<PAGE>
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, 1996 Commission file number
------------------ 33-81010
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Aetna Insurance Company of America
------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1286272
---------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
- ---------------------------------------------- ---------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0123
------------------
None
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Former name, former address and former fiscal year if changed since last report
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Title of Class at October 31, 1996
- -------------- -------------------
Common Capital Stock,
par value $2,000 1,275
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
TABLE OF CONTENTS
PAGE
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income......................................................3
Balance Sheets............................................................4
Statements of Changes in Shareholder's Equity.............................5
Statements of Cash Flows..................................................6
Condensed Notes to Financial Statements...................................7
Independent Auditors' Review Report.......................................9
Item 2. Management's Analysis of the Results of Operations..................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................12
Item 6. Exhibits and Reports on Form 8-K...............................12
Signatures...................................................................13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(thousands)
<TABLE>
<CAPTION>
3 Months Ended September 30, 9 Months Ended September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 373.2 $ 35.2 $ 757.6 $ 35.2
Net investment income 341.0 183.7 673.5 536.7
Net realized capital losses - - (17.1) -
-------- --------- -------- --------
Total revenue 714.2 218.9 1,414.0 571.9
Benefits and expenses:
Current and future benefits 533.6 - 714.8 -
Operating expenses 343.7 78.3 2,165.3 197.3
-------- --------- -------- --------
Total benefits and expenses 877.3 78.3 2,880.1 197.3
Income (loss) before income
taxes (benefits) (163.1) 140.6 (1,466.1) 374.6
Income taxes (benefits) (78.6) 49.6 (625.4) 131.3
-------- --------- -------- --------
Net income (loss) $ (84.5) $ 91.0 $ (840.7) $ 243.3
-------- --------- -------- --------
-------- --------- -------- --------
</TABLE>
See Condensed Notes to Financial Statements.
(3)
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands)
September 30, December 31,
ASSETS 1996 1995
---- ----
Investments:
Debt securities, available for sale:
(amortized cost: $8,063.1 and $7,953.0) $ 8,140.3 $ 8,187.4
Cash and cash equivalents 35,716.6 4,044.2
Accrued investment income 182.3 112.6
Premiums due and other receivables 13.3 -
Deferred policy acquisition costs 15,724.0 2,066.4
Deferred tax asset 2,065.7 467.6
Income taxes receivable 713.0 -
Other assets 13.0 0.8
Separate Accounts assets 231,798.8 43,810.0
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Total assets $294,367.0 $ 58,689.0
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---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholders' funds left with the company $ 43,734.9 $ -
Due to parent and affiliates - 174.6
Other liabilities 7,530.7 1,932.6
Income taxes payable 112.5 638.8
Separate Accounts liabilities 231,798.8 43,810.0
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Total liabilities 283,176.9 46,556.0
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Shareholder's equity:
Common capital stock, par value $2,000 (1,275
shares authorized, issued and outstanding) 2,550.0 2,550.0
Paid-in capital 7,550.0 7,550.0
Net unrealized capital gains 50.2 152.4
Retained earnings 1,039.9 1,880.6
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Total shareholder's equity 11,190.1 12,133.0
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Total liabilities and shareholder's equity $294,367.0 $58,689.0
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See Condensed Notes to Financial Statements.
(4)
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(thousands)
9 Months Ended September 30,
----------------------------
1996 1995
---- ----
Shareholder's equity, beginning of period $ 12,133.0 $ 11,675.3
Net change in unrealized capital gains and losses (102.2) 138.8
Net income (loss) (840.7) 243.3
----------- -----------
Shareholder's equity, end of period $ 11,190.1 $ 12,057.4
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----------- -----------
See Condensed Notes to Financial Statements.
(5)
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(thousands)
<TABLE>
<CAPTION>
9 Months Ended September 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (840.7) $ 243.3
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Increase in accrued investment income (69.7) (33.8)
Increase in premiums due and other receivables (13.3) -
Increase in deferred policy acquisition costs (13,657.6) (1,537.2)
Net change in amounts due to/from parent and affiliates (174.6) 117.7
Net increase in other assets and liabilities 5,568.8 1,327.7
Net (decrease) increase in income taxes (2,782.4) 101.2
Net amortization of (discount) premium on debt securities (61.3) 19.7
Net realized capital losses 17.1 -
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Net cash (used for) provided by operating activities (12,013.7) 238.6
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Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 2,410.0 3,000.0
Short-term investments - 500.0
Cost of investment purchases in:
Debt securities available for sale (2,458.8) (3,939.2)
Short-term investments - (492.1)
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Net cash used for investing activities (48.8) (931.3)
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Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 43,734.9 -
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Net cash provided by financing activities 43,734.9 -
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Net increase (decrease) in cash and cash equivalents 31,672.4 (692.7)
Cash and cash equivalents, beginning of period 4,044.2 4,732.7
---------- ----------
Cash and cash equivalents, end of period $ 35,716.6 $ 4,040.0
---------- ----------
---------- ----------
Supplemental cash flow information:
Income taxes paid, net $ 2,232.0 $ 30.0
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---------- ----------
</TABLE>
See Condensed Notes to Financial Statements.
(6)
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements
1. BASIS OF PRESENTATION
Aetna Insurance Company of America (the "Company") is a stock life
insurance company organized in 1990 under the insurance laws of Connecticut
and is a wholly-owned subsidiary of Aetna Life Insurance and Annuity
Company ("ALIAC"). ALIAC is a wholly-owned subsidiary of Aetna Retirement
Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly-owned subsidiary of Aetna
Retirement Services, Inc., which is a wholly-owned subsidiary of Aetna
Services, Inc. ("Aetna") (formerly Aetna Life and Casualty Company). Aetna
is a wholly-owned subsidiary of Aetna Inc.
The financial statements have been prepared in accordance with generally
accepted accounting principles and are unaudited. These interim statements
necessarily rely heavily on estimates, including assumptions as to
annualized tax rates. In the opinion of management, all adjustments
necessary for a fair statement of results for the interim periods have been
made. All such adjustments are of a normal, recurring nature.
The accompanying condensed financial statements should be read in
conjunction with the financial statements and related notes as presented
in the Company's 1995 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 29, 1996. Certain financial
information that is normally included in annual financial statements
prepared in accordance with generally accepted accounting principles, but
that is not required for interim reporting purposes, has been condensed or
omitted.
2. ACCOUNTING CHANGES
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996. This statement provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. Transactions covered by this statement would include
securitizations, sales of partial interests in assets, repurchase
agreements and securities lending. This statement requires that after a
transfer of financial assets, an entity would recognize on the balance
sheet any assets it controls and liabilities it has incurred. Similarly,
an entity would remove assets or liabilities from its balance sheet when
control of the assets has been surrendered or the liabilities satisfied.
This statement is effective for 1997 financial statements and early
adoption or retroactive application of this statement is not permitted.
The Company does not expect the adoption of this statement will have a
material effect on its financial position or results of operations.
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements
(Continued)
3. RELATED PARTY TRANSACTIONS
Aeltus Investment Management, Inc. ("Aeltus"), a wholly owned subsidiary of
HOLDCO, was named the subadviser of all of ALIAC's affiliated mutual funds
and general account investments effective August 1, 1996 when ALIAC merged
its investment management operations into those of Aeltus.
The Company pays Aeltus a fee which, on an annual basis, is .06% of the
average daily net assets under management. The amount of such fees for
the three and nine months ended September 30, 1996 amounted to
$10.2 thousand for both periods.
4. LITIGATION
The Company may be involved in lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
5. SUBSEQUENT EVENT
On October 23, 1996, the Company received a capital contribution of
$20.0 million from ALIAC.
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Aetna Insurance Company of America:
We have reviewed the accompanying condensed balance sheet of Aetna Insurance
Company of America as of September 30, 1996, and the related condensed
statements of income for the three-month and nine-month periods ended
September 30, 1996 and 1995, and the related condensed statements of changes
in shareholder's equity and cash flows for the nine-month periods then ended.
These condensed financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Aetna Insurance Company of America as of
December 31, 1995, and the related statements of income, changes in
shareholder's equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 20, 1996, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1995, is
fairly presented, in all material respects, in relation to the balance sheet
from which it has been derived.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
October 23, 1996
<PAGE>
ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
(Thousands) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charges assessed against policyholders $ 373.2 $ 35.2 $ 757.6 $ 35.2
Net investment income 341.0 183.7 673.5 536.7
Net realized capital losses - - (17.1) -
--------------------------------------------------------------------------------------------------------------
Total revenue 714.2 218.9 1,414.0 571.9
--------------------------------------------------------------------------------------------------------------
Current and future benefits 533.6 - 714.8 -
Operating expenses 343.7 78.3 2,165.3 197.3
--------------------------------------------------------------------------------------------------------------
Total benefits and expenses 877.3 78.3 2,880.1 197.3
--------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) (163.1) 140.6 (1,466.1) 374.6
Income taxes (benefits) (78.6) 49.6 (625.4) 131.3
--------------------------------------------------------------------------------------------------------------
Net income (loss) $ (84.5) $91.0 $ (840.7) $ 243.3
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Net realized capital losses, net of tax
(included above) $ - $ - $ (11.1) $ -
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above:
Fully guaranteed $ 22,668.9 $ 9,200.0 $ 82,310.4 $ 9,300.0
Experience-rated 29,885.9 - 43,167.3
Non-guaranteed 46,487.8 18,980.0 98,843.5 19,000.0
-------------------------------------------------------
Total $ 99,042.6 $ 28,180.0 $224,321.2 $ 28,300.0
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Assets under management: (1) (2)
Fully guaranteed $ 81,811.9 $ 8,510.3
Experience-rated 43,720.2
Non-guaranteed 149,891.7 20,204.6
-------------------------
Total $275,423.8 $ 28,714.9
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes net unrealized capital gains of $77.2 thousand and $2.2 thousand
at September 30, 1996 and 1995, respectively.
(2) Includes $141,611.3 thousand and $20,204.6 thousand at September 30, 1996
and 1995, respectively, of assets held and managed by unaffiliated mutual
funds.
The Company has reported net losses of $(84.5) thousand for the three months
ended September 30, 1996, compared to net gains of $91.0 thousand for the
same period a year ago. The Company has reported net losses of $(840.7)
thousand for the nine months ended September 30, 1996, compared to net gains
of $243.3 thousand for the same period a year ago. 1996 results reflect the
revenues and expenses associated with commencement of the Company's business
operations which have produced losses due to start up costs, particularly in
the first six months of the year. 1995 results reflect investment income on
the Company's capital partially offset by only minimal start up expenses.
Current and future benefits are primarily amounts credited on investment
contracts. For the three and nine months ended September 30, 1996, current
and future benefits exceed net investment income. The lower level of
investment income is primarily due to lower levels of invested asset caused
by the payment of start up costs and lower returns on such investments due to
the short term nature of the portfolio. The Company intends to reposition the
portfolio into long-term higher yielding securities during the remainder of
1996. On October 23, 1996, the Company received a capital contribution of
$20.0 million from ALIAC (see Note 5 of the Condensed Notes to Financial
Statements).
During the nine months ended September 30, 1996, the Company's net deferred
tax asset increased by $1,598.1 thousand from December 31, 1995, the benefit
of which reduced the Company's loss for the same period. This was primarily
due to losses from commencement of operations discussed above. Management
believes it is more likely than not that the Company will realize the benefit
of its net deferred tax assets.
<PAGE>
GENERAL ACCOUNT INVESTMENTS
The Company's invested assets were comprised of the following:
September 30, December 31,
(Thousands) 1996 1995
- --------------------------------------------------------------------------------
Debt securities $ 8,140.3 $ 8,187.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At September 30, 1996 and December 31, 1995, all of the Company's debt
securities were issued by the U. S. Treasury. The average quality rating of the
Company's debt securities portfolio was AAA at both September 30, 1996 and
December 31, 1995.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be involved in lawsuits arising, for the most
part, in the ordinary course of its business operations. While the
ultimate outcome of litigation against the Company cannot be determined
at this time, after consideration of the defenses available to the
Company and any related reserves established, it is not expected to
result in liability for amounts material to the financial condition of
the Company, although it may adversely affect results of operations in
future periods.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
<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.
AETNA INSURANCE COMPANY OF AMERICA
(Registrant)
November 14, 1996 By /s/ James C. Hamilton
- ----------------------- ---------------------------
(Date) James C. Hamilton
Vice President, Treasurer, and
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10Q FOR THE FISCAL QUARTER
ENDED SEPTEMBER 30, 1996 FOR AETNA INSURANCE COMPANY OF AMERICA AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000925988
<NAME> AETNA INSURANCE COMPANY OF AMERICA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 8,140
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 8,140
<CASH> 35,717
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 15,724
<TOTAL-ASSETS> 294,367
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 43,735
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,550
<OTHER-SE> 8,640
<TOTAL-LIABILITY-AND-EQUITY> 294,367
0
<INVESTMENT-INCOME> 674
<INVESTMENT-GAINS> (17)
<OTHER-INCOME> 0
<BENEFITS> 715
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (1,466)
<INCOME-TAX> (625)
<INCOME-CONTINUING> (841)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (841)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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</TABLE>
