<PAGE>
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
The registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
For the fiscal year ended December 31, 1995 Commission file number 33-81010
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) 273-0978
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 (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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
As of February 29, 1996 there were 1,275 shares of common stock outstanding,
par value $2,000 per share, all of which shares were held by Aetna Life
Insurance and Annuity Company.
Documents Incorporated by Reference
Certain portions of the Aetna Life and Casualty's 1994 Proxy Statement filed
on March 18, 1994 and its 1992 Form 10-K filed on March 17, 1993 are
incorporated by reference into Part IV of this report.
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Annual Report For 1995 on Form 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business**.................................................. 3
Item 2. Properties**................................................ 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders*
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 6
Item 6. Selected Financial Data*
Item 7. Management's Analysis of the Results of Operations**........ 7
Item 8. Financial Statements and Supplementary Data................. 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 25
PART III
Item 10. Directors and Executive Officers of the Registrant*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................... 25
Index to Financial Statement Schedules................................. 27
Signatures............................................................. 31
** Item prepared in accordance with General Instruction J(2) of Form 10-K.
* Omitted pursuant to General Instruction J(2) of Form 10-K.
2
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PART I
Item 1. Business
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 Services,
Inc. ("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty
Company ("Aetna"), which, with Aetna's subsidiaries, constitutes one of the
nation's largest insurance/financial services organizations based on its
assets at December 31, 1994. The Company's Home Office is located at 151
Farmington Avenue, Hartford, Connecticut 06156.
During the second quarter of 1995, the Company began marketing and servicing
variable and market value adjusted annuities through the Company's Separate
Accounts to individuals in the qualified and non-qualified markets.
The Company's variable annuity products utilize Separate Accounts to provide
contractholders with a vehicle for investments under which the
contractholders assume the investment risks as well as the benefit of
favorable performance. Assets held under these products are invested, as
designated by the contractholder or participant under a contract, in Separate
Accounts, which in turn invest in shares of mutual funds that are managed by
ALIAC or other selected mutual funds which are not managed by ALIAC. The
Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable annuity contracts (acturial margin).
(See Note 8 of the Notes to Financial Statements).
Product retention is a key driver of profitability for annuity products. To
encourage product retention, annuity contracts typically impose a surrender
charge on policyholder balances withdrawn for a period of time after the
contract's inception. The period of time and level of the charge vary by
product. Existing tax penalties on annuity distributions prior to 59 1/2
provide an additional disincentive to premature surrenders of annuity
balances, but do not impede transfers of those balances to products of other
competitors.
Competition arises from other insurance companies, banks, mutual funds and
investment managers. Principal competitive factors are cost, service,
product features, investment options and level of investment performance and
the perceived financial strength of the investment manager or sponsor.
Competition may affect, among other matters, both business growth and the
pricing of the Company's products and services.
Products are distributed through a managed network of banks and
broker/dealers, as well as the distribution force of other ARSI affiliates.
3
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OTHER MATTERS
REGULATION
The insurance business of the Company is subject to comprehensive, detailed
regulation throughout the United States. The laws of the various
jurisdictions establish supervisory agencies with broad authority to
regulate, among other things, the granting of licenses to transact business,
trade practices, agent licensing, policy forms, underwriting and claims
practices, reserve adequacy, insurer solvency, the maximum interest rates
that can be charged on life insurance policy loans, the minimum rates that
must be provided for accumulation of surrender values, the form and content
of required financial statements and the type and amounts of investments
permitted. The Company is required to file detailed reports with supervisory
agencies in each of the jurisdictions in which it does business, and its
operations and accounts are subject to examination by such agencies at
regular intervals.
Although the federal government does not directly regulate the business of
insurance, many federal laws do affect the business. Existing or recently
proposed federal laws that may significantly affect or would affect, if
passed, the insurance business cover such matters as pensions and other
employee benefits, removal of barriers preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance companies,
and the tax treatment of insurance products.
Material changes in applicable federal and state laws regulations could
adversely affect the Company's business operations, although the Company is
unable to predict whether any such changes will be implemented.
Several states, including Connecticut, regulate affiliated groups of insurers
such as the Company and its affiliates under insurance holding company
statutes. Under such laws, intercorporate asset transfers and dividend
payments from insurance subsidiaries may require prior notice to or approval
of the insurance regulators, depending on the size of such transfers and
payments relative to the financial position of the Company making the
transfer. Changes in control also are regulated under these laws. As a
Connecticut-domiciled insurance company, the Company is subject to
comprehensive regulation under the Connecticut insurance laws and by the
Connecticut Insurance Department.
In recent years, state insurance regulators have been considering changes in
statutory accounting practices and other initiatives to strengthen solvency
regulation. The National Association of Insurance Commissioners (NAIC ) has
adopted risk-based capital ("RBC") standards for life insurers. The RBC
formula is a regulatory tool designed to identify weakly capitalized
companies by comparing the company's adjusted surplus to the required
surplus, which reflects the risk profile of the Company (RBC ratio). Within
certain ratio changes, regulators have increasing authority to take action as
the RBC ratio decreases. There are four levels of regulatory action ranging
from requiring insurers to submit a comprehensive plan to the state insurance
commissioner to when the state insurance commissioner places the insurer
under regulatory control. The Company's RBC ratio at December 31, 1995 was
significantly above the levels which would require regulatory action.
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The Company's variable products involve investments through Separate
Accounts, some of which are registered as investment companies with the SEC,
as are the variable mutual funds offered by the Company.
The NAIC also is considering several other solvency related regulations
including the development of a model investment law and amendments to the
model insurance holding company law which would limit types and amounts of
investments by insurance companies. In addition, in recent years there has
been growing interest among certain members of Congress concerning possible
federal roles in the regulation of the insurance industry. Because these
other initiatives are in a preliminary stage, management cannot assess the
potential impact of their adoption on the Company.
Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for
certain obligations of insolvent insurance companies to policyholders and
claimants. In each of the years in the three year period ended December 31,
1995, the Company has been assessed nominal guaranty fund assessment fees
attributable to administrative assessments issued to all companies licensed
to do business in a state. Since the Company had written no business prior
to December 31, 1994, no assessments should be received relating to
insolvencies which occurred prior to December 31, 1994.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
"safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. The Company desires to take advantage of the "safe harbor"
provisions of the Act. Certain information contained herein, particularly
the information appearing under the heading "Outlook" contained in Item
7-Management's Analysis of the Results of Operations, is forward-looking.
Information regarding certain important factors that could cause actual
results of operations or outcomes of other events to differ materially from
any such forward-looking statement appear together with such statement,
and/or elsewhere herein.
MISCELLANEOUS
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC), and receives an expense allocation, at cost, based on the utilization
of these employees.
The Company uses ALIAC's computer facilities. Management believes that
ALIAC's computer facilities, systems and related procedures are adequate to
meet its business needs. ALIAC's data processing systems and backup and
security policies, practices and procedures are regularly evaluated by
ALIAC's management and internal auditors and are modified as considered
necessary.
The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of revenue in 1995.
5
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Item 2. Properties
The Company occupies office space that is owned or leased by Aetna Life
Insurance Company or other affiliates of Aetna. Expenses associated with
these offices are allocated on a direct and indirect basis to the Company and
the other subsidiaries of Aetna.
Item 3. Legal Proceedings
The Company and its Board of Directors know of no material legal proceedings
pending to which the Company is a party or which would materially affect the
Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of the Company's outstanding shares are owned by its parent company,
ALIAC. For the years ended 1995, 1994 and 1993, the Company did not pay
dividends to ALIAC.
The amount of dividends which may be paid by the Company to ALIAC without
prior approval by the Insurance Commissioner of the State of Connecticut is
subject to various restrictions. Based upon these restrictions, the Company
is permitted a maximum of $958.0 thousand in dividend distributions in 1996.
6
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Item 7. Management's Analysis of the Results of Operations
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------
(Thousands) 1995 1994 1993
----- ----- -----
Net investment income $721.0 $619.3 $560.0
Realized capital gains 8.3 - -
Charges assessed against
policyholders 132.7 - -
------ ------ ------
Total revenue 862.0 619.3 560.0
Operating expenses 605.2 83.0 79.5
------ ------ ------
Total expenses 605.2 83.0 79.5
------ ------ ------
Income before federal
income taxes 256.8 536.3 480.5
Federal income taxes 88.9 187.7 168.2
------ ------ ------
Net income $167.9 $348.6 $312.3
------ ------ ------
------ ------ ------
1995 1994 1993
----- ----- -----
Deposits: Fully guaranteed $12,953.8 $ - $ -
Non-guaranteed 29,887.6 - -
--------- ----- ------
Total $42,841.4 $ - $ -
--------- ----- ------
--------- ----- ------
Assets under
management: Fully guaranteed $10,052.4 $ - $ -
Non-guaranteed 33,757.6 - -
--------- ----- ------
Total $43,810.0 $ - $ -
--------- ----- ------
--------- ----- ------
OVERVIEW
The Company's adjusted earnings (after-tax) follow (in thousands):
1995 1994 1993
----- ----- -----
Net income $167.9 $348.6 $312.3
Less:
Net realized capital
gains 5.4 - -
------ ----- ------
Adjusted earnings $162.5 $348.6 $312.3
------ ----- ------
------ ----- ------
The Company's adjusted earnings decreased 53% in 1995 following a 12%
increase in 1994. The decrease in 1995 adjusted earnings reflects higher
operating expenses offset in part by charges assessed against policyholders
attributable to the commencement of the Company's business operations.
Results in 1995 also reflect higher net investment
7
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income reflecting a slight change in asset mix (larger percentage of debt
securities versus cash and cash equivalents) and higher yields on cash
equivalents. The improvement in 1994 adjusted earnings when compared to 1993
reflected an increase in net investment income primarily due to increasing
yields on cash equivalents.
INVESTMENTS
As of December 31, 1995 and 1994, all of the Company's debt securities were
issued by the U. S. Treasury.
(Thousands) 1995 1994
- ----------- ----- -----
Debt securities $ 8,187.4 $ 6,906.5
--------- ---------
Total Investments 8,187.4 6,906.5
Cash and cash equivalents 4,044.2 4,732.7
--------- ---------
Total Investments, cash and
cash equivalents $12,231.6 $11,639.2
--------- ---------
--------- ---------
OUTLOOK
Sales of non-qualified products are expected to significantly exceed 1995
levels as relationships formed with broker/dealers and banks in 1995 build
sales momentum. The Company also intends to expand its retirement planning
capabilities.
8
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Item 8. Financial Statements and Supplementary Data
Financial Statements
INDEX
PAGE
----
Independent Auditors' Report 10
Financial Statements:
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993 11
Balance Sheets as of December 31, 1995
and 1994 12
Statements of Changes in Shareholder's Equity for
the Years Ended December 31, 1995, 1994 and 1993 13
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 14
Notes to Financial Statements 15
9
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INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors
Aetna Insurance Company of America:
We have audited the accompanying balance sheets of Aetna Insurance Company
of America as of December 31, 1995 and 1994, and the related statements of
income, changes in shareholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain resonable 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
resonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its methods of accounting for certain investments in debt and equity
securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 20, 1996
10
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(thousands)
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
Revenue:
Net investment income $721.0 $619.3 $560.0
Realized capital gains 8.3 -- --
Charges assessed against policyholders 132.7 -- --
------ ------ ------
Total revenue 862.0 619.3 560.0
Expenses:
Operating expenses 605.2 83.0 79.5
------ ------ ------
Total expenses 605.2 83.0 79.5
Income before federal income taxes 256.8 536.3 480.5
Federal income taxes 88.9 187.7 168.2
------ ------ ------
Net income $167.9 $348.6 $312.3
------ ------ ------
------ ------ ------
See Notes to Financial Statements.
11
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands)
December 31,
ASSETS 1995 1994
---- ----
Investments:
Debt securities available for sale:
(amortized cost $7,953.0 and $7,043.9) $ 8,187.4 $ 6,906.5
Cash and cash equivalents 4,044.2 4,732.7
Accrued investment income 112.6 91.5
Deferred policy acquisition costs 2,066.4 --
Deferred tax asset 467.6 0.4
Other assets 0.8 5.1
Separate Accounts assets 43,810.0 --
--------- ----------
Total assets $58,689.0 $11,736.2
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Due to parent and affiliates $ 174.6 $ 10.5
Other liabilities 1,932.6 21.0
Federal income taxes - Current 638.8 29.4
Separate Accounts liabilities 43,810.0 --
--------- ----------
Total liabilities 46,556.0 60.9
--------- ----------
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 (losses) 152.4 (137.4)
Retained earnings 1,880.6 1,712.7
--------- ----------
Total shareholder's equity 12,133.0 11,675.3
--------- ----------
Total liabilities and shareholder's
equity $58,689.0 $11,736.2
--------- ----------
--------- ----------
See Notes to Financial Statements.
12
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(thousands)
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
Shareholder's equity, beginning of period $11,675.3 $11,584.2 $11,151.8
Net change in unrealized capital
gains (losses) 289.8 (257.5) 120.1
Net income 167.9 348.6 312.3
--------- --------- ---------
Shareholder's equity, end of period $12,133.0 $11,675.3 $11,584.2
--------- --------- ---------
--------- --------- ---------
See Notes to Financial Statements.
13
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
<C> <S> <S> <S>
Cash Flows from Operating Activities: $ 167.9 $ 348.6 $ 312.3
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in accrued investment income (21.1) -- 46.3
Increase in deferred policy acquisition costs (2,066.4) -- --
Net change in amounts due to/from parent and affiliates 164.1 (79.2) 184.9
Net increase (decrease) in other assets and liabilities 1,915.9 1.2 (76.0)
Increase (decrease) in federal income taxes 60.2 (138.9) 50.2
Net amortization of premium on debt securities 22.2 88.1 78.4
-------- -------- --------
Net cash provided by operating activities 242.8 219.8 596.1
-------- -------- --------
Cash Flows from Investing Activities:
Investment maturities and collection of:
Debt securities available for sale 3,000.0 -- 2,290.0
Short-term investments 500.0 -- --
Cost of investment purchases in:
Debt securities available for sale (3,939.2) -- (2,452.8)
Short-term investments (492.1) -- --
-------- -------- --------
Net cash used for investing activities (931.3) -- (162.8)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (688.5) 219.8 433.3
Cash and cash equivalents, beginning of period 4,732.7 4,512.9 4,079.6
-------- -------- --------
Cash and cash equivalents, end of period $4,044.2 $4,732.7 $4,512.9
-------- -------- --------
-------- -------- --------
Supplemental cash flow information:
Income taxes paid, net $ 28.7 $ 326.6 $ 118.0
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
14
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of Connecticut. The
Company is a wholly owned subsidiary of Aetna Life Insurance and Annuity
Company ("ALIAC"). ALIAC is a wholly owned subsidiary of Aetna Retirement
Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and
Casualty Company ("Aetna"). During the second quarter of 1995, the Company
began marketing and servicing variable and market value adjusted annuities
through the Company's Separate Accounts to individuals in the qualified and
non-qualified markets.
BASIS OF PRESENTATION
These financial statements have been prepared in conformity with generally
accepted accounting principles. Certain reclassifications have been made to
1994 and 1993 financial information to conform to 1995 presentation.
ACCOUNTING CHANGES
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard
("FAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which requires the classification of debt securities into three
categories: "held to maturity", which are carried at amortized cost;
"available for sale", which are carried at fair value with changes in fair
value recognized as a component of shareholder's equity; and "trading", which
are carried at fair value with immediate recognition in income of changes in
fair value.
Initial adoption of this standard resulted in a net increase of $120.1
thousand, net of taxes of $64.6 thousand, to net unrealized gains in
shareholder's equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from reported results using those
estimates.
15
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of ninety days or less when purchased.
INVESTMENTS
At December 31, 1995 and 1994, all of the Company's debt securities are
classified as available for sale and carried at fair value. These securities
are written down (as realized losses) for other than temporary decline in
value. Unrealized gains and losses related to these securities, after
deducting related taxes, are reflected in shareholder's equity. Fair values
for debt securities are based on quoted market prices or dealer quotations.
Purchases and sales of debt securities are recorded on the trade date.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring insurance business have been deferred. These
costs, all of which vary with and are primarily related to the production of
new business, consist principally of commissions, certain expenses of
underwriting and issuing contracts and certain agency expenses. Such costs
are amortized in proportion to estimated gross profits and adjusted to
reflect actual gross profits and are amortized over twenty years. Deferred
policy acquisition costs are written off to the extent that it is determined
that future policy premiums and investment income or gross profits would not
be adequate to cover related losses and expenses.
CHARGES ASSESSED AGAINST POLICYHOLDERS
Charges assessed against policyholders' funds for surrender charges,
actuarial margin and other fees are recorded as revenue when earned.
16
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
SEPARATE ACCOUNTS
Assets held under variable annuity contracts are segregated in Separate
Accounts and are invested, as designated by the contractholder, in shares of
mutual funds that are managed by ALIAC or other selected mutual funds not
managed by ALIAC. Separate Accounts assets and liabilities are carried at
fair value except for those relating to a guaranteed interest option which is
offered through a Separate Account. The assets of the Separate Account
supporting the guaranteed interest option are carried at an amortized cost of
$10.1 million for 1995 (fair value of $9.3 million), since the Company bears
the investment risk where the contract is held to maturity. Reserves
relating to the guaranteed interest option are maintained at fund value and
reflect interest credited at rates ranging from 4.65% to 6.0% in 1995.
Separate Accounts assets and liabilities are shown as separate captions in
the Balance Sheets. Deposits, investment income and net realized and
unrealized capital gains (losses) of the Separate Accounts are not reflected
in the Statements of Income (with the exception of realized capital gains
(losses) on the sale of assets supporting the guaranteed interest option).
The Statements of Cash Flows do not reflect investment activity of the
Separate Accounts.
FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items. Deferred
income tax benefits result from changes during the year in cumulative
temporary differences between the tax basis and book basis of assets and
liabilities.
2. Investments
Investments in debt securities available for sale were as follows:
(Thousands)
GROSS GROSS
(Thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
1995
U.S. Treasury securities $7,953.0 $237.4 $ 3.0 $8,187.4
-------- ------ ------ --------
-------- ------ ------ --------
1994
U.S. Treasury securities $7,043.9 $ 4.2 $141.6 $6,906.5
-------- ------ ------ --------
-------- ------ ------ --------
17
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
2. Investments (continued)
The amortized cost and fair value of debt securities for the year ended
December 31, 1995 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be
restructured, called or prepaid.
AMORTIZED FAIR
(Thousands) COST VALUE
--------- -----
Due to mature:
One year or less $2,526.1 $2,526.0
After one year through five years 5,426.9 5,661.4
-------- --------
Total $7,953.0 $8,187.4
-------- --------
-------- --------
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities,
is deposited by the borrower with a lending agent, and retained and invested
by the lending agent to generate additional income for the Company. The
market value of the loaned securities is monitored on a daily basis with
additional collateral obtained or refunded as the market value fluctuates.
At December 31, 1995, the Company had no securities out on loan.
At December 31, 1995 and 1994, debt securities carried at $4.4 million and
$3.9 million, respectively, were on deposit as required by various state
regulatory agencies.
3. Capital Gains and Losses on Investments
Realized capital gains or losses are the difference between proceeds received
from investments sold or prepaid, and amortized cost. Net realized capital
gain on debt securities, as reflected in the Statements of Income for the
year ended December 31, 1995, were $8.3 thousand. For the years ended
December 31, 1994 and 1993 there were no realized capital gains or losses.
Unrealized capital gains (losses) on investments carried at fair value, net
of related taxes, reflected in shareholder's equity, were as follows for
December 31:
18
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
3. Capital Gains and Losses on Investments (continued)
(Thousands) 1995 1994
---- ----
Debt securities
Gross unrealized gains $237.4 $ 4.2
Gross unrealized losses (3.0) (141.6)
------ ------
234.4 (137.4)
Deferred federal income taxes (See Note 6) 82.0 -
------ ------
Net unrealized capital gains (losses) $152.4 $(137.4)
------ ------
------ ------
4. Net Investment Income
Sources of net investment income were as follows:
(Thousands) 1995 1994 1993
---- ---- ----
Debt securities $457.5 $414.1 $425.7
Cash equivalents 261.1 205.2 135.3
Other 2.4 -- --
------ ------ ------
Gross investment income 721.0 619.3 561.0
Less investment expenses -- -- 1.0
------ ------ ------
Net investment income $721.0 $619.3 $560.0
------ ------ ------
------ ------ ------
5. Dividend Restrictions and Shareholder's Equity
The amount of dividends that may be paid to the shareholder in 1996 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$958.0 thousand.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity those amounts determined in
conformity with statutory accounting practices prescribed or permitted by the
Department, which differ in certain respects from generally accepted
accounting principles ("GAAP"). Statutory net income was $378.9 thousand,
$348.1 thousand and $312.3 thousand for the years ended December 31, 1995,
1994 and 1993, respectively. Statutory shareholder's equity was $12.1
million and $11.8 million as of December 31, 1995 and 1994, respectively.
As of December 31, 1995 and 1994, the Company does not utilize any statutory
accounting practices which are not prescribed by insurance regulators that,
individually or in the aggregate, materially affect statutory shareholder's
equity.
19
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
6. Federal Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. Aetna allocates to each member an amount approximating the tax it
would have incurred were it not a member of the consolidated group, and
credits the member for the use of its tax saving attributes in the
consolidated return.
Components of income tax expense (benefits) were as follows:
1995 1994 1993
---- ---- ----
(thousands)
Current tax expense:
Income from operations $635.2 $188.1 $168.2
Net realized capital gains 2.9 - -
------ ------ ------
638.1 188.1 168.2
------ ------ ------
Deferred tax benefit:
Income from operations (549.2) (.4) --
------ ------ ------
Total $ 88.9 $187.7 $168.2
------ ------ ------
------ ------ ------
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the
following reasons:
1995 1994 1993
---- ---- ----
(thousands)
Income before federal income
taxes $256.8 $536.3 $480.5
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate $ 89.9 $187.7 $168.2
Other, net (1.0) -- --
------ ------ ------
Income tax expense $ 88.9 $187.7 $168.2
------ ------ ------
------ ------ ------
20
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
6. Federal Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1994 are
presented below:
1995 1994
---- ----
(thousands)
Deferred tax assets:
Net unrealized capital losses $ -- $48.1
Insurance reserves 1,054.6 --
Other, net -- .4
-------- -----
Total gross assets 1,054.6 48.5
Less valuation allowance -- 48.1
-------- -----
Deferred tax assets, net of
valuation 1,054.6 .4
Deferred tax liabilities:
Deferred policy acquisition
costs 496.4 --
Net unrealized capital gains 82.0 --
Other 8.6 --
-------- -----
Total gross liabilities 587.0 --
-------- -----
Net deferred tax asset $467.6 $ .4
-------- -----
-------- -----
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. At December 31, 1994, $137.4 thousand of net
unrealized capital losses were reflected in shareholder's equity without
deferred tax benefits. As of December 31, 1995, no valuation allowance was
required for unrealized capital gains and losses. The reversal of the
valuation allowance had no impact on net income in 1995. Management believes
that it is more likely than not that the Company will realize the benefit of
the net deferred tax asset.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1986. Discussions
are being held with the Service with respect to proposed adjustments.
However, management believes there are adequate defenses against, or
sufficient reserves to provide for, such challenges. The Service has
commenced its examinations for the years 1987 through 1990.
7. Benefit Plans
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC). The following is a discussion of benefit plans as they apply to
ALIAC. The charges to operations of the Company for the utilization of these
employee's during 1995 were immaterial. There were no charges to operations
of the Company during 1994 and 1993 for the benefit plans described below.
21
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
7. Benefit Plans (continued)
Employee Pension Plans - ALIAC, in conjunction with Aetna, has
non-contributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over sixty consecutive months of
highest earnings in a 120 month period). Contributions are determined using
the Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are currently deductible for
tax reporting purposes. The accumulated benefit obligation and plan assets
are recorded by Aetna. The accumulated plan assets exceed accumulated plan
benefits.
Agent Pension Plans - ALIAC, in conjunction with Aetna, has a non-qualified
pension plan covering certain agents. The plan provides pension benefits
based on annual commission earnings. The accumulated plan assets exceed
accumulated plan benefits.
Employee Postretirement Benefits - In addition to providing pension benefits,
Aetna also provides certain postretirement health care and life insurance
benefits, subject to certain caps, for retired employees. Medical and dental
benefits are offered to all full-time employees retiring at age 50 with at
least 15 years of service or at age 65 with at least 10 years of service.
Retirees are required to contribute to the plans based on their years of
service with Aetna.
Agen Postretirement Benefits - ALIAC, in conjunction with Aetna, also
provides certain postemployment health care and life insurance benefits for
certain agents. Incentive Savings Plan - Substantially all employees are
eligible to participate in a savings plan under which designated
contributions, which may be invested in common stock of Aetna or certain
other investments, are matched, up to 5% of compensation, by Aetna.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options and deferred contingent common stock or cash awards to certain key
employees. Aetna also has a stock option plan under which executive and
middle management employees of Aetna may be granted options to purchase
common stock of Aetna at the market price on the date of grant or, in
connection with certain business combinations, may be granted options to
purchase common stock on different terms.
22
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
8. Related Party Transactions
Substantially all of the administrative and support functions of the Company
are provided by Aetna and its affiliates. The financial statements reflect
allocated charges, at cost, for these services based upon measures
appropriate for the type and nature of service provided. Total charges
allocated to the Company, including rent, salaries and other administrative
expenses, were $350.0 thousand and $1.0 thousand for the years ended December
31, 1995 and 1993, respectively. There were no charges in 1994.
The Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable annuity contracts. Under the insurance
contracts, the Separate Accounts pay the Company a daily fee which, on an
annual basis, is 1.40% of their average daily net assets. The amount of
compensation and fees received from the Separate Accounts, charges assessed
against policyholders, amounted to $132.7 thousand for the year ended
December 31, 1995. There were no charges assessed against policyholders for
the years ended December 31, 1994 and 1993.
9. Estimated Fair Value
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
1995 1994
------------------- ------------------
(Thousands) CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------- ------ -------- ------
Assets:
Cash and cash equivalents $4,044.2 $4,044.2 $4,732.7 $4,732.7
Debt securities 8,187.4 8,187.4 6,906.5 6,906.5
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In evaluating the Company's management of
interest rate and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
DEBT SECURITIES: Fair values are based on quoted market prices or dealer
quotations.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS) The Company did not have transactions in derivative instruments
in 1995 or 1994.
23
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
10. Commitments and Contingent Liabilities
COMMITMENTS
At December 31, 1995 and 1994 the Company had no commitments or contingent
liabilities.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or 1994 which were beyond the ordinary course of business.
24
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements. See Item 8 on Page 9.
2. Financial statement schedules. See Index to Financial Statement
Schedules on Page 27.
3. Exhibits:
3(a) Certificate of Incorporation
Incorporated herein by reference to Registration Statement on Form N-4, File
No. 33-80750, as filed with the Securities and Exchange Commission on June
23, 1994.
3(b) By-Laws
Incorporated herein by reference to Registration Statement on Form N-4, File
No. 33-80750, as filed with the Securities and Exchange Commission on June
23, 1994.
4. Instruments Defining the Rights of Security Holders, Including Indentures
(Annuity Contracts)
Incorporated herein by reference to Registration Statement on Form N-4, File
No. 33-80750, as filed with the Securities and Exchange Commission on June
23, 1994.
Incorporated herein by reference to Registration Statement on Form N-4, File
No. 33-59749, as filed with the Securities and Exchange Commission on June 1,
1995.
Incorporated herein by reference to Pre-Effective Amendment No. 3 to the
Registration Statement on Form S-2, File No. 33-63657, as filed with the
Securities and Exchange Commission on October 24, 1994.
25
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10. Material Contracts (Management contracts / compensatory plans or
arrangements)
The 1984 Stock Option Plan of Aetna Life and Casualty Company and the
amendments thereto; incorporated by reference to Aetna Life and Casualty
Company's 1992 Form 10-K, filed on March 17, 1993.
Commission File Number 1-5704
Aetna Life and Casualty Company's Supplemental Incentive Savings Plan;
incorporated by reference to Aetna Life and Casualty Company's 1992 Form
10-K, filed on March 17, 1993.
Commission File Number 1-5704
Aetna Life and Casualty Company's Supplemental Pension Benefit Plan;
incorporated by reference to Aetna Life and Casualty Company's 1992 Form
10-K, filed on March 17, 1993.
Commission File Number 1-5704
Aetna Life and Casualty Company's 1986 Management Incentive Plan as amended
effective February 25, 1994; incorporated by reference to Aetna Life and
Casualty Company's 1993 Form 10-K, filed on March 18, 1994.
Commission File Number 1-5704.
Aetna Life and Casualty Company's 1994 Stock Incentive Plan; incorporated by
reference to 1994 Proxy Statement of Aetna Life and Casualty Company.
25. Power of Attorney
Filed with this Report immediately after Signature page.
27. Financial Data Schedule
Exhibits other than these listed are omitted because they are not required or
not applicable.
(b) Reports on Form 8-K.
None.
26
<PAGE>
Index to Financial Statement Schedules
PAGE
----
Independent Auditors' Report.................................... 28
I. Summary of Investments - Other than Investments in
Affiliates as of December 31, 1995......................... 29
III. Supplementary Insurance Information as of and for the years
ended December 31, 1995, 1994, 1993....................... 30
Schedules other than those listed above are omitted because they are not
required or are not applicable.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors
Aetna Insurance Company of America:
Under date of March 20, 1996, we reported on the balance sheets of Aetna
Insurance Company of America as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholder's equity, and cash flows
for each of the years in the three-year period ended December 31, 1995, as
included herein. In connection with out audits of the aforementioned
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the reponsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
sechedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic financial sttaements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its methods of accounting for certain investments in debt and equity
securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 20, 1996
28
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
SCHEDULE I
Summary of Investments - Other than Investments in Affiliates
December 31, 1995
(thousands)
AMOUNT AT
WHICH SHOWN
IN THE
TYPE OF INVESTMENT COST VALUE* BALANCE SHEET
- ------------------ ---- ------ -------------
Debt Securities:
U.S. Treasury securities $7,953.0 $8,187.4 $8,187.4
-------- -------- --------
Total Investments - other than
investments in affiliates $7,953.0 $8,187.4 $8,187.4
-------- -------- --------
-------- -------- --------
* See Notes 1, 2 and 9 to Financial Statements.
29
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
SCHEDULE III
Supplementary Insurance Information
As of and for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
(Thousands)
Amortization
Deferred Unpaid Policyholders' Other income of deferred
policy Future claims and funds left Net (including policy
acquisition policy Unearned claim with the Premium investment realized capital acquisition
costs benefits premiums expenses company revenue income(1) gains and losses) costs
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $2066.4 $ - $ - $ - $ - $ - $721.0 $141.0 $ -
------------------------------------------------------------------------------------------------------------------------
1994 $ - $ - $ - $ - $ - $ - $619.3 $ - $ -
------------------------------------------------------------------------------------------------------------------------
1993 $ - $ - $ - $ - $ - $ - $560.0 $ - $ -
------------------------------------------------------------------------------------------------------------------------
Current
Other & Future
operating benefits
expenses expenses
- -----------------------------------
1995 $605.2 $ -
-------------------------
1994 $ 83.0 $ -
-------------------------
1993 $ 79.5 $ -
-------------------------
</TABLE>
(1) The allocation of net investment income is based upon the investment
year method or specific identification of certain portfolios within
specific segments.
30
<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.
AETNA INSURANCE COMPANY OF AMERICA
(Registrant)
Date _____________ By /s/ James C. Hamilton
____________________________________
James C. Hamilton
Vice President, Treasurer, and
Director
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 29, 1996.
Signature Title
*
_______________________ President and Director
Daniel P. Kearney (Principal Executive Officer)
*
_______________________ Vice President, Treasurer, and Director
James C. Hamilton
*
_______________________ Senior Vice President and Director
Scott A. Striegel
*
_______________________ Senior Vice President and Director
Shaun P. Mathews
* By: /s/ Maria McKeon
___________________________________
Maria McKeon, Corporate Secretary and Counsel
31
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Aetna Insurance Company of
America, hereby severally constitute and appoint Maria F. McKeon and James C.
Hamilton and each of them individually, our true and lawful attorneys, with
full power to them and each of them to sign for us, and in our names and in
the capacities indicated below, the 1995 Form 10-K and any and all amendments
thereto to be filed with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to the Form 10-K and
any and all amendments thereto.
WITNESS our hands and common seal on this 29th day of March, 1996.
Signature Title
/s/ Daniel P. Kearney
________________________ President and Director
Daniel P. Kearney (Principal Executive Officer)
/s/ James C. Hamilton
________________________ Vice President, Treasurer, and Director
James C. Hamilton
/s/ Scott A. Striegel
________________________ Senior Vice President and Director
Scott A. Striegel
/s/ Shaun P. Mathews
________________________ Senior Vice President and Director
Shaun P. Mathews
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995 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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 8,187
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 8,187
<CASH> 4,044
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,066
<TOTAL-ASSETS> 58,689
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,550
<OTHER-SE> 9,583
<TOTAL-LIABILITY-AND-EQUITY> 58,689
0
<INVESTMENT-INCOME> 721
<INVESTMENT-GAINS> 8
<OTHER-INCOME> 0
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 257
<INCOME-TAX> 89
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
