UNITED STATES 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, 1999
Commission file numbers:
33-77213, 33-62953, 33-88360, 33-89676, 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 29, 2000, there were 25,000 shares of outstanding common stock, par
value $100 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, Inc., a
wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish
corporation.
<PAGE>
PART I
Item 1. BUSINESS
General
American Skandia Life Assurance Corporation ("the Company"), with its principal
offices in Shelton, Connecticut, is a wholly owned subsidiary of American
Skandia, Inc. ("ASI"), whose ultimate parent is Skandia Insurance Company Ltd.,
a Swedish corporation. The Company has 99.9% ownership in Skandia Vida, S.A. de
C.V. ("Skandia Vida") which is a life insurance company domiciled in Mexico. The
Company was the third largest provider of variable annuity contracts for the
individual market in the United States during 1999, according to The Variable
Annuity Research & Data Service ("VARDS") and also offers variable life
insurance and fixed annuity products. The Company's products are sold to
individuals, businesses and pension plans to provide for long-term savings and
retirement purposes and to address the economic impact of premature death,
estate and business planning concerns and supplemental retirement needs. The
investment performance of the equity funds supporting the variable annuity and
variable life insurance contracts directly impacts the ability to sell these
products. The Company has formed alliances with many of the world's leading
investment companies and in a recent VARDS survey was the only variable annuity
company to have five variable annuity contracts finish in the top 25 in the
United States for three year investment performance. Over 7,000 individual fund
choices in more than 100 VA products were reviewed by VARDS for this survey.
Distribution
The Company sells its wide array of products though multiple distribution
channels including, (a) independent financial planners; (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 continues to be
successful in expanding the number of selling agreements to include
relationships with over 1,200 broker/dealer firms and financial institutions.
The Company believes its continued success is reliant on the ability to enhance
its relationships with both the selling firms and their registered
representatives. The Company utilizes focused marketing and customer service
teams providing specialized support to the primary distribution channels. In
addition, the Company also offers a number of private label products distributed
by select large distributors. In 1999, the DALBAR Survey of Broker/Dealers of
Variable Annuities named the Company number one in 17 out of 18 categories.
Products
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.
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 generally 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.
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.
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 ("MEC") are generally taxed in a manner similar
to deferred annuities. Distributions from non-MEC 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.
Segments
Segment reporting is aligned based on the three major product offerings:
variable annuity, variable life and qualified plans. Over the past two years, in
order to complete the array of products offered by the Company and its
affiliates to meet a wide variety of financial planning, the Company developed
the variable life and qualified plan products. The marketing and distribution of
the variable life and qualified plan products are in the early stages and have
not yet generated significant sales.
Reserves
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 the Company 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. 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.
Employees
As of December 31, 1999, the Company had 1,013 direct salaried employees.
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 does not expect such claims to
materially impact the Company's financial statements.
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 the Company's outstanding shares are owned by American Skandia, Inc., a
wholly-owned subsidiary of Skandia Insurance Company Ltd. The Company did not
pay any dividends to ASI in 1999, 1998 or 1997.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the
Company:
<TABLE>
<CAPTION>
(in thousands) For the Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA
Revenues:
Annuity and life insurance
<S> <C> <C> <C> <C> <C>
charges and fees* $ 289,989 $ 186,211 $ 121,158 $ 69,780 $ 38,837
Fee income 83,243 50,839 27,593 16,420 6,206
Net investment income 10,441 11,130 8,181 1,586 1,601
Premium income and
other revenues 3,688 1,360 1,082 265 45
------------- ------------- ------------ ----------- -----------
Total revenues $ 387,361 $ 249,540 $ 158,014 $ 88,051 $ 46,689
============= ============= ============ =========== ===========
Benefits and Expenses:
Annuity and life insurance benefits $ 612 $ 558 $ 2,033 $ 613 $ 555
Change in annuity policy reserves 3,078 1,053 37 635 (6,779)
Cost of minimum death benefit
reinsurance 2,945 5,144 4,545 2,867 2,057
Return credited to contractowners (1,639) (8,930) (2,018) 673 10,613
Underwriting, acquisition and
other insurance expenses 206,350 167,790 90,496 49,887 35,914
Interest expense 69,502 41,004 24,895 10,791 6,500
------------- ------------- ------------- ------------ ------------
Total benefits and expenses $ 280,848 $ 206,619 $ 119,988 $ 65,466 $ 48,860
============= ============= ============= ============ ============
Income tax expense (benefit) $ 30,344 $ 8,154 $ 10,478 $ (4,038) $ 397
============= ============= ============= ============ ============
Net income (loss) $ 76,169 $ 34,767 $ 27,548 $ 26,623 $ (2,568)
============= ============= ============= ============ =============
STATEMENT OF FINANCIAL CONDITION
Total Assets $ 30,849,414 $ 18,848,273 $ 12,894,290 $ 8,268,696 $ 4,956,018
============= ============= ============= ============ ============
Future fees payable to parent $ 576,034 $ 368,978 $ 233,034 $ 47,112 $ -
============= ============= ============= ============ ============
Surplus Notes $ 179,000 $ 193,000 $ 213,000 $ 213,000 $ 103,000
============= ============= ============= ============ ============
Shareholder's Equity $ 359,434 $ 250,417 $ 184,421 $ 126,345 $ 59,713
============= ============= ============= =========== ============
</TABLE>
* On annuity and life insurance sales of $6,862,968, $4,159,662, $3,697,990,
$2,795,114, and $1,628,486 during the years ended December 31, 1999, 1998, 1997,
1996, and 1995, respectively, with contractowner assets under management of
$29,396,693, $17,854,761, $12,119,191, $7,764,891, and $4,704,044 as of December
31, 1999, 1998, 1997, 1996 and 1995, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and the
notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements pursuant to the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on estimates and assumptions that involve certain risks and uncertainties,
therefore actual results could differ materially due to factors not currently
known. These factors include significant changes in financial markets and other
economic and business conditions, state and federal legislation and regulation,
ownership and competition.
Results of Operations
Annuity and life insurance sales increased 65%, 12%, and 32% in 1999, 1998 and
1997, respectively. The Company continues to show significant growth in sales
volume as 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 sales growth was also attributable to the strong performance
of the underlying mutual funds, which support the Separate Account assets. All
three major distribution channels achieved significant sales growth in 1999.
As a result of the significant growth in sales and assets under management,
contractowner fees and charges and fees generated from transfer agency-type and
investment support activities increased considerably over the past three years:
(annual percentage growth) 1999 1998 1997
Annuity and life insurance
charges and fees 56% 54% 74%
Fee income 64% 84% 68%
Net investment income decreased 6% in 1999, increased 36% and 416% in 1998 and
1997, respectively. The decrease in 1999 was the result of $1,036,000 of
amortization of the premium paid on a derivative instrument purchased during
1999. As noted in Note 2C of Notes to Consolidated Financial Statements, the
derivative instrument, an equity put option, was purchased as a hedge against
potential GMDB reserves increases. Excluding the derivative amortization, 1999
net investment income increased 3% as a result of increased bond holdings in
support of the Company's risk-based capital initiatives. The increases in 1998
and 1997 were 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 sale of ancillary contracts;
immediate annuities with life contingencies, supplementary contracts with life
contingencies and certain life insurance products. Sales of supplementary
contracts increased in 1999 and decreased in slightly in 1998 and 1997. There
were no immediate annuities sold in 1999 and sales in 1998 and 1997 were modest.
Annuity benefits, which represent immediate annuities, supplementary contracts
and death benefits paid on annuity contracts with mortality risks were not
significant in each of the past three years due primarily to the age of the
policies in force.
The change in annuity policy reserves includes changes in reserves related to
annuity contracts with mortality risks as well as the Company's guaranteed
minimum death benefit ("GMDB") liability. During the second quarter of 1999, the
Company's agreement to reinsure substantially all of its exposure on the GMDB
was terminated and the business was recaptured, as the reinsurer had announced
its intention to exit this market. The increase in reserves resulting from this
change was offset by a decrease in reserves associated with the change to
reserve methodology on the GMDB. The new reserve methodology complies with the
National Association of Insurance Commissioners Actuarial Guideline XXXIV. In
the later half of 1999, the Company instituted a hedge program to manage the
market risk and reserve fluctuations associated with the GMDB policies through
the use of equity put options. The Company is currently continuing this program
while evaluating alternative hedging strategies.
<PAGE>
The reinsurance premium associated with the GMDB exposure is based on levels of
assets under management. Due to increased sales and account growth, this cost
had increased in 1997 and 1998 and through May 1999. The termination of the
reinsurance treaty as of May 31, 1999 resulted in the year to year decrease in
this benefit for the twelve months ended December 31, 1999.
Return credited to contractowners consists of 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. Market value
adjusted annuity activity has the largest impact on this benefit. In 1999, the
Separate Account investment returns on these contracts did not meet the expected
returns calculated in the reserves. In 1998, the actual returns significantly
outperformed the expected returns and in 1997, these expectations were met.
Underwriting, acquisition and other insurance expenses for 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Commissions and general expenses $ 576,649 $ 342,594 $ 281,560
Net capitalization of deferred
acquisition costs (370,299) (174,804) (191,064)
--------- --------- ---------
Underwriting, acquisition and other
insurance expenses $ 206,350 $167,790 $90,496
========= ======== =======
</TABLE>
Commissions, general operating expenses and the net deferral of acquisition
costs have all increased in 1999, due largely to record sales. Current sales
trends have resulted in a shift to asset based commission agreements. This
coupled with increased asset levels from increased sales and equity market
appreciation have led to the increase in commissions and general expenses. In
1998, commissions and general expenses increased as a result of strong sales and
start up costs associated with the Company's entry into variable life insurance
and qualified plans. The net capitalization of acquisition costs decreased in
1998 as a result of increased amortization. In 1997, expense increases were
driven primarily from strong sales.
Interest expense increased $28,498,000, $16,109,000 and $14,104,000 in 1999,
1998 and 1997, 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 retired surplus notes on December 10,
1999 and December 31, 1998 of $14,000,000 and $20,000,000 respectively. Surplus
notes outstanding as of December 31, 1999 and 1998 totaled $179,000,000 and
$193,000,000, respectively.
The effective income tax rates for the years ended December 31, 1999, 1998 and
1997 were 28%, 19% and 28%, 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. Management believes that based on
the taxable income produced in the past two years, as well as the continued
growth in annuity sales, the Company will produce sufficient taxable income in
future years to realize its deferred tax assets.
The Company generated net income after tax of $76,169,000, $34,767,000 and
$27,548,000 in 1999, 1998 and 1997, respectively. The Company benefited in each
of the past three years from strong sales growth and favorable market
conditions. The Company considers Mexico an emerging market and has invested in
the Skandia Vida operations with the expectation of generating profits from
long-term savings products in future years. As such, Skandia Vida has generated
net losses of $2,523,000, $2,514,000 and $1,438,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
Total assets grew 64%, 46%, and 56% in 1999, 1998 and 1997, 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 held in
support of the Company's risk based capital requirements. Liabilities grew 64%,
46%, and 56% in 1999, 1998 and 1997, 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.
Liquidity and Capital Resources
The Company's liquidity requirement was met by cash from insurance operations,
investment activities, borrowings from its Parent and the sale of rights to
future fees and charges to its Parent.
The majority of the operating cash outflow resulted from the sale of variable
annuity and variable life products 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 charges as well as modified coinsurance reinsurance arrangements:
o During 1999 and 1998, the Company received $34,800,000 and $22,600,000,
respectively, from ASI to support the capital needs of its U.S. operations
during the current year along with the following year's anticipated growth
in business. In addition, the Company received $1,690,000 and $5,762,000
from ASI in 1999 and 1998 to support its investment in Skandia Vida.
o Funds received from new securitization transactions amounted to
$265,710,000, $169,881,000, and $194,512,000 for 1999, 1998 and 1997,
respectively (see Note 8 of the Notes to Audited Consolidated Financial
Statements). In addition, $71,000,000 was received from ASI in the fourth
quarter of 1999 in advance of a securitization transaction completed in the
first quarter of 2000.
o During 1999, 1998 and 1997, the Company extended its reinsurance
agreements. 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, 1999 and 1998, shareholder's equity was $359,434,000 and
$250,417,000, respectively. The increases were driven by the previously
mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No
dividends have been paid to ASI.
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.
Effects of Inflation
The rate of inflation has not had a significant effect on the Company's
financial statements.
<PAGE>
Year 2000 Compliance
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".
The Company experienced no significant errors or disruptions in computer
service, interfaces with computer systems of investment managers, sub-advisors,
third party administrators, vendors and other business partners on or after
January 1, 2000.
American Skandia engaged external information technology specialists to review
its operating systems and internally developed software. The costs associated
with these assessments and Year 2000 related remediation was $1,400,000 in 1999
and $750,000 in 1998 and prior. The Company was allocated the majority of these
costs.
American Skandia continues to review new and existing systems and has
contingency plans in place as part of its Business Continuity Plan. This plan
involves virtually all aspects of the business and will continue to be a focus
of management beyond the Year 2000 event.
Outlook
The Company believes that it is well positioned to retain and enhance its
position as a leading provider of financial products for long-term savings and
retirement purposes as well as to address the economic impact of premature
death, estate and business planning concerns and supplemental retirement needs.
Strength in the areas of investment options offered, innovative and leading edge
product offerings and superior customer service are expected to allow the
Company to continue to grow market share in a marketplace which continues to
grow.
Certain regulatory and legislative initiatives or proposed accounting standards,
if adopted, could adversely impact the Company, despite it's strong market
position. Of particular importance is President Clinton's proposed budget for
2001, which includes proposed revenue-raising tax changes such as the "DAC tax"
on annuity and life products that could further increase the Company's cash
strain. In addition, the recently enacted Financial Services Modernization Act,
which allows banks and insurance companies to affiliate under a common holding
company, may create previously unseen competitive pressures that could impact
the Company's ability to do business in the same manner it has previously.
Additionally, discussions on regulation of the Internet may impact on the way
the Company does business in the future.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value
of certain of its assets and liabilities, as well as variations in expected cash
flows due to changes in market interest rates and equity prices. The following
discussion focuses on specific exposures the Company has to interest rate and
equity price risk and describes strategies used to manage these risks. The
discussion is limited to financial instruments subject to market risks and is
not intended to be a complete discussion of all of the risks the Company is
exposed to.
Interest Rate Risk
Fluctuations in interest rates can potentially impact the Company's
profitability and cash flows. The Company has 97% of assets held under
management that are in non-guaranteed Separate Accounts for which the Company's
exposure is not significant as the contractowner assumes substantially all the
investment risk. On the remaining 3% of assets the interest rate risk from
contracts that carry interest rate exposure, is managed through an
asset/liability matching program which takes into account the risk variables of
the insurance liabilities supported by the assets.
At December 31, 1999, the Company held in its general account $201,509,000 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 ($29,912,000 in reserves at December 31, 1999) and
in support of the Company's target solvency capital. The Company has a
conservative investment philosophy with regard to these investments. All
investments are investment grade corporate securities, government agency or U.S.
government securities.
The Company's deferred annuity products offer a fixed option which subjects the
Company to interest rate risk. The fixed option guarantees a fixed rate of
interest for a period of time selected by the contractowner. Guarantee period
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 MVA could be
negative. In the event of declining interest rates, which make the fixed
maturity securities underlying the guarantee more valuable, the MVA could be
positive. The resulting increase or decrease in the value of the fixed option,
from calculation of the MVA, should substantially offset the increase or
decrease in the market value of the securities underlying the guarantee. The
Company maintains strict asset/liability matching to enable this offset.
However, the Company still takes on the default risk for the underlying
securities, the interest rate risk of reinvestment of interest payments and the
risk of failing to maintain the asset/liability matching program with respect to
duration and convexity. At December 31, 1999 the Company had $939,585,000 in
fixed investment options subject to these risks.
Equity Market Exposure
The primary equity market risk to the Company comes from the nature of the
variable annuity and variable life products sold by the Company. Various fees
and charges earned 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, 1999, sustained throughout 2000, would result in an
approximate drop in related annual fee income of $48,178,000.
As discussed in Note 2 of the Consolidated Financial Statements, in 1999 the
Company utilized derivative instruments to hedge against the risk of significant
decreases in equity markets which would expose the Company to increases in
guaranteed minimum death benefits liabilities. Prior to the implementation of
this program the Company utilized reinsurance to transfer this risk.
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.
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.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements and Supplementary Data on page
13.
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-2, (Reg. 333-91400)
is incorporated herein by reference.
<PAGE>
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 1999.
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C> <C>
Name and Annual LTIP
Principal Position Year Salary Payouts
Jan R. Carendi 1999 $908 $497
Chief Executive Officer 1998 784 302
1997 609 172
Gordon C. Boronow 1999 $414 $343
President & Deputy Chief 1998 325 278
Executive Officer 1997 261 175
Lincoln R. Collins 1999 $400 $176
Executive Vice President & 1998 285 99
Chief Operating Officer 1997 254 58
Nancy F. Brunetti 1999 $435 $108
Executive Vice President & 1998 287 46
Chief Logistics Officer 1997 204 8
Yat Kan Chan 1999 $502 $0
Senior Vice President & 1998 0 0
Chief Information Officer 1997 0 0
</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.
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. A portion of the payments under a
particular year's plan may be postponed if total payments due eligible
participants for that year 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.
<PAGE>
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>
<S> <C> <C> <C> <C> <C>
(in thousands)
Number Period until Estimated Future Payouts
Name of Units Payout Threshold Target Maximum
---- -------- ------ --------- ------ -------
Jan R. Carendi 305,000 Various $4,344
Gordon C. Boronow 285,000 Various 4,161
Lincoln R. Collins 130,382 Various 1,787
Nancy F. Brunetti 121,208 Various 1,710
Yat Kan Chan 20,000 Various 125
</TABLE>
The following directors' compensation is shown below in 1999:
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 13
(2) Financial Statement Schedules None
(b) Exhibits
(2) Plans of acquisition, reorganization,
Arrangement, liquidation or succession None
(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 to
security holders including indentures the Company's Reg. 333-08853,
33-59993, 33-86866, 33-87010,
33-62793, 33-62933, 333-26685,
33-88362
(9) Voting Trust Agreement None
(10) Material Contracts Incorporated by reference to
the Company's Form S-2
(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
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION (a wholly-owned
subsidiary of Skandia Insurance Company Ltd.)
Consolidated Financial Statements
December 31, 1999
Index
Page
Independent Auditors' Report 14
Consolidated Statements of Financial Condition
as of December 31, 1999 and 1998 15
Consolidated Statements of Operations for the
Years ended December 31, 1999, 1998 and 1997 16
Consolidated Statements of Shareholder's Equity for the
Years ended December 31, 1999, 1998 and 1997 17
Consolidated Statements of Cash Flows for the
Years ended December 31, 1999, 1998 and 1997 18
Notes to Consolidated Financial Statements 19
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, 1999 and 1998,
and the related consolidated statements of income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Skandia
Life Assurance Corporation at December 31, 1999 and 1998, and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
/s/Ernst & Young LLP
February 11, 2000,
except for Note 18 as to which the date is March 22, 2000
Hartford, Connecticut
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
As of December 31,
1999 1998
--------------- ----------------
ASSETS
Investments:
<S> <C> <C>
Fixed maturities - at amortized cost $ 3,360 $ 8,289
Fixed maturities - at fair value 198,165 141,195
Investment in mutual funds - at fair value 16,404 8,210
Derivative instruments 189 -
Policy loans 1,270 569
-------------- --------------
Total investments 219,388 158,263
Cash and cash equivalents 89,212 77,525
Accrued investment income 4,054 2,880
Deferred acquisition costs 1,087,705 721,507
Reinsurance receivable 4,062 4,191
Receivable from affiliates - 1,161
Income tax receivable - deferred 51,726 38,861
State insurance licenses 4,263 4,413
Fixed assets 3,305 328
Other assets 4,533 3,744
Separate account assets 29,381,166 17,835,400
--------------- ----------------
Total assets $ 30,849,414 $ 18,848,273
=============== ================
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities:
Reserve for future contractowner benefits $ 11,215 $ 37,508
Policy reserves 29,912 25,545
Drafts outstanding 51,059 28,941
Accounts payable and accrued expenses 158,590 91,827
Income tax payable 24,268 6,657
Payable to affiliates 68,736 -
Future fees payable to parent 576,034 368,978
Short-term borrowing 10,000 10,000
Surplus notes 179,000 193,000
Separate account liabilities 29,381,166 17,835,400
--------------- ----------------
Total Liabilities 30,489,980 18,597,856
--------------- ----------------
Shareholder's equity:
Common stock, $100 and $80 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,000
Additional paid-in capital 215,879 179,889
Retained earnings 141,162 64,993
Accumulated other comprehensive income (107) 3,535
--------------- ----------------
Total Shareholder's equity 359,434 250,417
--------------- ----------------
Total liabilities and shareholder's equity $ 30,849,414 $ 18,848,273
=============== ================
</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 Operations
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- -------------
REVENUES
<S> <C> <C> <C>
Annuity and life insurance charges and fees $ 289,989 $ 186,211 $ 121,158
Fee income 83,243 50,839 27,593
Net investment income 10,441 11,130 8,181
Premium income 1,278 874 920
Net realized capital gains 578 99 87
Other 1,832 387 75
-------------- ------------- -------------
Total revenues 387,361 249,540 158,014
-------------- ------------- -------------
EXPENSES
Benefits:
Annuity and life insurance benefits 612 558 2,033
Change in annuity and life insurance policy reserves 3,078 1,053 37
Cost of minimum death benefit reinsurance 2,945 5,144 4,545
Return credited to contractowners (1,639) (8,930) (2,018)
-------------- ------------- -------------
4,996 (2,175) 4,597
Expenses:
Underwriting, acquisition and other insurance
expenses 206,350 167,790 90,496
Interest expense 69,502 41,004 24,895
-------------- ------------- -------------
275,852 208,794 115,391
-------------- ------------- -------------
Total benefits and expenses 280,848 206,619 119,988
-------------- ------------- -------------
Income from operations before income tax 106,513 42,921 38,026
Income tax expense 30,344 8,154 10,478
-------------- ------------- -------------
Net income $ 76,169 $ 34,767 $ 27,548
============== ============= =============
</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,
1999 1998 1997
-------------- -------------- --------------
Common stock:
<S> <C> <C> <C>
Beginning balance $ 2,000 $ 2,000 $ 2,000
Increase in par value 500 - -
-------------- -------------- --------------
Ending balance 2,500 2,000 2,000
-------------- -------------- --------------
Additional paid in capital:
Beginning balance 179,889 151,527 122,250
Transferred to common stock (500) - -
Additional contributions 36,490 28,362 29,277
-------------- -------------- --------------
Ending balance 215,879 179,889 151,527
-------------- -------------- --------------
Retained earnings:
Beginning balance 64,993 30,226 2,678
Net income 76,169 34,767 27,548
-------------- -------------- --------------
Ending balance 141,162 64,993 30,226
-------------- -------------- --------------
Accumulated other comprehensive income:
Beginning balance 3,535 668 (584)
Other comprehensive income (3,642) 2,867 1,252
-------------- -------------- --------------
Ending Balance (107) 3,535 668
-------------- -------------- --------------
Total shareholder's equity $ 359,434 $ 250,417 $ 184,421
============== ============== ==============
</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 Flows
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1999 1998 1997
-------------- ------------- --------------
Cash flow from operating activities:
<S> <C> <C> <C>
Net income $ 76,169 34,767 $ 27,548
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation 1,495 251 223
Deferred tax expense (10,903) (14,242) (9,631)
Change in unrealized losses on derivatives 3,749 - -
Increase in policy reserves 4,367 1,130 3,176
Change in receivable from/payable to affiliates 69,897 166 (1,321)
Change in income tax payable 17,611 7,704 (2,172)
Increase in other assets (789) (1,173) (415)
Increase in accrued investment income (1,174) (438) (483)
Decrease/(increase) in reinsurance receivable 129 2,152 (268)
Increase in deferred acquisition costs (366,198) (174,804) (190,969)
Increase in accounts payable and accrued expenses 66,763 20,637 5,719
Increase in drafts outstanding 22,118 9,663 6,245
Change in foreign currency translation, net 701 (22) (34)
Realized capital gain (578) (99) (87)
-------------- ------------- --------------
Net cash used in operating activities (116,643) (114,308) (162,469)
-------------- ------------- --------------
Cash flow from investing activites:
Purchase of fixed maturity investments (99,250) (31,828) (28,905)
Proceeds from sale and maturity of fixed
maturity investments 36,226 4,049 10,755
Purchase of derivatives (4,974) - -
Purchase of shares in mutual funds (17,703) (7,158) (5,595)
Proceeds from sale of shares in mutual funds 14,657 6,086 1,415
Purchase of fixed assets (3,178) (18) (189)
Increase in policy loans (701) 118 (528)
-------------- ------------- --------------
Net cash used in investing activities (74,923) (28,751) (23,047)
-------------- ------------- --------------
Cash flow from financing activities:
Capital contribution from parent 22,490 8,362 29,277
Increase in future fees payable to parent 207,056 135,944 185,922
Net withdrawals from contractowner accounts (26,293) (5,696) 6,959
-------------- ------------- --------------
Net cash provided by financing activities 203,253 138,610 222,158
-------------- ------------- --------------
Net increase/(decrease) in cash and cash
equivalents 11,687 (4,449) 36,642
Cash and cash equivalents at beginning of year 77,525 81,974 45,332
-------------- ------------- --------------
Cash and cash equivalent at end of year $ 89,212 77,525 $ 81,974
============== ============= ==============
Income taxes paid $ 23,637 14,651 $ 22,308
============== ============= ==============
Interest paid $ 69,697 35,588 $ 16,916
============== ============= ==============
</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, 1999
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI", formerly known as
American Skandia Investment Holding Corporation) 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. ("Skandia
Vida") which is a life insurance company domiciled in Mexico. Skandia Vida
had total shareholder's equity of $4,592,000 and $4,724,000 as of December
31, 1999, and 1998, respectively. The Company considers Mexico an emerging
market and has invested in the Skandia Vida operations with the expectation
of generating profits from long-term savings products in future years. As
such, Skandia Vida has generated net losses of $2,523,000, $2,514,000 and
$1,438,000 for the years ended December 31, 1999, 1998 and 1997,
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 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. The SOP, which has been
adopted prospectively as of January 1, 1999, requires the capitalization
of certain costs incurred in connection with developing or obtaining
internal use software. Prior to the adoption of SOP 98-1, the Company
expensed all internal use software related costs as incurred. The
Company has identified and capitalized $3,035,000 of costs associated
with internal use software during 1999 and is amortizing the applicable
costs on a straight-line basis over a three year period. At December 31,
1999, the unamortized balance was $2,920,000 and is included in fixed
assets.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). Subsequently,
in July 1999, FASB issued FAS 137 "Deferral of the Effective Date of
FASB Statement 133". The adoption date was delayed to fiscal years
beginning after June 15, 2000. The Company is currently evaluating the
potential impact on its financial position.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 held in support
of a deferred compensation plan are 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.
Derivative instruments are recorded consistent with hedged items. The
Company hedges the market value fluctuations of the guaranteed minimum
death benefit ("GMDB") exposure embedded in its policy reserves and as
such, the portion of the derivative instrument which constitutes an
effective hedge is carried at market value. The cost associated with the
portion of the instrument which is not considered an effective hedge is
amortized to investment income over the life of the instrument.
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. Derivative Instruments
During the second quarter of 1999, the Company's agreement to reinsure
substantially all of its exposure on its GMDB liability was terminated
and the business was recaptured, as the reinsurer had recently announced
its intention to exit this market. In response, the Company instituted a
hedge program to effectively manage the market risk associated with GMDB
reserve fluctuations using put options. The cash invested in the put
options is at risk to the extent that the value of the underlying index
is less than the strike price at the exercise date. This would be offset
by a corresponding decrease in the hedged GMDB exposure.
E. 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.
F. 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
F. Fair Values of Financial Instruments (continued)
Fair values of investments in mutual funds are based on quoted market
prices.
The fair value of the portion of the derivative instrument which
constitutes an effective hedge is determined based on current value of
the underlying index.
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.
G. 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 on a straight
line basis over 40 years.
H. Income Taxes
The Company is included in the consolidated federal income tax return
and combined state income tax return of an upstream company, Skandia AFS
Development Holding Corporation and certain of its subsidiaries. In
accordance with the tax sharing agreement, the federal and state income
tax provisions are computed on a separate return basis as adjusted for
consolidated items such as net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
I. 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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Recognition of Revenue and Contract Benefits (continued)
Revenues for market value adjusted fixed 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 reserve 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% at December 31, 1999 and 1998.
Revenues for variable life insurance contracts consist of charges
against contractowner account values for mortality and expense risk
fees, cost of insurance fees, taxes and surrender charges. Certain
contracts also include charges against premium to pay state premium
taxes. Benefit reserves for variable life insurance contracts represent
the account value of the contracts and are included in the separate
account liabilities.
J. 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:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $721,507 $546,703 $355,734
-------- -------- --------
Acquisition costs deferred
during the year 450,059 261,432 243,476
Acquisition costs amortized
during the year (83,861) (86,628) (52,507)
--------- -------- --------
366,198 174,804 190,969
------- ------- -------
Balance at end of year $1,087,705 $721,507 $546,703
========== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Reinsurance
The Company cedes reinsurance under modified co-insurance arrangements.
These 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.
As noted in Note 2D, the Company reinsured its exposure to market
fluctuations associated with its GMDB liability in 1999, 1998 and the
beginning of 1997. Under this reinsurance agreement, the Company ceded
premiums of $2,945,000, $5,144,000 and $4,545,000; received claim
reimbursements of $242,000, $9,000 and $46,000; and, recorded
increases/(decreases) in reserves of ($2,763,000), ($323,000) and
$918,000 in each of the three years, respectively.
At December 31, 1999 and 1998, in accordance with the provisions of a
modified coinsurance agreement, the Company accrued $41,000 and
$1,976,000, respectively, for amounts receivable from favorable
reinsurance experience on a block of variable annuity business.
L. 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.
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 $896,205,000 and
$771,195,000 at December 31, 1999 and 1998, respectively, relating to
annuity contracts for which the contractowner is guaranteed a fixed rate
of return. Separate Account assets of $896,205,000 and $771,195,000 at
December 31, 1999 and 1998, respectively, consisting of long term bonds,
short term securities, transfers due from the general account and cash
and cash equivalents which are held in support of these annuity
contracts, pursuant to state regulation.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $76,169 $34,767 $27,548
Other comprehensive income:
Unrealized investment gains/(losses) on
available for sale securities (3,082) 2,751 1,288
Reclassification adjustment for realized
losses/(gains) included in investment income (1,016) 138 (14)
------- --------- ---------
Net unrealized gains/(losses) on securities (4,098) 2,889 1,274
Foreign currency translation 456 (22) (22)
--------- ---------- ----------
Other comprehensive income (3,642) 2,867 1,252
--------- -------- --------
Comprehensive income $72,527 $37,634 $28,800
======= ======= =======
</TABLE>
The components of accumulated other comprehensive income, net of tax, as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
<S> <C> <C>
Unrealized investment gains ($255) $3,843
Foreign currency translation 148 (308)
------ -------
Accumulated other comprehensive income ($107) $3,535
====== ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
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, 1999 and 1998 are shown below. All
securities held at December 31, 1999 and 1998 were publicly traded.
Investments in fixed maturities as of December 31, 1999 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government
obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
----- ---- ----- -------
Totals $3,360 $ - $(16) $3,344
====== ==== ===== ======
(in thousands) Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government
obligations $ 81,183 $ - $ (678) $ 80,505
Obligations of
state and political
subdivisions 253 (3) 250
Corporate securities 121,859 - (4,449) 117,410
--------- ---- ------ ---------
Totals $203,295 $ - $ (5,130) $198,165
======== ==== ========= ========
The amortized cost and fair value of fixed maturities, by contractual
maturity, at December 31, 1999 are shown below.
(in thousands) Held-to-Maturity Available-for-Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $3,107 $3,097 $ - $ -
Due after one through five years 253 247 130,284 128,250
Due after five through ten years - - 73,011 69,915
---------- ---------- ---------- ----------
Total $3,360 $3,344 $203,295 $198,165
====== ====== ======== ========
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government
obligations $3,774 $57 $- $3,831
Obligations of
state and political
subdivisions - - - -
Corporate
securities 4,515 34 - 4,549
------- ---- --- -------
Totals $8,289 $91 $ - $8,380
====== === === ======
(in thousands) Available for Sale
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
======== ====== ====== ========
Proceeds from sales of fixed maturities during 1999, 1998 and 1997 were
$32,196,000, $999,000, and $5,056,000, respectively. Proceeds from
maturities during 1999, 1998 and 1997 were $4,030,000, $3,050,000, and
$5,700,000, respectively.
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in
mutual funds at December 31, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C> <C>
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
1998 $8,068 $416 $ (274) $8,210
====== ==== ======= ======
Net realized investment gains (losses) were as follows for the years ended
December 31:
(in thousands) 1999 1998 1997
------ ---- ----
Fixed maturities:
Gross gains $ 253 $ - $ 10
Gross losses (228) (1) -
Investment in mutual funds:
Gross gains 990 281 116
Gross losses (437) (181) (39)
------- ------ ------
Totals $ 578 $ 99 $ 87
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31, 1999,
1998 and 1997 were as follows:
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 9,461 $ 8,534 $6,617
Cash and cash equivalents 2,159 1,717 1,153
Investment in mutual funds 32 1,013 554
Policy loans 31 45 28
Derivative Instruments (1,036) - -
--------- ---------- ---------
Total investment income 10,647 11,309 8,352
Investment expenses 206 179 171
---------- ---------- --------
Net investment income $10,441 $11,130 $8,181
======= ======= ======
</TABLE>
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense $41,248 $22,384 $20,108
Deferred tax benefit (10,904) (14,230) (9,630)
-------- -------- ---------
Total income tax expense $30,344 $ 8,154 $10,478
======= ======== =======
</TABLE>
The tax effects of significant items comprising the Company's deferred
tax balance as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
---- ----
Deferred tax liabilities:
<S> <C> <C>
Deferred acquisition costs ($321,873) ($210,731)
Payable to reinsurers (26,733) (25,585)
Policy fees (1,146) (859)
Net unrealized gains (80) (2,069)
------------ -----------
Total (349,832) (239,244)
-------- ---------
Deferred tax assets:
Net separate account liabilities 333,521 225,600
Future contractowner benefits 3,925 13,128
Other reserve differences 39,645 25,335
Deferred compensation 18,844 9,619
Surplus notes interest 5,030 3,375
Foreign exchange translation 137 166
Other 456 882
----------- ------------
Total 401,558 278,105
-------- ---------
Income tax receivable - deferred $ 51,726 $ 38,861
========= =========
</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.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
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) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) before taxes
Domestic $109,036 $45,435 $39,464
Foreign (2,523) (2,514) (1,438)
---------- --------- ---------
Total 106,513 42,921 38,026
Income tax rate 35% 35% 35%
--------- --------- ---------
Tax expense at federal
statutory income tax rate 37,280 15,022 13,309
Tax effect of:
Dividend received deduction (9,572) (9,085) (4,585)
Losses of foreign subsidiary 883 880 503
Meals and entertainment 664 487 340
State income taxes 1,071 673 577
Other 18 177 334
--------- -------- -------
Income tax expense $ 30,344 $ 8,154 $10,478
========= ======== =======
</TABLE>
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 $11,136,000,
$7,722,000, and $5,572,000 for the years ended December 31, 1999, 1998 and
1997, respectively. Income received for these items was $3,919,000,
$1,355,000 and $3,225,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company had a $10 million short-term loan payable to ASI at December 31,
1999 and 1998. The total interest expense thereon to the Company was
$585,000, $622,000 and $642,000 for the years ended December 31, 1999, 1998
and 1997 respectively, of which $182,000 was payable as of December 31, 1999
and 1998.
Beginning in 1999, the Company was reimbursed by ASM for certain
distribution related costs associated with the sales of business through an
investment firm where ASM serves as an introducing broker dealer. Under this
agreement, the expenses reimbursed in 1999 were $1,441,000. As of December
31,1999, amounts receivable under this agreement were $245,000.
As of December 31,1999, the Company had received $71,000,000 from ASI in
advance of the sale of certain rights to receive future fees and contract
charges. This sale is expected to be completed in the first quarter of 2000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, 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:
<TABLE>
<CAPTION>
Closing Effective Contract Issue
Transaction Date Date Period
<S> <C> <C> <C> <C> <C>
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
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99
</TABLE>
In connection with these transactions, ASI 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 ASI
to receive a percentage (80% or 100% depending on the underlying commission
option) 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 a liability and are being
amortized over the remaining surrender charge period of the designated
contracts using the interest method. The present values of the transactions
as of the respective effective date were as follows:
<TABLE>
<CAPTION>
Present
(in thousands) Transaction Discount Rate Value
----------- ------------- -----
<S> <C> <C> <C>
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
1999-1 7.5% 120,632
1999-2 7.5% 145,078
</TABLE>
Payments representing fees and charges in the aggregate amount of
$131,420,000, $69,226,000 and $22,250,000 were made by the Company to
the Parent for the years ended December 31, 1999, 1998 and 1997,
respectively. Related interest expense of $52,840,000, $22,978,000 and
$6,842,000 has been included in the statement of income for the years
ended December 31, 1999, 1998 and 1997, respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Year Ended
(in thousands) December 31, Amount
----------- ------
<S> <C> <C>
2000 $103,975
2001 107,262
2002 106,491
2003 97,550
2004 78,512
2005 51,839
2006 25,712
2007 4,693
---------
Total $576,034
</TABLE>
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.
9. LEASES
The Company leases office space under a lease agreement established in
1989 with ASIST. The lease expense for 1999, 1998 and 1997 was
$5,003,000, $3,588,000 and $2,428,000 respectively. Future minimum
lease payments per year and in aggregate as of December 31, 1999 are as
follows:
(in thousands) 2000 $ 7,004
2001 7,004
2002 6,854
2003 6,756
2004 6,929
2005 and thereafter 51,865
--------
Total $86,412
=======
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 $4,868,000 and
$3,747,000 as of December 31, 1999, and 1998, respectively. These
deposits are required to be maintained for the protection of
contractowners within the individual states.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
On November 8, 1999, the Board of Directors authorized the Company to
increase the par value of its capital stock from $80 per share to $100
per share in order to comply with minimum capital levels as required by
the California Department of Insurance. This transaction resulted in a
corresponding decrease in paid in and contributed surplus of $500,000
and had no effect on capital and surplus.
Statutory basis shareholder's equity was $286,385,000 and $285,553,000
at December 31, 1999 and 1998, respectively.
The statutory basis net loss was $17,672,000, $13,152,000 and
$8,970,000 for the years ended December 31, 1999, 1998 and 1997,
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, 1999, 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
$3,164,000, $2,115,000 and $1,220,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
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 $193,000,
$342,000 and $270,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company and an affiliate cooperatively have a long-term incentive
program under which units are awarded to executive officers and other
personnel. The Company also has a profit sharing program which benefits
all employees below the officer level. These programs consist of
multiple plans with new plans 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 program. The accrued liability representing the value of these
units was $42,619,000 and $21,372,000 as of December 31, 1999 and 1998,
respectively. Payments under this plan were $4,079,000, $2,407,000 and
$1,119,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
The effect of reinsurance for the years ended December 31, 1999, 1998
and 1997 is as follows:
(in thousands) 1999
----
<TABLE>
<CAPTION>
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
<S> <C> <C> <C>
Gross $326,670 $315 ($1,397)
Ceded (36,681) 2,763 (242)
-------- ------ --------
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Annuity and Life
Insurance Insurance Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- ------ --------
Net $186,211 $1,053 ($8,930)
======== ====== ========
1997
----
Annuity and life Annuity and Life
Insurance Insurance 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)
======== ===== ========
</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
its 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, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
(in thousands)
Interest for the
Interest 1999 1998 Years Ended December 31,
Issue Date Rate Amount Amount 1999 1998 1997
---------- ---- ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 29, 1993 6.84% - - - 1,387 1,387
February 18, 1994 7.28% 10,000 10,000 738 738 738
March 28, 1994 7.90% 10,000 10,000 801 801 801
September 30, 1994 9.13% 15,000 15,000 1,389 1,389 1,389
December 28, 1994 9.78% - 14,000 1,308 1,388 1,388
December 19, 1995 7.52% 10,000 10,000 762 762 762
December 20, 1995 7.49% 15,000 15,000 1,139 1,139 1,139
December 22, 1995 7.47% 9,000 9,000 682 682 682
June 28, 1996 8.41% 40,000 40,000 3,411 3,411 3,411
December 30, 1996 8.03% 70,000 70,000 5,698 5,699 5,699
Total $179,000 $193,000 $15,928 $17,396 $17,396
======== ======== ======= ======= =======
</TABLE>
The surplus note for $14,000,000 dated December 28, 1994 was converted
to additional paid-in capital on December 10, 1999. A 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, 1999 and
1998, $14,372,000 and $9,644,000, 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, 1999 and 1998. The total interest expense to the Company
was $585,000, $622,000 and $642,000 and for the years ended December
31, 1999, 1998 and 1997, respectively, of which $197,000 and $182,000
was payable as of December 31, 1999 and 1998, 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
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.
Assets under management and sales for the products other than variable
annuities have not been significant enough to warrant full segment
disclosures as required by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information."
18. SUBSEQUENT EVENT
On March 22, 2000, the Company sold certain rights to receive future
fees and contract charges expected to be received on variable portions
of deferred annuity contracts issued between August 1, 1999 and January
31, 2000. This transaction is the latest in a series of agreements with
ASI, as described in Note 8.
This transaction has an effective date of March 22, 2000. The present
value as of this date, discounted at 7.5%, was $171,781,000.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. 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
-------- ------- ------------ -----------
1999
Premiums and other insurance
<S> <C> <C> <C> <C>
revenues $78,412 $88,435 $97,955 $111,540
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
---------- ----------- ---------- -----------
Total revenues 81,361 91,302 100,896 113,802
Benefits and expenses 64,107 67,803 71,597 77,341
-------- -------- -------- --------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
--------- --------- --------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $25,001
======== ======== ======== =======
1998
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
======== ======== ======== ========
</TABLE>
<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 30, 2000.
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 30, 2000.
*Jan R. Carendi
Jan R. Carendi
Chief Executive Officer,
Chairman of the Board and Director
<TABLE>
<CAPTION>
Board of Directors
<S> <C> <C>
*Gordon C. Boronow T. Richard Kennedy *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>
<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 30, 2000.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: ___________________________
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 30, 2000.
*Jan R. Carendi
Jan R. Carendi
Chief Executive Officer,
Chairman of the Board and Director
Board of Directors
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Gordon C. Boronow T. Richard Kennedy *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
---------------
</TABLE>
By: ___________________________________
M. Priscilla Pannell
Corporate Secretary
*Pursuant to Powers of Attorney filed with the Registration Statement.
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000881453
<NAME> ASLAC1299
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 198,165
<DEBT-CARRYING-VALUE> 201,525
<DEBT-MARKET-VALUE> 201,509
<EQUITIES> 16,404
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 219,388
<CASH> 89,212
<RECOVER-REINSURE> 4,062
<DEFERRED-ACQUISITION> 1,087,705
<TOTAL-ASSETS> 30,849,414 <F1>
<POLICY-LOSSES> 41,127
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 189,000
0
0
<COMMON> 2,500
<OTHER-SE> 356,934
<TOTAL-LIABILITY-AND-EQUITY> 30,849,414 <F2>
1,278
<INVESTMENT-INCOME> 10,441
<INVESTMENT-GAINS> 578
<OTHER-INCOME> 375,064 <F3>
<BENEFITS> 4,996
<UNDERWRITING-AMORTIZATION> 83,861
<UNDERWRITING-OTHER> 191,991
<INCOME-PRETAX> 106,513
<INCOME-TAX> 30,344
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,169
<EPS-BASIC> 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
$29,381,166.
<F2> Included in Total Liabilities and Equity are Liabilities Related to
Separate Accounts of $29,381,166.
<F3> Other income includes annuity charges and fees of $289,989 and fee income
of $83,243.
</FN>
</TABLE>
