SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 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
Connecticut 06-1241288
------------------------------ ------------------
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Corporate Drive, Shelton, Connecticut 06484
--------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code: (203) 926-1888
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
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 March 26, 1999, 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 all of which were owned by American Skandia
Investment Holding Corporation, a wholly-owned subsidiary of Skandia Insurance
Company Ltd., a Swedish corporation.
<PAGE>
PART I
Item 1. Business
American Skandia Life Assurance Corporation ("ASLAC" or "the
Company") is a Connecticut corporation with its principal offices
in Shelton, Connecticut.
American Skandia Investment Holding Corporation (the "Parent")
owns all of the issued and outstanding shares of the Company's
common stock. The Parent is a wholly-owned ultimate subsidiary of
Skandia Insurance Company Ltd., a Swedish corporation.
The products sold by the Company are sold to individuals,
businesses and pension plans. Annuities are used primarily for
long-term savings and retirement purposes. Life insurance is used
primarily to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement
needs.
Annuity contracts represent a contractual obligation to make
payments over a given period of time (often measured by the life
of the recipient), undertaken by the insurer in return for the
payment of either a single purchase payment or a series of
scheduled or flexible purchase payments. The insurer's obligation
to pay may commence immediately or be deferred. If the payments
are deferred, the insurer generally incurs an obligation to make
a surrender value available during the deferral period based on
an account value established using the purchase payments. The
account value may be credited interest, or may vary with the
performance of investments made by the insurer. Gains in the
contracts before distribution are tax deferred. Distributions are
taxed as ordinary income. During the deferral period,
distributions are assumed to come first from any gain in contract
and loans are deemed distributions. Distributions may be subject
to a tax penalty. For immediate annuities and annuitized deferred
annuities, a portion of each distribution may be treated as the
return of the taxpayer's investment in the contract.
Life insurance policies represent a contractual obligation to pay
proceeds to a beneficiary upon the death of the insured. This
obligation is undertaken by the insurer in return for either a
single premium, or a series of scheduled or flexible premiums.
Cash value life insurance represents an additional obligation to
make amounts available upon surrender or, in many cases, for
loans collateralized by policy values. Distributions upon the
death of the insured are tax free in most circumstances. Gains in
the contracts before distribution are tax deferred. Distributions
subject to tax are subject to ordinary income treatment.
Distributions before the death of the insured from policies
deemed to be modified endowment contracts are generally taxed in
a manner similar to deferred annuities. Distributions from other
policies before the insured's death are assumed to come first
from the taxpayer's investment in the policy and loans are not
deemed distributions.
The Company is obligated to carry in its statutory financial
statements, as liabilities, actuarial reserves to meet its
obligations on outstanding annuity or life insurance contracts.
This is required by the life insurance laws and regulations in
the jurisdictions in which ASLAC does business. Such reserves are
based on mortality and/or morbidity tables in general use in the
United States. In general, reserves are computed amounts that,
with additions from premiums to be received, and with interest on
such reserves compounded at certain assumed rates, are expected
to be sufficient to meet contractual obligations at their
maturities if death occurs in accordance with the mortality
tables employed. In the accompanying financial statements, these
reserves for contractual obligations are determined in accordance
with generally accepted accounting principles and are included in
the separate account liabilities, reserve for future
contractowner benefits and policy reserves.
ASLAC is engaged in a business that is highly competitive due to
the large number of insurance companies and other institutions
competing in the marketing and sale of long-term savings and
insurance products.
As of December 31, 1998, the Company had 779 direct salaried
employees.
<PAGE>
Item 2. Properties
The Company occupies office space leased from an affiliate,
American Skandia Information Services and Technology Corporation,
and believes that the current facilities are satisfactory for its
near term needs.
Item 3. Legal Proceedings
As of the date of this filing, the Company is not involved in any
litigation outside of the ordinary course of business, and knows
of no such material claims.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
All of ASLAC's outstanding shares are owned by American Skandia
Investment Holding Corporation, a wholly-owned subsidiary of
Skandia Insurance Company Ltd. The Company did not pay any
dividends to its Parent in 1998, 1997 and 1996.
Item 6. Selected Financial Data
The following table summarizes information with respect to the
operations of the Company. The selected financial data should be
read in conjunction with the financial statements and the notes
thereto and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
(in thousands) FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Income Statement Data:
Revenues:
Annuity and life insurance
charges and fees* $ 186,211 $ 121,158 $ 69,780 $ 38,837 $ 24,780
Fee income 50,839 27,593 16,420 6,206 2,112
Net investment income 11,130 8,181 1,586 1,601 1,300
Premium income and
other revenues 1,360 1,082 265 45 92
------------- ------------- ------------ ----------- -----------
Total revenues $ 249,540 $ 158,014 $ 88,051 $ 46,689 $ 28,284
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity benefits $ 558 $ 2,033 $ 613 $ 555 $ 370
Change in annuity policy reserves 1,053 37 635 (6,779) 5,766
Cost of minimum death benefit
reinsurance 5,144 4,545 2,867 2,057 -
Return credited to contractowners (8,930) (2,018) 673 10,613 (517)
Underwriting, acquisition and
other insurance expenses 167,790 90,496 49,887 35,914 18,943
Interest expense 41,004 24,895 10,791 6,500 3,616
------------- ------------- ------------ ------------ ------------
Total benefits and expenses $ 206,619 $ 119,988 $ 65,466 $ 48,860 $ 28,178
============= ============= ============ ============ ============
Income tax expense (benefit)$ 8,154 $ 10,478 $ (4,038) $ 397 $ 247
============= ============= ============ ============ ============
Net income (loss) $ 34,767 $ 27,548 $ 26,623 $ (2,568) $ (141)
============= ============= ============ ============ ============
Balance Sheet Data:
Total Assets $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018 $ 2,824,311
============= ============= ============ ============ ============
Future fees payable
to parent $ 368,978 $ 233,034 $ 47,112 $ - $ -
============= ============= ============ ============ ============
Surplus Notes $ 193,000 $ 213,000 $ 213,000 $ 103,000 $ 69,000
============= ============= ============ ============ ============
Shareholder's Equity $ 250,417 $ 184,421 $ 126,345 $ 59,713 $ 52,206
============= ============= ============ ============ ============
</TABLE>
* On annuity and life insurance sales of $4,159,662, $3,697,990,
$2,795,114, $1,628,486, and $1,372,874, during the years ended
December 31, 1998, 1997, 1996, 1995, and 1994, respectively,
with contractowner assets under management of $17,854,761,
$12,119,191, $7,764,891, $4,704,044, and $2,661,161 as of
December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
American Skandia Life Assurance Corporation (the "Company") is a
stock life insurance company domiciled in Connecticut with
licenses in all 50 states. It is a wholly-owned subsidiary of
American Skandia Investment Holding Corporation (the "Parent"),
whose ultimate parent is Skandia Insurance Company Ltd., a
Swedish company.
The Company is primarily in the business of issuing long-term
savings and retirement products to individuals, groups and
qualified pension plans. Since its business inception in 1988,
the Company has offered a wide array of annuities, including: 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) non-registered group variable annuities designed
as funding vehicles for various types of qualified retirement
plans; and d) fixed and adjustable immediate annuities.
In April 1998, the Company began offering a term life insurance
product in support of an affiliate's mutual fund products. In May
1998, the Company launched a single premium variable life
insurance product. In January 1999, the Company launched its
second variable life product, which was designed as a flexible
premium product.
The Company markets its products to independent financial
planners and broker-dealers 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 and
life insurance.
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. Skandia Vida,
S.A. de C.V had total shareholder's equity of $4,724,000 and
$1,509,000 as of December 31, 1998, and 1997, respectively and
has generated net losses of $2,514,000, $1,438,000 and $781,000
for the years ended December 31, 1998, 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
Annuity and life insurance sales increased 12%, 32% and 72% in
1998, 1997 and 1996, respectively. The Company continues to show
significant growth in sales volume and ranked 6th highest in
variable annuity sales during 1998, according to the Variable
Annuity Research and Data Service. The Company's growth is a
result of innovative product development activities, the
recruitment and retention of top producers, and the success of
its highly rated customer service teams.
The Company offers and sells a wide range of deferred annuities
and variable life insurance through three focused marketing,
sales and service teams. Each team specializes in addressing one
of the Company's primary distribution channels: (a) financial
planning firms; (b) broker-dealers that generally are members of
the New York Stock Exchange, including "wirehouse" and regional
broker-dealer firms; and (c) broker-dealers affiliated with banks
or which specialize in marketing to customers of banks. The
Company also offers a number of specialized products distributed
by select, large distributors. There has been continued growth
and success in expanding the number of selling agreements in the
primary distribution channels. There has also been increased
success in enhancing the relationships with the registered
representatives/insurance agents of all the selling firms.
<PAGE>
Total assets grew 46%, 56% and 66% in 1998, 1997 and 1996,
respectively. These increases were a direct result of the
substantial sales volume and market growth of the separate
account assets. The sales and market growth also drove increases
in deferred acquisition costs, as well as, fixed maturity
investments, in support of the Company's risk based capital
requirements. Liabilities grew 46%, 56%, and 65% in 1998, 1997
and 1996, respectively, as a result of the reserves required for
the increased sales activity along with the sale of future fees
and charges during these periods. These sales of future fees and
charges to the Parent are needed to fund the acquisition costs of
the Company's variable annuity and life insurance business.
The Company generated net income after tax of $34,767,000
$27,548,000 and $26,623,000 in 1998, 1997 and 1996, respectively.
The Company benefited in each of the past three years from strong
sales growth and favorable market conditions. In 1996, the
Company also benefited from the recognition of the reversal of
the deferred tax valuation allowance. Assets under management,
from which the Company derives a significant portion of its
revenues grew 47%, 56% and 65% in 1998, 1997 and 1996,
respectively.
REVENUES
As a result of the significant growth in sales and assets under
management, contractowner fees and charges and fees generated
from transfer agency-type activities increased dramatically over
the past three years:
(annual percentage growth) 1998 1997 1996
---- ---- ----
Annuity and life insurance
fees and charges 54% 74% 80%
==== ==== ====
Transfer agency fee income 84% 68% 165%
==== ==== ====
Net investment income increased 36% and 416% in 1998 and 1997,
respectively, and decreased slightly in 1996. The majority of the
income was generated from the bond holdings, which were increased
in 1998 and 1997 to meet risk based capital goals, which in turn,
have increased as a result of the growth in business.
Premium income represents premiums earned on sales of immediate
annuities with life contingencies, supplementary contracts with
life contingencies and certain life insurance products. Sales of
these ancillary products decreased slightly in 1998 and 1996 and
increased in 1997.
BENEFITS
Annuity benefits and the change in annuity policy reserves relate
to annuity contracts with mortality risks, these being immediate
annuity contracts with life contingencies and supplementary
contracts with life contingencies. Due to the age of these
policies in force and the relative insignificance of these
products to the Company's overall portfolio of products,
fluctuations in these benefits were of marginal importance to the
Company's total operations.
The Company reinsures the guaranteed minimum death benefit
exposure on most of the variable annuity contracts. The costs
(minimum guaranteed premium per reinsurance contracts) associated
with reinsuring the guaranteed minimum death benefit reserve
exceeded the change in the guaranteed minimum death benefit
reserve during 1998, 1997 and 1996. This cost increased in each
of the past three years by 13%, 59% and 39%, respectively.
Return credited to contractowners includes primarily revenues on
the variable and market value adjusted annuities and variable
life insurance, offset by the benefit payments and change in
reserves required on this business. The 1998 return credited to
contractowners in the amount of ($8,930,000) represented higher
than expected Separate Account investment returns on the market
value adjusted contracts in support of the benefits and required
reserves.
<PAGE>
The 1997 return credited to contractowners in the amount of
($2,018,000) represents a break-even year for the Company's
market value adjusted product line. The 1996 return credited to
contractowners in the amount of $673,000 represents a favorable
investment return on the market value adjusted contracts relating
to the benefits and required reserves, offset by the effect of
bond market fluctuations on December 31, 1996 in the amount of
$1,800,000. While the assets relating to the market value
adjusted contracts reflect the market interest rate fluctuations
which occurred on December 31, 1996, the liabilities are based on
the interest rates set for new contracts which are generally
based on the prior day's interest rates. During the first week of
January 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. Consequently,
the gain realized in 1997 was a result of this liability shift.
EXPENSES
Underwriting, acquisition and other insurance expenses for 1998,
1997 and 1996 were as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Commissions $ 224,916 $ 186,920 $ 140,459
General expenses 117,678 94,640 63,375
Net capitalization of
deferred acquisition costs (174,804) (191,064) (153,947)
--------- --------- ---------
Underwriting, acquisition and
other insurance expenses $ 167,790 $ 90,496 $ 49,887
========= ========= =========
Commissions increased with the growth in sales. General expenses
increased with the growth in sales, along with start up costs
associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of deferred
acquisition costs decreased in 1998 as a result of increased
amortization.
Interest expense increased $16,109,000, $14,104,000 and
$4,291,000 in 1998, 1997 and 1996, respectively, as a result of
additional financing transactions, which consisted of the sale of
future fees to the Parent ("securitization transactions"). In
addition, the Company had outstanding surplus notes totaling
$213,000,000 throughout 1998 ($20,000,000 was retired on December
31, 1998). Surplus notes as of December 31, 1998 and 1997 totaled
$193,000,000 and $213,000,000, respectively.
The effective income tax rates for the years ended December 31,
1998, 1997 and 1996 were 19%, 28% and (18%), respectively. The
effective rate is lower than the corporate rate of 35% due to
permanent differences, with the most significant item being the
dividend received deduction. Additionally, the Company released
a deferred tax valuation allowance of $9,325,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
ASLAC's liquidity requirement was met by cash from insurance
operations, investment activities, borrowings from its Parent and
sale of rights to future fees and charges to its Parent.
Approximately 97% of 1998 sales (94% in 1997 and 1996) were
variable annuity and life insurance products, 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 cost for the new
business. This cash strain required the Company to look beyond
the cash made available by insurance operations and investments
of the Company to financing in the form of surplus notes, capital
contributions, the sale of certain rights to future fees and
modified coinsurance arrangements.
<PAGE>
- During 1996, the Company issued $110,000,000 of surplus notes to
its Parent.
- During December 1998 and 1997, the Company received
$2,600,000 and $27,700,000, respectively, from its Parent to
support the capital needs of its U.S. operations during the
current year along with the following year's anticipated
growth in business.
- Funds received from new securitization transactions amounted to
$169,881,000, $194,512,000 and $50,221,000 for 1998, 1997
and 1996, respectively.
- During 1998, 1997 and 1996, the Company extended its
reinsurance agreements (which were initiated in 1993, 1994
and 1995). The reinsurance agreements are modified
coinsurance arrangements where the reinsurer shares in the
experience of a specific book of business.
The Company expects the continued use of reinsurance and
securitization transactions to fund the cash strain anticipated
from the acquisition costs on the coming years' sales volume.
As of December 31, 1998 and 1997, shareholder's equity was
$250,417,000 and $184,421,000, respectively. The increases were
driven by the previously mentioned capital contributions received
from the Parent and net income from operations.
ASLAC has long-term surplus notes and a short-term borrowings
with its Parent. No dividends have been paid to its Parent.
The National Association of Insurance Commissioners ("NAIC")
requires insurance companies to report information regarding
minimum Risk Based Capital ("RBC") requirements. These
requirements are intended to allow insurance regulators to
identify companies which may need regulatory attention. The RBC
model law requires that insurance companies apply various factors
to asset, premium and reserve items, all of which have inherent
risks. The formula includes components for asset risk, insurance
risk, interest risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted
capital well above required capital.
YEAR 2000 COMPLIANCE
The Company is continuing its ongoing assessment of the potential
impact of the Year 2000 issue on various aspects of its business.
The Company's computer support is provided by its affiliate,
American Skandia Information Services and Technology Corporation,
which also provides such support for the Company's affiliated
broker-dealer, American Skandia Marketing, Incorporated and the
Company's affiliated investment advisory firm, American Skandia
Investment Services, Incorporated. Because of the nature of the
Company's business, any assessment of the potential impact of the
Year 2000 issues on the Company must be an assessment of the
potential impact of these issues on all these companies, which
are referred to below as "American Skandia".
Business Partners
Management believes the area where the Company is most vulnerable
to Year 2000 issues is in its interfaces with computer systems of
investment managers, sub-advisors, third party administrators,
vendors and other business partners. The inability to properly
recognize date sensitive electronic information and transfer data
between systems could cause errors or even a complete systems failure
which would result in a temporary inability to process
transactions correctly or engage in normal business activities.
The American Skandia deferred annuity operational business
partners report that all critical interfaces are Year 2000
compliant. All investment managers and sub-advisors are required
by the Securities and Exchange Commission to publicly disclose
their Year 2000 status in December 1998 and June 1999.
<PAGE>
American Skandia has initiated formal communications with parties
that provide third party administration, record keeping and trust
services in connection with its life insurance and qualified
retirement plan annuities business. Management has already
received several written assurances that these firms will be Year
2000 compliant. The Company expects to have certifications from
all remaining parties by July 1999. American Skandia is currently
developing contingency plans in the event that these targets are
not met.
Information Technology Systems
American Skandia is a relatively young company whose internally
developed systems were designed from the start with four digit
year codes. The Company engaged an external information
technology specialist to review American Skandia's operating
systems and internally developed software. The assessment was
completed in December 1997 and the results were favorable.
Specific modifications were suggested, evaluated and implemented
for the annuity administration system. This project was completed
during 1998 and a certificate of compliance has been received.
Other non-critical internally developed applications in the
client/server area have already been or will be remediated during
1999. The costs associated with this aspect of Year 2000
compliance have not had, and are not expected to have, a
significant impact on the Company's results from operations.
Suppliers and Non-Information Technology Systems
Like most companies, American Skandia is reliant on network, and
desktop operating systems and software providers to release
compliant versions of their respective systems. American
Skandia's network is currently at the most compliant level
available. The standard desktop software will be replaced, as
fully compliant versions become available. In addition, the
Company is in the process of contacting the non-information
systems vendors and suppliers regarding their Year 2000
compliance status and will factor the results of these
assessments into its contingency plans.
Management believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, should
errors or disruptions in computer service occur, the Company
could realize losses. Given the nature and uncertainty of such
losses, the amounts cannot be reasonably determined.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
At December 31, 1998, the Company held in its general account
$149,484,000 of fixed maturity investments that are sensitive to
changes in interest rates. These securities are held in support
of the Company's fixed immediate annuities and supplementary
contracts ($23,699,000 in reserves at December 31, 1998) and in
support of the Company's target solvency capital. With respect to
the insurance contracts, interest rate risk is managed through an
asset/liability matching program which takes into account the
risk variables of the insurance liabilities supported by the
assets. In addition, the Company has a conservative investment
philosophy, with all investments being investment grade corporate
securities, government agency or U.S. government securities.
In addition, the Company's deferred annuity products offer a
fixed option that subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of
time selected by the contract holder (options available range
from 1 to 10 years). Withdrawal of funds before the end of the
guarantee period subjects the contract holder to a market value
adjustment ("MVA"). In the event of rising interest rates, which
make the fixed maturity securities underlying the guarantee less
valuable, the market value adjustment could be negative. In the
event of falling interest rates, which make the fixed maturity
securities underlying the guarantee more valuable, the market
value adjustment could be positive. Should these contracts be
surrendered early, this increase or decrease in fair value would
be substantially offset through the application of the MVA and
its effect on contractholders choosing to withdraw. The risk to
the Company on these contracts relates to the ability to reinvest
proceeds from interest payments and other activity over the
guarantee term at interest rates required to meet interest rate
guarantees and the risk of default. This risk is managed through
an asset/liability matching program. At December 31, 1998, the
Company had $613,057,000 of contracts subject to MVA.
Equity Market Exposure
The Company has a small portfolio of equity investments; mutual
funds which are held in support of a deferred compensation
program. In the event of a decline in market values of underlying
securities, the value of the portfolio would decline, however the
accrued benefits payable under the related deferred compensation
program would decline by a corresponding amount.
The primary equity market risk to the Company comes from the
nature of the variable annuity and variable life products sold by
ASLAC. Various fees and charges earned by ASLAC are substantially
derived as a percentage of the market value of assets under
management. In a market decline, this income would be reduced.
This could be further compounded by customer withdrawals, net of
applicable surrender charge revenues, partially offset by
transfers to the fixed option discussed above. A 10% decline in
the market value of the assets under management at December 31,
1998, sustained throughout 1999, would result in a $28,000,000
drop in related fee income.
In addition, it is not clear what the impact of a prolonged
downturn in the equity markets would have on ongoing sales.
Customer's perceptions of a downturn in equity markets coupled
with rising interest rates could move them into financial
products other than variable annuities or variable life; however,
the Company's products might remain attractive to purchasers in
relation to other long-term savings vehicles even after such a
decline.
<PAGE>
Item 8. Financial Statements and Supplementary Data
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Page
Independent Auditors' Reports 12
Consolidated Statements of Financial Condition
as of December 31, 1998 and 1997 14
Consolidated Statements of Income for the
Years ended December 31, 1998, 1997 and 1996 15
Consolidated Statements of Shareholder's Equity for the
Years ended December 31, 1998, 1997 and 1996 16
Consolidated Statements of Cash Flow for the
Years ended December 31, 1998, 1997 and 1996 17
Notes to Consolidated Financial Statements 18
Schedules are omitted because they are either not applicable or
because the information required therein is included in the Notes
to Consolidated Financial Statements.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American
Skandia Life Assurance Corporation (the "Company" which is a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1998 and 1997,
and the related consolidated statements of income, shareholder's equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Skandia Life Assurance Corporation at December 31, 1998 and 1997, and
the consolidated results of its operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
- ----------------------
Hartford, Connecticut
February 20, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of operations,
shareholder's equity, and cash flows of American Skandia Life Assurance
Corporation nd subsidiary (a wholly-owned subsidiary of Skandia Insurance
Company Ltd.) for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and cash flows of
American Skandia Life Assurance Corporation and subsidiary for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ------------------------
New York, New York
March 10, 1997
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE
CORPORATION (a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
AS OF DECEMBER 31,
1998 1997
---------- ----------
ASSETS
Investments:
Fixed maturities - at amortized cost $ 8,289 $ 9,367
Fixed maturities - at fair value 141,195 108,323
Investment in mutual funds - at fair value 8,210 6,711
Policy loans 569 687
---------- -----------
Total investments 158,263 125,088
Cash and cash equivalents 77,525 81,974
Accrued investment income 2,880 2,442
Fixed assets 328 356
Deferred acquisition costs 721,507 546,703
Reinsurance receivable 4,191 6,343
Receivable from affiliates 1,161 1,911
Income tax receivable - current - 1,048
Income tax receivable - deferred 38,861 26,174
State insurance licenses 4,413 4,563
Other assets 3,744 2,524
Separate account assets 17,835,400 12,095,164
---------- ----------
Total assets $18,848,273 $12,894,290
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Reserve for future contractowner benefits $ 37,508 $ 43,204
Policy reserves 25,545 24,415
Drafts outstanding 28,941 19,278
Accounts payable and accrued expenses 91,827 71,190
Income tax payable 6,657 -
Payable to affiliates - 584
Future fees payable to parent 368,978 233,034
Short-term borrowing 10,000 10,000
Surplus notes 193,000 213,000
Separate account liabilities 17,835,400 12,095,164
---------- ----------
Total liabilities 18,597,856 12,709,869
---------- ----------
Shareholders Equity:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000 2,000
Additional paid-in capital 179,889 151,527
Retained earnings 64,993 30,226
Accumulated other comprehensive income 3,535 668
---------- ----------
Total shareholder's equity 250,417 184,421
---------- ----------
Total liabilities and shareholder's equity $18,848,273 $12,894,290
=========== ===========
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------- ------------
REVENUES
Annuity and life insurance charges and fees $186,211 $121,158 $69,780
Fee income 50,839 27,593 16,420
Net investment income 11,130 8,181 1,586
Premium income 874 920 125
Net realized capital gains 99 87 134
Other 387 75 6
------------ ------------- ------------
Total revenues 249,540 158,014 88,051
------------ ------------- ------------
BENEFITS AND EXPENSES
Benefits:
Annuity benefits 558 2,033 613
Change in annuity policy reserves 1,053 37 635
Cost of minimum death benefit reinsurance 5,144 4,545 2,867
Return credited to contractowners (8,930) (2,018) 673
------------ ------------- ------------
(2,175) 4,597 4,788
------------ ------------- ------------
Expenses:
Underwriting, acquisition and
other insurance expenses 167,640 90,346 49,737
Amortization of state insurance licenses 150 150 150
Interest expense 41,004 24,895 10,791
------------ ------------- ------------
208,794 115,391 60,678
------------ ------------- ------------
Total benefits and expenses 206,619 119,988 65,466
------------ ------------- ------------
Income from operations before income taxes 42,921 38,026 22,585
Income tax expense (benefit) 8,154 10,478 (4,038)
------------ ------------- ------------
Net income $34,767 $27,548 $26,623
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Common stock:
Beginning and ending balance $2,000 $ 2,000 $ 2,000
Additional paid in capital:
Beginning balance 151,527 122,250 81,875
Additional contributions 28,362 29,277 40,375
----------- ----------- ----------
Ending balance 179,889 151,527 122,250
Retained earnings (deficit):
Beginning balance 30,226 2,678 (23,945)
Net income 34,767 27,548 26,623
----------- ----------- ----------
Ending balance 64,993 30,226 2,678
Accumulated other comprehensive income:
Beginning balance 668 (584) (217)
Other comprehensive income 2,867 1,252 (367)
----------- ----------- -----------
Ending balance 3,535 668 (584)
----------- ----------- -----------
Total shareholder's equity $250,417 $184,421 $126,345
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
1998 1997 1996
------------ ------------ ------------
Cash flow from operating activities:
Net income $ 34,767 $ 27,548 $ 26,623
Adjustments to reconcile net income to net cash
used in operating activities:
Increase in policy reserves 1,130 3,176 1,852
Amortization of bond discount 101 73 27
Amortization of insurance licenses 150 150 150
Change in receivable from/payable to affiliates 166 (1,321) 540
Change in income tax receivable/payable 7,704 (2,172) 1,688
Increase in other assets (1,191) (604) (661)
Increase in accrued investment income (438) (483) (1,764)
Decrease/(increase) in reinsurance receivable 2,152 (268) (676)
Increase in deferred acquisition costs, net (174,804) (190,969) (153,918)
Increase in income tax receivable - deferred (14,242) (9,631) (16,903)
Increase in accounts payable and accrued expenses 20,637 5,719 32,323
Increase in drafts outstanding 9,663 6,245 13,032
Change in foreign currency translation, net (22) (34) (77)
Realized gain on sale of investments (99) (87) (134)
------------ ------------ ------------
Net cash used in operating activities (114,326) (162,658) (97,898)
------------ ------------ ------------
Cash flow from investing activities:
Purchase of fixed maturity investments (31,828) (28,905) (96,813)
Proceeds from sale and maturity of fixed maturity investments 4,049 10,755 8,947
Purchase of shares in mutual funds (7,158) (5,595) (2,160)
Proceeds from sale of shares in mutual funds 6,086 1,415 1,274
Decrease/(increase) in policy loans 118 (528) (104)
------------ ------------ ------------
Net cash used in investing activities (28,733) (22,858) (88,856)
------------ ------------ ------------
Cash flow from financing activities:
Capital contributions from parent 8,362 29,277 40,375
Surplus notes - - 110,000
Increase in future fees payable to Parent 135,944 185,922 47,112
Net (withdrawals from)/deposits to contractowner accounts (5,696) 6,959 5,753
------------ ------------ ------------
Net cash provided by financing activities 138,610 222,158 203,240
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents (4,449) 36,642 16,486
------------ ------------ ------------
Cash and cash equivalents at beginning of year 81,974 45,332 28,846
------------ ------------ ------------
Cash and cash equivalents at end of year $ 77,525 $ 81,974 $ 45,332
============ ============ ============
Supplemental cash flow disclosure:
Income taxes paid $ 14,651 $ 22,308 $ 11,177
============ ============ ============
Interest paid $ 35,588 $ 16,916 $ 7,095
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 1998
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"); whose ultimate parent is Skandia Insurance
Company Ltd., a Swedish corporation.
The Company develops long-term savings and retirement products which
are distributed through its affiliated broker/dealer company, American
Skandia Marketing, Incorporated ("ASM"). The Company currently issues
variable life insurance and variable, fixed, market value adjusted and
immediate annuities for individuals, groups and qualified pension
plans.
The Company has 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. Skandia Vida, S.A. de C.V. had total
shareholder's equity of $4,724,000 and $1,509,000 as of December 31,
1998, and 1997, respectively, and has generated net losses of
$2,514,000, $1,438,000 and $781,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Intercompany transactions and balances have been
eliminated in consolidation.
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
B. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard
("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging
activities. The standard requires that all derivatives be
carried on the balance sheets at fair value. The Company is
currently not involved in derivatives or hedging instruments
as part of its investment strategy. The Company is evaluating
the potential impact of a change in accounting for derivative
instruments embedded in certain products it issues. This
standard is effective for years beginning after June 15, 1999.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Software Developed or Obtained
for Internal Use," which provides guidance for determining
when computer software developed or obtained for internal use
should be capitalized. It also provides guidance on the
amortization of capitalized costs and the recognition of
impairment. The Company is evaluating the potential impact of
adopting this SOP, which is effective for fiscal years
beginning after December 15, 1998.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. Investments
The Company has classified its fixed maturity investments as
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale, are carried at
fair value and changes in unrealized gains and losses are
reported as a component of other comprehensive income.
The Company has classified its mutual fund investments as
available-for-sale. Such investments are carried at fair value
and changes in unrealized gains and losses are reported as a
component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are
determined by the specific identification method and are
included in revenues.
D. Cash Equivalents
The Company considers all highly liquid time deposits,
commercial paper and money market mutual funds purchased with
a maturity of three months or less to be cash equivalents.
E. State Insurance Licenses
Licenses to do business in all states have been capitalized
and reflected at the purchase price of $6,000,000 less
accumulated amortization. The cost of the licenses is being
amortized over 40 years.
F. Fixed Assets
Fixed assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a
straight-line basis over a period of three to five years.
Accumulated depreciation amounted to $142,000 and $96,000 at
December 31, 1998 and 1997, respectively. Depreciation expense
for the years ended December 31, 1998, 1997 and 1996 was
$46,000 and $63,000 and $29,000, respectively.
G. Income Taxes
The Company is included in the consolidated federal income tax
return of Skandia U.S. Investment Holding Corporation and its
subsidiaries. In accordance with the tax sharing agreement,
the federal and state income tax provision is computed on a
separate return basis, as adjusted for consolidated items,
such as net operating loss carryforwards.
Income taxes are provided in accordance with SFAS 109,
"Accounting for Income Taxes", which requires the asset and
liability method of accounting for deferred taxes. The object
of this method is to recognize an asset and liability for the
expected future tax effects due to temporary differences
between the financial reporting and the tax basis of assets
and liabilities, based on enacted tax rates and other
provisions of the tax law.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
H. Recognition of Revenue and Contract Benefits
Revenues for variable annuity contracts consist of charges
against contractowner account values for mortality and expense
risks, administration fees, surrender charges and an annual
maintenance fee per contract. Benefit reserves for variable
annuity contracts represent the account value of the contracts
and are included in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist
of separate account investment income reduced by benefit
payments and changes in reserves in support of contractowner
obligations, all of which are included in return credited to
contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the
general account liability for future contractowner benefits to
the extent in excess of the separate account liabilities.
Revenues for immediate annuity contracts without life
contingencies consist of net investment income. Revenues for
immediate annuity contracts with life contingencies consist of
single premium payments recognized as annuity considerations
when received. Benefit reserves for these contracts are based
on the Society of Actuaries 1983 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.25% to 8.25% and 6.5% to 8.25% at December 31, 1998 and
December 31, 1997, respectively.
Revenues for variable life insurance contracts consist of
charges against contractowner account values for the
maintenance and expense fees, cost of insurance fees and
surrender charges. Benefit reserves for variable life
insurance contracts represent the account value of the
contracts and are included in the separate account
liabilities.
I. Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, are being
deferred net of reinsurance. These costs include commissions,
costs of contract issuance, and certain selling expenses that
vary with production. These costs are being amortized
generally in proportion to expected gross profits from
surrender charges, policy and asset based fees and mortality
and expense margins. This amortization is adjusted
retrospectively and prospectively when estimates of current
and future gross profits to be realized from a group of
products are revised.
Details of the deferred acquisition costs and related
amortization for the years ended December 31, are as follows:
(in thousands) 1998 1997 1996
---- ---- ----
Balance at beginning of year $546,703 $355,734 $201,816
Acquisition costs deferred
during the year 261,432 243,476 171,253
Acquisition costs amortized
during the year (86,628) (52,507) (17,335)
--------- --------- ---------
Balance at end of year $721,507 $546,703 $355,734
======== ======== ========
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
J. 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 and variable life insurance
business. The reinsurance is effected under quota share
contracts.
The company reinsures certain mortality risks relating to the
variable life insurance product, as well as, the guaranteed
minimum death benefit feature in the variable annuity product.
At December 31, 1998 and 1997, in accordance with the
provisions of a modified coinsurance agreement, the Company
accrued $1,976,000 and $0, respectively, for amounts
receivable from favorable reinsurance experience on a block of
variable annuity business.
K. Translation of Foreign Currency
The financial position and results of operations of the
Company's Mexican subsidiary are measured using local currency
as the functional currency. Assets and liabilities of the
subsidiary are translated at the exchange rate in effect at
each year-end. Statements of income and shareholder's equity
accounts are translated at the average rate prevailing during
the year. Translation adjustments arising from the use of
differing exchange rates from period to period are reported as
a component of other comprehensive income.
L. Fair Values of Financial Instruments
The methods and assumptions used to determine the fair value
of financial instruments are as follows:
Fair values of fixed maturities with active markets are based
on quoted market prices. For fixed maturities that trade in
less active markets, fair values are obtained from an
independent pricing service.
Fair values of investments in mutual funds are based on quoted
market prices.
The carrying value of cash and cash equivalents approximates
fair value due to the short-term nature of these investments.
The carrying value of short-term borrowing approximates fair
value due to the short-term nature of these liabilities.
Fair values of certain financial instruments, such as future
fees payable to parent and surplus notes are not readily
determinable and are excluded from fair value disclosure
requirements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
M. Separate Accounts
Assets and liabilities in Separate Accounts are included as
separate captions in the consolidated statements of financial
condition. Separate Account assets consist principally of long
term bonds, investments in mutual funds, short-term securities
and cash and cash equivalents, all of which are carried at
fair value. The investments are managed predominately through
the Company's investment advisory affiliate, American Skandia
Investment Services, Inc. ("ASISI"), utilizing various fund
managers as sub-advisors. The remaining investments are
managed by independent investment firms. The contractowner has
the option of directing funds to a wide variety of mutual
funds. The investment risk on the variable portion of a
contract is borne by the contractowner. A fixed option with a
minimum guaranteed interest rate is also available. The
Company is responsible for the credit risk associated with
these investments.
Included in Separate Account liabilities are $771,195,000 and
$773,067,000 at December 31, 1998 and 1997, respectively,
relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of
$771,195,000 and $773,067,000 at December 31, 1998 and 1997,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash and
cash equivalents are held in support of these annuity
contracts, pursuant to state regulation.
N. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition
costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those
estimates.
3. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted SFAS 130, "Reporting
Comprehensive Income," which 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands) 1998 1997 1996
---- ---- ----
Net income $34,767 $27,548 $26,623
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities 2,751 1,288 (331)
Reclassification adjustment for realized
losses/(gains) included in investment income 138 (14) (99)
--------- --------- ----------
Net unrealized gains/(losses) on securities 2,889 1,274 (430)
Foreign currency translation (22) (22) 64
---------- ---------- ----------
Other comprehensive income 2,867 1,252 (367)
-------- -------- ----------
Comprehensive income $37,634 $28,800 $26,257
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The components of accumulated other comprehensive income, net of tax,
as of December 31, 1998 and 1997 were as follows:
<S> <C> <C>
(in thousands) 1998 1997
---- ----
Unrealized investment gains $3,843 $954
Foreign currency translation (308) (286)
-------- -----
Accumulated other comprehensive income $3,535 $668
====== ====
</TABLE>
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair
value of available-for-sale and held-to-maturity fixed maturities and
investments in mutual funds as of December 31, 1998 and 1997 are shown
below. All securities held at December 31, 1998 are publicly traded.
Investments in fixed maturities as of December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,774 $57 $ - $3,831
Corporate securities 4,515 34 - 4,549
------- ---- ----- -------
Totals $8,289 $91 $ - $8,380
====== === ==== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available-for-Sale
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 17,399 $ 678 $ - $ 18,077
Obligations of
state and political
subdivisions 253 7 - 260
Corporate securities 117,774 5,160 76 122,858
--------- ------- ---- -----------
Totals $135,426 $5,845 $76 $141,195
======== ====== === ========
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1998 are shown below.
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity Available-for-Sale
<S> <C> <C> <C> <C>
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $4,927 $4,982 $ - $ -
Due after one through five years 3,362 3,398 54,789 56,850
Due after five through ten years - - 80,637 84,345
---------- ---------- ---------- ----------
Total $8,289 $8,380 $135,426 $141,195
====== ====== ======== ========
</TABLE>
Investments in fixed maturities as of December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $3,790 $71 $9 $3,852
Obligations of
state and political
subdivisions 50 - - 50
Corporate
securities 5,527 2 19 5,510
------- ----- ---- -------
Totals $9,367 $73 $28 $9,412
====== === === ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(in thousands) Available for Sale
------------------
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
U.S. Government
obligations $ 14,999 $ 202 $ - $ 15,201
Obligations of
state and political
subdivisions 202 - - 202
Corporate
securities 91,470 1,505 55 92,920
---------- ------- ---- ----------
Totals $106,671 $1,707 $55 $108,323
======== ====== === ========
</TABLE>
Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
$999,000, $5,056,000 and $8,732,000, respectively. Proceeds from
maturities during 1998, 1997 and 1996 were $3,050,000, $5,700,000 and
$215,000, respectively.
The cost, gross unrealized gains/losses and fair value of investments
in mutual funds at December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
------ ---------- ---------- ------
1998 $8,068 $416 $274 $8,210
====== ==== ==== ======
1997 $6,896 $ 43 $228 $6,711
====== ==== ==== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Net realized investment gains (losses) were as follows for the years
ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ - $ 10 $ -
Gross losses (1) - -
Investment in mutual funds:
Gross gains 281 116 140
Gross losses (181) (39) (6)
------- ------ -----
Totals $ 99 $ 87 $134
====== ===== ====
</TABLE>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 8,534 $6,617 $ 836
Cash and cash equivalents 1,717 1,153 685
Investment in mutual funds 1,013 554 144
Policy loans 45 28 5
----------- --------- ----------
Total investment income 11,309 8,352 1,670
Investment expenses 179 171 84
---------- -------- ---------
Net investment income $11,130 $8,181 $1,586
======= ====== ======
</TABLE>
6. INCOME TAXES
The significant components of income tax expense (benefit) for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current tax expense $22,384 $20,108 $12,865
Deferred tax benefit (14,230) (9,630) (16,903)
-------- --------- --------
Total income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs ($210,731) ($159,766)
Payable to reinsurers (25,585) (25,369)
Policy fees (859) (656)
Unrealized investment gains and losses (2,069) (514)
----------- -------------
Total (239,244) (186,305)
--------- ---------
Deferred tax assets:
Net separate account liabilities 225,600 175,872
Reserve for future contractowner benefits 13,128 15,121
Other reserve differences 25,335 10,534
Deferred compensation 9,619 7,187
Surplus notes interest 3,375 2,729
Foreign exchange translation 166 154
Other 882 882
------------ ------------
Total 278,105 212,479
--------- ---------
Income tax receivable - deferred $ 38,861 $ 26,174
========= =========
</TABLE>
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the future to realize its
deferred tax asset. As such, the Company released the deferred tax
valuation allowance of $9,325,000 in 1996.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $45,435 $39,464 $23,366
Foreign (2,514) (1,438) (781)
--------- --------- ---------
Total 42,921 38,026 22,585
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 15,022 13,309 7,905
Tax effect of:
Change in valuation allowance - - (9,325)
Dividend received deduction (9,085) (4,585) (2,266)
Losses of foreign subsidiary 880 503 273
Meals and entertainment 487 340 43
State income taxes 673 577 356
Other 177 334 (1,024)
-------- ------- ---------
Income tax expense (benefit) $ 8,154 $10,478 ($ 4,038)
======== ======= =========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. RECEIVABLE FROM/PAYABLE TO AFFILIATES
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation
("ASIST"), an affiliated company; and likewise, the Company has charged
operating costs to ASISI. The total cost to the Company for these items
was $7,722,000, $5,572,000 and $11,581,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Income received for these items
was $1,355,000, $3,225,000 and $1,148,000 for the years ended December
31, 1998, 1997 and 1996, respectively. Amounts receivable from
affiliates under these arrangements were $98,000 and $549,000 as of
December 31, 1998 and 1997, respectively. Amounts payable to affiliates
under these arrangements were $551,000 and $264,000 as of December 31,
1998 and 1997, respectively.
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with its Parent, the Company sold certain
rights to receive future fees and contract charges expected to be
realized on variable portions of designated blocks of deferred annuity
contracts. The effective dates and issue periods these transactions
cover are as follows:
Closing Effective Contract Issue
Transaction Date Date Period
----------- -------- --------- -----------------
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96
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
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98
In connection with these transactions, 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 Agreements, the rights sold provide for
the Parent to receive a percentage 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 percentage is 100% on
transactions 1997-3 and 1998-3 and 80% on all other transactions.
The Company did not sell the right to receive future fees and charges
after the expiration of the surrender charge period.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The proceeds from the sales 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 of
the transactions as of the respective effective date was as follows:
<TABLE>
<CAPTION>
(in thousands)
Present
<S> <C> <C> <C>
Transaction Discount Rate Value
----------- ------------- -------
1996-1 7.5% $50,221
1997-1 7.5% 58,767
1997-2 7.5% 77,552
1997-3 7.5% 58,193
1998-1 7.5% 61,180
1998-2 7.0% 68,573
1998-3 7.0% 40,128
</TABLE>
Payments representing fees and charges in the aggregate amount of
$69,226,000, $22,250,000 and $0, were made by the Company to the Parent
for the years ended December 31, 1998, 1997 and 1996, respectively.
Related interest expense of $22,978,000, $6,842,000 and $42,000 has
been included in the statement of income for the years ended December
31, 1998, 1997 and 1996, respectively.
Expected payments of future fees payable to Parent as of December 31,
1998 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ----------
1999 $ 64,520
2000 68,403
2001 67,953
2002 64,238
2003 54,382
2004 35,601
2005 12,441
2006 1,440
----------
Total $ 368,978
==========
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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1998, 1997 and 1996 was
$3,588,000, $2,428,000 and $1,583,000, respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1998 are as
follows:
(in thousands) 1999 $ 3,619
2000 5,070
2001 5,070
2002 5,070
2003 5,070
2004 and thereafter 40,271
--------
Total $ 64,170
========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the
Company maintains cash, bonds and notes on deposit with various states.
The carrying value of these deposits amounted to $3,747,000 and
$3,757,000 as of December 31, 1998, and 1997, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $285,553,000 and $294,586,000
at December 31, 1998 and 1997, respectively.
The statutory basis net loss was $13,152,000, $8,970,000 and $5,405,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Under various state insurance laws, the maximum amount of dividends
that can be paid to shareholders without prior approval of the state
insurance department is subject to restrictions relating to statutory
surplus and net gain from operations. At December 31, 1998, no amounts
may be distributed without prior approval.
12. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are
eligible. Under this plan, the Company contributes 3% of salary for all
participating employees and matches employee contributions at a 50%
level up to an additional 3% Company contribution. Company
contributions to this plan on behalf of the participants were
$2,115,000, $1,220,000 and $850,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company has a deferred compensation plan, which is available to the
internal field marketing staff and certain officers. Company
contributions to this plan on behalf of the participants were $342,000,
$270,000 and $245,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Company and an affiliate cooperatively have a long-term incentive
plan under which units are awarded to executive officers and other
personnel. The program consists of multiple plans, with a new plan
instituted each year. Generally, participants must remain employed by
the Company or its affiliates at the time such units are payable in
order to receive any payments under the plan. The accrued liability
representing the value of these units was $21,372,000 and $15,720,000
as of December 31, 1998 and 1997, respectively. Payments under this
plan were $2,407,000, $1,119,000 and $602,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
<S> <C> <C> <C>
Gross $215,425 $ 691 ($8,921)
Ceded 29,214 (362) 9
-------- ------- -------
Net $186,211 $ 1,053 ($8,930)
======== ======= =======
1997
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $144,417 $955 ($1,972)
Ceded 23,259 918 46
-------- ----- -------
Net $121,158 $ 37 ($2,018)
======== ===== ======
1996
----
Policy Change in Return Credited
Charges and Fees Policy Reserves to Contractowners
---------------- --------------- -----------------
Gross $87,370 $815 $779
Ceded 17,590 180 106
-------- ----- -----
Net $69,780 $635 $673
======= ==== ====
</TABLE>
Such ceded reinsurance does not relieve the Company of 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 agreements.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash.
Surplus notes outstanding as of December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1998 1997 Years Ended December 31,
Issue Date Rate Amount Amount 1998 1997 1996
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% $ - $ 20,000 $ 1,387 $ 1,387 $ 1,391
February 18, 1994 7.28% 10,000 10,000 738 738 740
March 28, 1994 7.90% 10,000 10,000 801 801 803
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,392
December 28, 1994 9.78% 14,000 14,000 1,388 1,388 1,392
December 19, 1995 7.52% 10,000 10,000 762 762 765
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,142
December 22, 1995 7.47% 9,000 9,000 682 682 684
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 1,747
December 30, 1996 8.03% 70,000 70,000 5,699 5,699 31
-------- -------- ------- ------- ------- -
Total $193,000 $213,000 $17,396 $17,396 $10,087
======== ======== ======= ======= =======
</TABLE>
The surplus note for $20,000,000 dated December 29, 1993 was converted
to additional paid-in capital on December 31, 1998.
All surplus notes mature seven years from the issue date.
Payment of interest and repayment of principal for these notes is
subject to certain conditions and require approval by the Insurance
Commissioner of the State of Connecticut. At December 31, 1998 and
1997, $9,644,000 and $7,796,000, respectively, of accrued interest on
surplus notes was not approved for payment under these criteria.
15. SHORT-TERM BORROWING
The Company had a $10 million short-term loan payable to the Parent at
December 31, 1998 and 1997. The total interest expense to the Company
was $622,000, $642,000 and $643,000 and for the years ended December
31, 1998, 1997 and 1996, respectively, of which $182,000 and $201,000
was payable as of December 31, 1998 and 1997, respectively.
16. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are
subject to discretionary withdrawal by contractowners at market value
or with market value adjustment. Separate account assets which are
carried at fair value are adequate to pay such withdrawals which are
generally subject to surrender charges ranging from 10% to 1% for
contracts held less than 10 years.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
17. SEGMENT REPORTING
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards
for the way that public enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards related to disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for
financial statement periods beginning after December 15, 1997.
During 1998, to complement its annuity products, the Company launched
specific marketing and operational activities towards the release of
variable life insurance and qualified retirement plan annuity products.
As of December 31, 1998, sales were not significant enough to warrant
full segment disclosures. Sales, as measured by premium received, for
the year ended December 31, 1998 and assets under management as of
December 31, 1998, for the respective segments were as follows:
<TABLE>
<CAPTION>
(in thousands) Variable Variable Qualified
Annuity Life Plans Total
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Sales $ 4,122,272 $1,188 $36,202 $ 4,159,662
=========== ====== ======= ===========
Assets under management $17,809,437 $1,295 $44,029 $17,854,761
=========== ====== ======= ===========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
----
<S> <C> <C> <C> <C>
Premiums and other insurance
revenues $ 50,593 $ 57,946 $ 62,445 $ 67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
-------- -------- -------- --------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
-------- -------- -------- --------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
-------- -------- -------- --------
Net income $ 6,072 $ 13,975 $ 14,174 $ 546
======== ======== ======== ========
1997
----
Premiums and other insurance
revenues $ 30,186 $ 34,056 $ 41,102 $ 44,402
Net investment income 1,369 2,627 2,031 2,154
Net realized capital gains 20 43 21 3
-------- -------- -------- --------
Total revenues 31,575 36,726 43,154 46,559
Benefits and expenses 18,319 30,465 31,179 40,025
-------- -------- -------- --------
Pre-tax net income 13,256 6,261 11,975 6,534
Income taxes 4,260 2,614 3,354 250
-------- -------- -------- --------
Net income $ 8,996 $ 3,647 $ 8,621 $ 6,284
======== ======== ======== ========
1996
----
Premiums and other insurance
revenues $ 16,606 $ 20,453 $ 22,366 $ 26,906
Net investment income 455 283 270 578
Net realized capital gains 92 13 6 23
-------- -------- -------- --------
Total revenues 17,153 20,749 22,642 27,507
Benefits and expenses 12,725 9,430 17,007 26,304
-------- --------- -------- --------
Pre-tax net income 4,428 11,319 5,635 1,203
Income taxes 1,769 3,624 3,096 (12,527)
-------- --------- -------- --------
Net income $ 2,659 $ 7,695 $ 2,539 $ 13,730
======== ========= ======== ========
</TABLE>
As described in Note 6, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information contained in the "Executive Officers and Directors"
section of the prospectus of the Company's registration statement
on Form S-1, (Reg. #333-00941) is incorporated herein by
reference.
Item 11. Executive Compensation
Summary Compensation Table: The summary table below summarizes
the compensation payable to the Chief Executive Officer and to
the most highly compensated of our executive officers whose
compensation exceeded $100,000 in 1998.
<TABLE>
<CAPTION>
Name and Annual LTIP
Principal Position Year Salary Payouts
<S> <C> <C> <C>
Jan R. Carendi 1998 $784,361 $301,999
Chief Executive Officer 1997 609,168 171,803
1996 505,694 114,993
Gordon C. Boronow 1998 $324,639 $278,048
President & Deputy Chief 1997 260,938 174,808
Executive Officer 1996 179,426 54,000
Lincoln R. Collins 1998 $285,374 $98,880
Executive Vice President & 1997 254,389 57,756
Chief Operating Officer 1996 208,346 19,099
Thomas M. Mazzaferro 1998 $232,385 $146,679
Executive Vice President & 1997 216,707 78,134
Chief Financial Officer 1996 139,830 45,000
Nathan David Kuperstock 1998 $182,136 $99,896
Vice President 1997 215,219 61,989
Product Management 1996 145,283 27,148
</TABLE>
Long Term Incentive Plans (LTIP) - Awards in the last fiscal
year: The following table provides information regarding our
long-term incentive plan. Units are awarded to executive officers
and other personnel. The table shows units awarded to the Chief
Executive Officer and the most highly compensated of our
executive officers whose compensation exceeded $100,000 in the
fiscal year immediately preceding the date of this submission.
This program is designed to induce participants to remain with
the Company over long periods of time and to tie a portion of
their compensation to the fortunes of the Company.
<PAGE>
Currently, the program consists of multiple plans. A new plan
may be instituted each year. Participants are awarded
units at the beginning of a plan. Generally, participants must
remain employed by the Company or its affiliates at the time such
units are payable in order to receive any payments under the
plan. There are certain exceptions, such as in cases of
retirement or death.
Changes in the value of units reflect changes in the "embedded
value" of the Company. "Embedded value" is the net asset value of
the Company (valued at market value and not including the present
value of future profits), plus the present value of the
anticipated future profits (valued pursuant to state insurance
law) on its existing contracts. Units will not have any value for
participants if the embedded value does not increase by certain
target percentages during the first four years of a plan. The
target percentages may differ between each plan. Any amounts
available under a plan are paid out in the fifth through eighth
years of a plan. Payments under a particular year's plan will be
postponed if the payment would exceed 20% of any pretax profit
(as determined under state insurance law) earned by the Company
and certain affiliates in the prior fiscal year or 30% of the
individual's current year salary. The amount to be received by
a participant at the time any payment is due will be the then
current number of units payable multiplied by the then current
value of such units.
<TABLE>
<CAPTION>
(in thousands)
Number Period until Estimated Future Payouts
Name of Units Payout Threshold Target Maximum
<S> <C> <C> <C>
Jan R. Carendi 210,000 Various $2,535
Gordon C. Boronow 200,000 Various 2,496
Thomas M. Mazzaferro 145,000 Various 1,652
Lincoln R. Collins 86,250 Various 942
Nathan David Kuperstock 55,000 Various 690
</TABLE>
<PAGE>
The following directors' compensation is shown below in 1998:
Jan R. Carendi 0
Gordon C. Boronow 0
Nancy F. Brunetti 0
Malcolm M. Campbell 0
Lincoln R. Collins 0
C. Henrik G. Danckwardt 0
Wade A. Dokken 0
Thomas M. Mazzaferro 0
Gunnar J. Moberg 0
Anders O. Soderstrom 0
Amanda C. Sutyak 0
C. Ake Svensson 0
Bayard F. Tracy 0
Item 12. Security Ownership of Certain Beneficial Owners and Management
None
Item 13. Certain Relationships and Related Transactions
None
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Information
(1) Financial Statements See Index to Consolidated
Financial Statements on
Page 11
(2) Financial Statement Schedules None
(b) Exhibits
(2) Plans of acquisition, reorganization, None
Arrangement, liquidation or succession
(3) Articles of Incorporation and By-Laws Incorporated by reference
to the Company's Form N-4
(Reg. #33-19363)
(4) Instruments defining the right of Incorporated by reference
security holders including indentures to the Company's Reg.
#333-08853, #33-59993,
#33-86866, #33-87010,
#33-62793, #33-62933,
#333-26685, and #33-88362
(9) Voting Trust Agreement None
(10) Material Contracts Incorporated by reference
to the Company's Forms S-1
(Reg. #33-26122 and
#33-86918)
(11) Statement of Computation of per share
earnings Not required to be filed
(12) Statements of Computation of Ratios Not required to be filed
(13) Annual Report to security holders None
(18) Letter re change in accounting
principles None
(19) Previously unfiled documents None
(21) Subsidiaries of the registrant Incorporated by reference
to Part II of
Reg #333-26695
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel Not required to be filed
(24) Powers of Attorney Incorporated by reference
to the Company's Forms
S-2 (Reg. #333-25733)
(99) Additional exhibits None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 26, 1999.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: /s/Thomas M. Mazzaferro
--------------------
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 26, 1999.
*Jan R. Carendi
--------------
Jan R. Carendi
Chief Executive Officer,
Chairman of the Board and Director
Board of Directors
*Gordon C. Boronow *Nancy F. Brunetti *Jan R. Carendi
*Malcolm M. Campbell *Lincoln R. Collins *C. Henrik G. Danckwardt
*Wade A. Dokken *Thomas M. Mazzaferro *Gunnar J. Moberg
*Anders O. Soderstrom *Amanda C. Sutyak *C. Ake Svensson
*Bayard F. Tracy
By: /s/ M. Priscilla Pannell
--------------------
M. Priscilla Pannell
Corporate Secretary
*Pursuant to Powers of Attorney filed with the Registration Statement.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000881453
<NAME> ASLAC1298
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 108,323,668
<DEBT-CARRYING-VALUE> 117,690,339
<DEBT-MARKET-VALUE> 117,735,481
<EQUITIES> 6,710,851
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 125,088,457
<CASH> 81,974,204
<RECOVER-REINSURE> 3,120,221
<DEFERRED-ACQUISITION> 628,051,995
<TOTAL-ASSETS> 12,972,416,108 <F1>
<POLICY-LOSSES> 67,619,442
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 213,000,000
0
0
<COMMON> 2,000,000
<OTHER-SE> 182,421,044
<TOTAL-LIABILITY-AND-EQUITY> 12,972,416,108 <F2>
920,042
<INVESTMENT-INCOME> 8,181,073
<INVESTMENT-GAINS> 87,103
<OTHER-INCOME> 148,826,076 <F3>
<BENEFITS> 4,596,607
<UNDERWRITING-AMORTIZATION> 52,524,520
<UNDERWRITING-OTHER> 37,972,432
<INCOME-PRETAX> 38,025,279
<INCOME-TAX> 10,477,746
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,547,533
<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 $12,095,163,569.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $12,095,163,569.
<F3> Other income includes annuity charges and fees of $121,157,846 and fee
income of $27,587,231.
</FN>
</TABLE>
