealized investment gains and
losses $1,259,513 $ 954,069
Foreign currency translation (280,298) (286,038)
----------- -----------
Accumulated other comprehensive
income $ 979,215 $ 668,031
========== ===========
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 $1,931,784 as of March 31, 1998.
(7)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
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 March 31, 1998 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 March 31, 1998 amounted to $12,085,593, of which
$2,405,472 has been approved for payment.
(8)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
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 from January 1,
1994 through June 30, 1996 (Transaction 1996-1). In addition, the
Company entered into the following similar transactions during 1997:
Closing Effective Contract Issue
Transaction Date Date Period
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97
In connection with these transactions, the Parent, through a trust,
issued collateralized notes in 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, the rights sold provide for
the Parent to receive 80% (100% for Transaction 1997-3) 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 (6 to 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 sales have been recorded as liabilities and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value of
the transactions (discounted at 7.5%) as of the Effective Date was as
follows:
Present
Transaction Value
1996-1 $50,221,438
1997-1 58,766,633
1997-2 77,551,736
1997-3 58,193,264
(9)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
Payments representing fees and charges realized during the period
January 1, 1998 through March 31, 1998 in the aggregate amount of
$13,722,438, were made by the Company to the Parent. Interest expense
of $4,377,388 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
1998 $ 32,418,377
1999 41,845,736
2000 43,500,530
2001 40,738,800
2002 34,533,624
2003 22,835,020
2004 9,490,399
2005 452,099
-------------
Total $ 225,814,585
=============
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.
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.
(10)
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 1998
In addition, 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:
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Increase
Annuity in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $46,477,922 ($ 1,527,260) $1,666,993
Ceded 6,692,227 (1,765,451) -
------------- ------------ -----------------
Net $39,785,695 $ 238,191 $1,666,993
=========== ============ ==========
</TABLE>
Three Months Ended March 31, 1997
<TABLE>
<CAPTION>
Annuity Increase in Annuity Return Credited
Charges & Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $29,586,298 $2,252,799 ($6,724,793)
Ceded 5,217,674 1,469,249 20,781
------------- ----------- ------------
Net $24,368,624 $ 783,550 ($6,745,574)
=========== =========== ===========
</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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended March 31, 1998
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; c) certain group variable annuities that are
not registered with the Securities and Exchange Commission that serve as funding
vehicles for various types of qualified pension and profit sharing plans and d)
fixed and adjustable immediate annuities. In addition, in April 1998, the
Company began offering a term life insurance product.
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 months ended March 31,
1998 and 1997 was $848.8 million and $866.0 million, respectively, a decrease of
2%. This decrease, driven by below expectation sales levels in January and
February, partially offset by a strong March, is attributed to concern in the
marketplace early in 1998 over the Clinton administration's proposed budget
package and certain negative press regarding variable annuity products overall.
Assets grew $1,902.2 million or 15% since December 31, 1997. This increase is a
direct result of the strong performance of the stock markets over the first
quarter of 1998, which has contributed to the growth in separate account assets,
combined with increases in separate account assets and deferred acquisition
costs over the same period due to sales volume. Liabilities grew $1,894.7
million or 15% since December 31, 1997 as a result of the additional reserves
required for the market and sales-related growth of separate account assets, an
increase in drafts outstanding, and an increase in the amounts payable to
affiliates and reinsurers in support of the acquisition costs of the Company's
variable annuity business.
(12)
<PAGE>
The Company experienced a net gain of $6.1 million after tax for the current
period compared with $9.0 million for the same period last year, a result which
is below expectation. This gain is a result of the strong, but below
expectation, sales activity for the three months ended March 31, 1998, and an
increased asset base, which generates additional fee revenue, partially offset
by expense levels above those expected for the level of sales activity.
Revenues:
Strong market performance and strong annuity sales volume results in greater
assets under management. Growth in assets under management has resulted in a 63%
increase in annuity charges and fees for the three month period ended March 31,
1998. This is compared to an increase of 81% for the three month period ended
March 31, 1997.
Fee income includes income earned for transfer agency type activities. This
income increased 93% for the three month period ended March 31, 1998 compared to
an increase of 75% for the three month period ended March 31, 1997. These
increases are driven by the continued growth in assets under management.
Net investment income increased 138% for the three month period ended March 31,
1998, compared to an increase of 201% for the three month period ended March 31,
1997. These increases are the result of increased general account investment
holdings for the periods.
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 March 31, 1998 and 1997, the change in the guaranteed
minimum death benefit reserve exceeded the costs associated with reinsuring the
guaranteed minimum death benefit reserve by approximately $0.4 million and $0.6
million, respectively.
(13)
<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 $1.7 million expense for the current period reflects a
lower than expected separate account investment return on the market value
adjusted contracts in support of the benefits and required reserves, along with
a $1.9 million timing difference (loss) related to March 31, 1998 bond market
fluctuations which will reverse in the second quarter. While the assets relating
to the market value adjusted contracts reflect the market interest rate
fluctuations which occurred on March 31, 1998, the related liabilities are based
on the interest rates set for new contracts which are generally set based on
prior day interest rates. During the first week of April 1998, interest rates
were established for the new contracts, thereby bringing the liabilities
relating to the market value adjusted contracts in line with the related assets.
The result for the same period in 1997, a $6.7 million gain, reflects higher
than expected separate account investment return along with the reversal of the
effect of December 31, 1996 bond market fluctuations which had adversely
impacted 1996 results by $1.8 million.
Expenses:
Underwriting, acquisition and other insurance expenses consists of $44.7 million
of commissions and $30.4 million of general expenses offset by the net
capitalization of deferred acquisition costs totaling $40.8 million. This
compares to $42.9 million of commissions and $21.2 million of general expenses
offset by the net capitalization of deferred acquisition costs totaling $46.4
million for the same period last year.
Interest expense increased 59% over the same period last year as a result of the
July and December 1997 sales of future fee revenue, which collectively raised
$194.5 million in addition to the $50.2 million raised in 1996. Interest expense
on these transactions totalled $4.4 million and $1.1 million for the periods
ended March 31, 1998 and 1997, respectively.
Income tax expense was $1.2 million for the period ended March 31, 1998,
compared with $4.3 million for the same period last year. The effective Federal
income tax rates for the periods were 16% and 32% respectively. The effective
rates are lower than the Federal statutory income tax rate due to permanent
differences. Management believes that based on the taxable income produced in
1997 and the first three months of 1998 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.
(14)
<PAGE>
Liquidity and Capital Resources
The first quarter 1998 liquidity requirement of the Company was met by cash from
insurance operations, investment activities, cash flow from the December 30,
1997 sale of future fee revenue and reinsurance. The Company's first quarter
1998 sales volume of $848.8 million was made up of approximately 97% variable
annuities, most of 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,
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.
In addition, since December 1996, the Company has entered into a series of
transactions in which the rights to receive future fees and charges expected to
be realized on the variable portion of a designated block of deferred annuity
contracts through their surrender charge period have been sold to the Parent.
These transactions, designed as another means of financing growth, are discussed
in more detail at Note 4 of the Notes to Unaudited Consolidated Financial
Statements.
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 March 31, 1998 and December 31, 1997, shareholder's equity was $191.9
million and $184.4 million, respectively, which includes the carrying value of
the state insurance licenses in the amount of $4.5 million and $4.6 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.
(15)
<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."
(16)
<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 14, 1998
(17)
<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
(18)
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 881453
<NAME> ASLAC 0398
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 125,987,348
<DEBT-CARRYING-VALUE> 135,298,689
<DEBT-MARKET-VALUE> 135,342,982
<EQUITIES> 6,622,432
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 142,776,773
<CASH> 62,069,379
<RECOVER-REINSURE> 1,320,774
<DEFERRED-ACQUISITION> 628,051,995
<TOTAL-ASSETS> 14,874,609,858 <F1>
<POLICY-LOSSES> 63,860,881
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 189,867,092
<TOTAL-LIABILITY-AND-EQUITY> 14,874,609,858 <F2>
50,000
<INVESTMENT-INCOME> 3,261,541
<INVESTMENT-GAINS> 156,332
<OTHER-INCOME> 69,867 <F3>
<BENEFITS> 3,640,694
<UNDERWRITING-AMORTIZATION> 16,676,057
<UNDERWRITING-OTHER> 17,616,315
<INCOME-PRETAX> 7,246,785
<INCOME-TAX> 1,174,421
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,072,364
<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
$13,958,429,039.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $13,958,429,039.
<F3> Other income includes annuity charges and fees of $39,785,695 and fee
income of $10,687,660.
</FN>
</TABLE>
