UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
Commission file numbers: 33-77213, 33-62953,
33-88360, 33-89676, 333-00995, 333-02867,
333-24989, 333-25761, 33-91400, 333-25733,
and 333-26695
American Skandia Life Assurance Corporation
Incorporated in the State of Connecticut
06-1241288
(Federal Employer Identification No.)
One Corporate Drive
Shelton, Connecticut 06484
Telephone Number (203) 926-1888
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
Yes x No __
As of November 14, 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 common stock, all of which were owned by
American Skandia Inc., a wholly-owned subsidiary of Skandia Insurance Company
Ltd., a Swedish corporation.
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Income (unaudited) -
Nine months ended September 30, 2000
and September 30, 1999 4
Consolidated Statements of Income (unaudited) -
Three months ended September 30, 2000
and September 30, 1999 5
Consolidated Statements of Shareholder's Equity -
Nine months ended September 30, 2000 (unaudited)
and year ended December 31, 1999 6
Consolidated Statements of Cash Flows (unaudited) -
Nine months ended September 30, 2000
and September 30, 1999 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Nine months ended September 30, 2000 11
Item 3. Quantitative and Qualitative Disclosures of Market Risk 15
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
---------------- ----------------
(unaudited)
ASSETS
Investments:
Fixed maturities - at amortized cost $ - $ 3,360
Fixed maturities - at fair value 205,495 198,165
Equity Securities - at fair value 23,215 16,404
Derivative instruments 569 189
Policy loans 2,748 1,270
-------------- --------------
Total investments 232,027 219,388
Cash and cash equivalents 111,257 89,212
Accrued investment income 3,963 4,054
Deferred acquisition costs 1,376,831 1,087,705
Reinsurance receivable 2,672 4,062
Income tax receivable - deferred 36,085 51,726
Income tax recoverable 1,975 -
State insurance licenses 4,150 4,263
Fixed assets 6,323 3,305
Other assets 90,382 36,698
Separate account assets 33,024,812 29,381,166
---------------- ----------------
Total assets $ 34,890,477 $ 30,881,579
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Reserves for future insurance policy and contract benefits $ 93,928 $ 73,292
Drafts outstanding 52,040 51,059
Accounts payable and accrued expenses 138,703 158,590
Income tax payable - 24,268
Payable to affiliates 206,459 68,736
Future fees payable to parent 771,529 576,034
Short-term borrowing 10,000 10,000
Surplus notes 179,000 179,000
Separate account liabilities 33,024,812 29,381,166
---------------- ----------------
Total Liabilities 34,476,471 30,522,145
---------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 218,329 215,879
Retained earnings 190,841 141,162
Accumulated other comprehensive income (loss) 2,336 (107)
---------------- ----------------
Total Shareholder's equity 414,006 359,434
---------------- ----------------
Total liabilities and shareholder's equity $ 34,890,477 $ 30,881,579
================ ================
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Income
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended September 30,
2000 1999
------------- --------------
REVENUES
Annuity and life insurance charges and fees $ 325,052 $ 204,103
Fee income 95,130 58,184
Net investment income 10,690 8,231
Premium income 7,804 1,236
Net realized capital gains (losses) (1,565) 526
Other 1,610 1,279
------------- --------------
Total revenues 438,721 273,559
------------- --------------
EXPENSES
Benefits:
Annuity and life insurance benefits 533 480
Change in annuity and life insurance policy reserves 12,024 2,519
Cost of minimum death benefit reinsurance - 2,946
Return credited to contractowners 11,085 (1,208)
------------- --------------
23,642 4,737
Expenses:
Underwriting, acquisition and other insurance
expenses 262,626 152,264
Interest expense 84,344 46,505
------------- --------------
346,970 198,769
------------- --------------
Total benefits and expenses 370,612 203,506
------------- --------------
Income from operations before income tax 68,109 70,053
Income tax expense 18,430 18,884
------------- --------------
Net income $ 49,679 $ 51,169
============= ==============
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Income
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 30,
<S> <C> <C>
2000 1999
------------- --------------
REVENUES
Annuity and life insurance charges and fees $ 113,844 $ 75,296
Fee income 33,074 21,894
Net investment income 4,186 2,735
Premium income 5,545 328
Net realized capital gains (losses) (858) 206
Other 492 437
------------- --------------
Total revenues 156,283 100,896
------------- --------------
EXPENSES
Benefits:
Annuity and life insurance benefits 255 100
Change in annuity and life insurance policy reserves 2,519 (6,759)
Cost of minimum death benefit reinsurance - (9)
Return credited to contractowners 13,447 2,654
------------- --------------
16,221 (4,014)
Expenses:
Underwriting, acquisition and other insurance
expenses 98,201 58,323
Interest expense 28,124 17,288
------------- --------------
126,325 75,611
------------- --------------
Total benefits and expenses 142,546 71,597
------------- --------------
Income from operations before income tax 13,737 29,299
Income tax expense 3,167 7,898
------------- --------------
Net income $ 10,570 $ 21,401
============= ==============
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
--------------- ------------------
(unaudited)
Common stock:
Beginning balance $ 2,500 $ 2,000
Increase in par value - 500
--------------- ------------------
Ending balance 2,500 2,500
--------------- ------------------
Additional paid in capital:
Beginning balance 215,879 179,889
Transferred to common stock - (500)
Additional contributions 2,450 36,490
--------------- ------------------
Ending balance 218,329 215,879
--------------- ------------------
Retained earnings:
Beginning balance 141,162 64,993
Net income 49,679 76,169
--------------- ------------------
Ending balance 190,841 141,162
--------------- ------------------
Accumulated other comprehensive income (loss):
Beginning balance (107) 3,535
Other comprehensive income (loss) 2,443 (3,642)
--------------- ------------------
Ending Balance 2,336 (107)
--------------- ------------------
Total shareholder's equity $ 414,006 $ 359,434
=============== ==================
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
<S> <C> <C>
2000 1999
------------- -------------
Cash flow from operating activities:
Net income $ 49,679 51,169
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation 2,790 199
Deferred tax expense 14,325 5,200
Increase in policy reserves 12,587 6,106
Increase in payable to affiliates 137,723 115,248
Change in income tax payable/recoverable (26,243) (8,911)
Increase in other assets (53,684) (3,596)
Decrease/(increase) in accrued investment income 91 (77)
Decrease/(increase) in reinsurance receivable 1,390 (1,393)
Net increase in deferred acquisition costs (289,126) (246,261)
(Decrease)/increase in accounts payable and accrued expenses (19,887) 26,777
Increase in drafts outstanding 981 8,200
Change in foreign currency translation, net (78) 771
Unrealized loss on derivative instruments - 178
Net realized capital (gain)/loss 1,565 (526)
------------- -------------
Net cash used in operating activities (167,887) (46,916)
------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments (283,490) (36,517)
Proceeds from sale and maturity of fixed
maturity investments 283,586 33,561
Purchase of derivatives (3,277) (4,974)
Purchase of shares in mutual funds (12,615) (15,564)
Proceeds from sale of shares in mutual funds 4,063 14,229
Purchase of fixed assets (2,851) -
Purchase of short term investments - (30,697)
Increase in policy loans (1,478) (472)
------------- -------------
Net cash used in investing activities (16,062) (40,434)
------------- -------------
Cash flow from financing activities:
Capital contribution from parent 2,450 11,690
Increase in future fees payable to parent, net 195,495 79,704
Net deposits to/(withdrawals from) contractowner accounts 8,049 (13,254)
------------- -------------
Net cash provided by financing activities 205,994 78,140
------------- -------------
Net increase/(decrease) in cash and cash
equivalents 22,045 (9,210)
Cash and cash equivalents at beginning of period 89,212 77,525
------------- -------------
Cash and cash equivalents at end of period $ 111,257 $ 68,315
============= =============
Income taxes paid $ 30,349 $ 16,867
============= =============
Interest paid $ 85,902 $ 45,434
============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
7
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
American Skandia Life Assurance Corporation (the Company) have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September
30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and
footnotes thereto in the Company's audited consolidated financial
statements on Form 10-K for the year ended December 31, 1999.
Certain reclassifications have been made to prior period amounts to
conform to the current period presentation.
2. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("FAS 133"),
"Accounting for Derivative Instruments and Hedging Activities." The
FASB has amended FAS 133 with the issuance of Statement No. 137
"Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133" and Statement No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." FAS 133 is effective for fiscal years beginning after June
15, 2000. The Company is currently evaluating the potential impact of
this statement on its financial position and results of operations.
3. SEGMENT REPORTING
During 1998, to complement its annuity products, the Company launched
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 yet been significant enough to warrant full segment
disclosures as required by FAS 131, "Disclosures about Segments of an
Enterprise and Related Information."
8
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
4. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the nine months
ended September 30, 2000 and 1999 were as follows:
(in thousands) 2000 1999
------- -------
Net income $49,679 $51,169
Other comprehensive income (loss):
Net Unrealized investment gain/(loss) on
available for sale securities 2,493 (5,054)
Foreign currency translation (50) 501
------- -------
Other comprehensive income (loss) 2,443 (4,553)
------- -------
Comprehensive income $52,122 $46,616
======= =======
The components of accumulated other comprehensive income, net of tax,
as of September 30, 2000 and December 31, 1999 were as follows:
(in thousands) 2000 1999
-------- ---------
Unrealized investment gains/(losses) $ 2,238 ($ 255)
Foreign currency translation 98 148
-------- ---------
Accumulated other comprehensive income (loss) $ 2,336 ($ 107)
======== ========
5. FOREIGN ENTITY
The Company has a 99.9% ownership in Skandia Vida, S.A. de C.V.
("Skandia Vida") which is a life insurance company domiciled in Mexico,
selling long-term savings products within Mexico. Skandia Vida, which
is fully consolidated in the accompanying financial statements, had
total shareholders' equity of $5,554,000 as of September 30, 2000 and
$4,592,000 as of December 31, 1999 and has generated losses of
$1,410,000 and $1,747,000 for the nine months ended September 30, 2000
and 1999, respectively.
9
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2000
6. FUTURE FEES PAYABLE TO PARENT
The Company regularly transfers certain rights to receive future fees
and charges expected to be realized on the variable portion of
designated blocks of deferred annuity contracts to its Parent, American
Skandia, Inc. ("ASI"). In connection with these transactions, ASI,
through a trust, issues 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 transferred
provide for ASI to receive a percentage of future mortality and expense
charges and contingent deferred sales charges expected to be realized
over the remaining surrender charge period of the designated contracts,
generally seven years. The Company does not transfer the rights to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds for each transfer are determined by calculating the
present value of future fees and charges expected to be realized on the
designated contracts. The proceeds are recorded as a liability and
amortized over the remaining surrender charge period of the designated
contracts using the interest method.
The following transactions were recorded in 2000:
<TABLE>
<CAPTION>
<S> <C>
Effective Contract Issue Present Value(1) Discount
Date Date (in thousands) Rate
-------------- ---------------- ---------------- --------------
March 22, 2000 8/1/99 - 1/31/00 $169,459 7.50%
July 18, 2000 2/1/00 - 4/30/00 92,399 7.25
========
$261,858
(1) Calculated as of the effective date.
</TABLE>
As of September 30, 2000, the expected payments of future fees payable
to ASI under these transactions are as follows:
(in thousands)
Period Ending
December 31, Amount
2000 $ 6,563
2001 28,207
2002 31,535
2003 35,143
2004 39,053
2005 43,287
2006 44,794
2007 26,836
2008 2,091
========
Total $257,509
10
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine months ended September 30, 2000
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the September 30, 2000 financial
statements and the notes included herein.
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.
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 is primarily in the business of issuing long-term savings and
retirement products to individuals, groups and qualified pension plans. The
Company is the third largest provider of variable annuity contracts for the
individual market in the United States according to The Variable Annuity
Research & Data Service ("VARDS").
Since its business inception in 1988, the Company has offered an increasingly
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, variable and adjustable immediate annuities.
The Company also offers single premium and flexible premium variable life
insurance products and a term life insurance product in support of an
affiliate's mutual fund products.
In May 1999, the Company introduced a benefit feature to all of its variable
annuity products which provides certain benefits if the policyowner's account
value has not reached a "target value" on its tenth anniversary. At the option
of the policyowner, the benefit will be distributed in the form of an annual or,
if annuitization is selected, a lump-sum credit to the contractowner's account.
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 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.
11
<PAGE>
Results of Operations
---------------------
Annuity and life insurance sales volume for the nine months ended September 30,
2000 and 1999 was $6,864,044,000 and $4,987,926,000 respectively, an increase of
38%. This increase was the result of favorable market conditions and strong
performance of the underlying mutual funds, particularly in the fourth quarter
of 1999 and first quarter of 2000. Sales have declined since the first quarter
of 2000 due to the volatility in the financial markets.
Contractowner fees and charges and charges generated from transfer agency-type
and investment support activities increased $157,895,000 or 60% for the first
nine months of 2000 compared to the year ago period as a result of the growth in
assets under management.
The increase in premium income of $6,568,000 from the nine months ended
September 30, 1999 was due to growth in the issuance of variable immediate
annuities and supplementary contracts with life contingencies. Supplementary
contracts sales growth was consistent with the increase in annuitization of
business sold in previous years. Sales of immediate annuities with life
contingencies and certain life insurance products have been minimal during both
2000 and 1999.
Annuity benefits relate to annuity contracts with mortality risks, such as,
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 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 in
reserve methodology on the GMDB. The new reserve methodology complies with the
National Association of Insurance Commissioners Actuarial Guideline XXXIV. In
the latter half of 1999, the Company instituted a hedge program to manage the
related market risk utilizing equity put options. The Company is currently
continuing this program while evaluating alternative hedging strategies.
Annuity policy reserves increased $9,505,000 over the nine months ended
September 30, 1999 as a result of an increase in the required GMDB reserve due
to the decreased performance in the underlying funds in the past two quarters.
Because the hedge program is designed to insure against significant declines in
asset values that result from declines in certain equity markets, there was no
offsetting income recorded against the GMDB liability during 2000.
The reinsurance premium associated with the GMDB exposure was based on levels
of assets under management. Due to increased sales and account growth, this cost
had increased in recent years and reached $2,946,000 for the nine months of 1999
before the treaty was terminated.
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 changes in reserves required on this business. Through the
first nine months of 2000, the Separate Account investment returns on the market
value adjusted annuities were less than the expected returns as calculated in
the reserves, contributing to the significant increase in the return credited to
contractholders benefit. In addition, this benefit increased as a result of the
amortization of unearned target value credits.
12
<PAGE>
Underwriting, acquisition and other insurance expenses for the nine months
ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands) 2000 1999 Change
---- ---- ------
Commissions and purchase credits $386,840 $277,357 $109,483
General operating expenses 161,838 126,294 35,544
Net capitalization of deferred
acquisition costs (286,052) (251,387) (34,665)
-------- -------- --------
Underwriting, acquisition and other
insurance expenses $262,626 $152,264 $110,362
======== ======== ========
</TABLE>
Higher sales and asset levels for the nine months ended September 30, 2000,
compared with the same period in 1999, led to a 40% increase in commissions and
purchase credits. General operating expenses increased 28% from a year ago as a
result of costs associated with the Company's record sales over the past two
years as well as significant investments made in new product development and
technology. In addition, the company incurred cost overruns in certain existing
product lines during the third quarter of 2000, due to the drop in sales.
Interest expense increased $37,839,000 or 81% over the nine months ended
September 30, 2000 primarily as a result of additional financing transactions,
which consisted of the transfer of future fees to ASI, through a trust
("securitization transactions") initiated throughout 1999 and 2000.
The effective income tax rate for the nine months ended September 30, 2000, and
1999 was 27%. 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 1999 and the first nine months of 2000, as well as the continued
growth in annuity sales, the Company will produce sufficient taxable income in
the future to realize its deferred tax assets.
The Company generated net income after tax of $49,679,000 and $51,169,000 for
the nine months ended September 30, 2000 and 1999, respectively. The decrease
from 1999 was primarily due to the impact of the recent decline in the financial
markets as well as increased expenses related to new product development,
technology and cost overruns, as discussed above. The Company expects
technological and new product initiatives, the expansion of the producer sales
base and an increase in Separate Account investment options to generate
increased levels of sales, which should result in higher levels of profit.
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 $1,410,000 and $1,747,000 for the nine months ended September 30, 2000 and
1999, respectively.
Financial Condition
Total assets grew $4,008,898,000 or 13% since December 31, 1999 as a result of
the substantial sales volume, partially offset by the decline in the financial
markets. The net sales 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 $3,954,326,000 or 13%, since
December 31, 1999 as a result of the reserve increases required based on sales
activity along with the transfer of future fees and charges during these
periods. These transfers of future fees and charges to ASI are needed to fund
the acquisition costs of the Company's variable annuity business.
13
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations,
investment activities, borrowings from ASI and the transfer of rights to future
fees and charges to ASI.
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 transfer of certain rights to future
fees and charges as well as modified coinsurance reinsurance arrangements:
o During the first nine months of 2000 and 1999, the Company received
$2,450,000 and $1,690,000, respectively, from ASI to support its investment
in Skandia Vida.
o Funds received from new securitization transactions amounted to $261,858,000
and $120,632,000 for the first nine months of 2000 and 1999, respectively.
o The Company continues to extend its reinsurance agreements for new blocks
of business. 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 acquisition costs on the
coming years' sales volume.
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.
14
<PAGE>
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk during the
first nine months of 2000. The Company has provided a discussion of its market
risks in Item 7A of Part II of the December 31, 1999 Form 10-K.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) None
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Skandia Life
Assurance Corporation
(Registrant)
by: /s/Thomas M. Mazzaferro
-----------------------
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
November 14, 2000
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Skandia Life
Assurance Corporation
(Registrant)
by: ______________________________
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
November 14, 2000
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
<S> <C> <C> <C>
Number Description Location
(2) Plan of acquisition, reorganization,
arrangement, liquidation or succession None
(4) Instruments defining the rights of
security holders, including indentures None
(10) Material Contracts None
(11) Statement Re: Computation of per share
earnings None
(15) Letter Re: Unaudited interim financial
information None
(18) Letter Re: Change in accounting
principles None
(19) Report furnished to security holders None
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel None
(24) Power of attorney None
(99) Additional exhibits None
</TABLE>
18
