<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
For the fiscal year ended December 31, 1996 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) 273-0123
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 28, 1997 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.
Reduced Disclosure Format
The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K 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)
Annual Report on Form 10-K
For the Year Ended December 31, 1996
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Business**....................................................... 3
Item 2. Properties**..................................................... 7
Item 3. Legal Proceedings................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders*............. 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................. 8
Item 6. Selected Financial Data*......................................... 8
Item 7. Management's Analysis of the Results of Operations**............. 8
Item 8. Financial Statements and Supplementary Data...................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant*.............. 32
Item 11. Executive Compensation*.......................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management* . 32
Item 13. Certain Relationships and Related Transactions*.................. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................................... 32
Index to Financial Statement ............................................... 34
Signatures.................................................................. 37
* Item omitted pursuant to General Instruction I(2) of Form 10-K.
** Item prepared in accordance with General Instruction I(2) of Form 10-K.
2
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Annual Report on Form 10-K
For the year ended December 31, 1996
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 Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement Services,
Inc., whose ultimate parent is Aetna Inc. (together with its subsidiaries,
"Aetna"). The Company's Home Office is located at 151 Farmington Avenue,
Hartford, Connecticut 06156.
ALIAC acts as investment adviser for its affiliated mutual funds. Since August
1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly owned subsidiary
of HOLDCO and an affiliate of the Company has been acting as Subadviser of all
of ALIAC's affiliated mutual funds and the Company's general account
investments.
Products and Services
The Company's products principally include annuity contracts that offer a
variety of funding options for nonqualified annuity contracts and individual
retirement plans qualified under Internal Revenue Code Section 408.
Investment Options
The Company's products provide customers with variable and/or fixed investment
options. Variable ("non-guaranteed") options provide for full assumption by the
customer of investment risks. Assets supporting variable options
are held in separate accounts that invest in Aetna mutual funds and/or
unaffiliated mutual funds. (Separate account assets reflected on the Balance
Sheets also include assets related to a fully guaranteed interest option, see
Note 1 of the Notes to Financial Statements.) Non-guaranteed separate account
investment income and realized capital gains and losses are not reflected in the
Company's results of operations. Fixed options can be either "fully guaranteed"
or "experience rated". Fully guaranteed options provide guarantees on investment
return, maturity values, and if applicable, benefit payments, where the contract
is held to maturity. Experience rated options require the customer to assume
investment (including realized capital gains and losses) and other risks
subject, among other things, to certain minimum guarantees. The effect of such
realized gains and losses (as long as minimum guarantees are not triggered) does
not impact the Company's results.
3
<PAGE>
Fees and Investment Margins
Insurance charges or other fees earned by the Company, vary by product and
depend, among other factors, on the funding option selected by the customer
under the product. For variable products where assets are allocated to variable
funding options, the Company charges the separate account an asset based
mortality and expense charge. In addition, when a customer selects an
unaffiliated mutual fund as a variable funding option, the Company receives
distribution fees and/or expense reimbursements. For fixed funding options, the
Company derives an investment margin, which is based on the difference between
income earned on the investments supporting the liability and interest credited
to customers. Other fees or charges, such as administrative fees, may be
assessed depending on the nature of the products (see Note 9 of the Notes to
Financial Statements).
Assets Under Management
The substantial portion of fees or other charges and investment margins are
based on assets under management. Assets under management are principally
affected by deposits, investment growth (i.e., interest credited to customer
accounts for fixed options or market performance for variable options) and
persistency (i.e., customer retention). Assets under management, excluding net
unrealized capital gains and losses related to market value adjustments required
under Financial Accounting Standard ("FAS") No. 115, were $367.8 million and
$43.8 million at December 31, 1996 and 1995, respectively. Assets under
management at December 31, 1996 and 1995 are available for contractholder
withdrawal and are subject to market value adjustments and/or deferred surrender
charges. There were no assets under management at December 31, 1994.
To encourage customer retention, contracts typically impose a surrender charge
on policyholder balances withdrawn within 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 age 59 1/2 provide further
disincentive to customers for premature surrenders of annuity balances, but
generally do not impede transfers of those balances to products of competitors.
Principal Markets and Method of Distribution
The Company's products are offered to individuals through a managed network of
banks and broker-dealers.
Competition
Competition arises from other insurance companies, as well as an array of
financial services companies including banks, mutual funds and other investment
managers. Principal competitive factors are reputation for investment
performance, product features, service, cost 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.
4
<PAGE>
Reserves
Reserves for investment contracts (deferred annuities) are equal to cumulative
deposits plus credited interest less withdrawals and charges thereon. Of those
investment contracts which are experience rated, the reserves also reflect net
realized capital gains/losses (which the Company reflects through credited rates
on an amortized basis) and unrealized capital gains/losses related to Financial
Accounting Standard ("FAS") No. 115.
General Account Investments
Consistent with the nature of the contract obligations involved in the Company's
operations, the majority of the general account assets are invested in long-term
debt securities such as U.S. corporate debt securities, foreign government and
corporate debt securities, commercial and multifamily mortgage-backed
securities, other asset-backed securities and U.S. government securities. It is
management's objective that the portfolios be of high quality while achieving
competitive investment yields and returns. Investment portfolios generally match
the duration of the insurance liabilities they support. The general account of
the Company has been segmented to improve the asset/liability matching process.
The duration of investments is monitored and security purchases and sales are
executed with the objective of having adequate funds available to satisfy the
Company's maturing liabilities.
Please see General Account Investments on page 10 of the Management's Analysis
of the Results of Operations for a further discussion of investments. For
information concerning the valuation of investments, see Notes 1, 2, 3 and 5 of
the Notes to Financial Statements.
Other Matters
Regulation
The Company's operations are subject to comprehensive regulation throughout the
United States. The laws of the various jurisdictions establish supervisory
agencies, including the state insurance and securities departments, with broad
authority to grant licenses to transact business and regulate many aspects of
the products and services offered by the Company, as well as solvency and
reserve adequacy. Many agencies also regulate investment activities on the basis
of quality, diversification, and other quantitative criteria. The Company's
operations and accounts are subject to examination at regular intervals by
certain of these regulators.
Operations conducted by the Company are subject to regulation by various
insurance regulatory agencies where the Company conducts business. Among other
matters, these agencies may regulate trade practices, agent licensing, policy
forms, underwriting and claims practices, the maximum interest rates that can be
charged on life insurance policy loans, and the minimum rates that must be
provided for accumulation of surrender value.
The Securities and Exchange Commission ("SEC") regulates the Company's annuity
products, which involve separate accounts and mutual funds registered under the
Investment Company Act of 1940.
5
<PAGE>
A number of states, including Connecticut, regulate affiliated groups of
insurers such as the Company under holding company statutes. These laws may
require these companies to maintain certain levels of equity. See Note 8 of the
Notes to Financial Statements.
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, 1996, 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. While the Company has historically recovered more than half of guaranty
fund assessments through statutorily permitted premium tax offsets, significant
increases in assessments could jeopardize future efforts to recover such
assessments. For information regarding certain other potential regulatory
changes relating to the Company's businesses, see Forward-Looking Information in
Management's Analysis of the Results of Operations.
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 1996. In addition, the loss of
business from anyone, or a few, independent brokers or agents would not have a
material adverse effect on the earnings of the Company.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a
"safe harbor" for forward-looking statements, 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 these safe harbor provisions. Certain information contained
herein is forward-looking within the meaning of the Act or SEC rules. Words such
as expects, anticipates, intends, plans, believes, seeks or estimates, or
variations of such words and similar expressions are also intended to identify
forward-looking statements. These forward-looking statements are subject to
significant uncertainties and contingencies, many of which are beyond the
control of the Company. Set forth below are certain important factors that, in
addition to general economic conditions and other factors, some of which are
discussed elsewhere in this report, may affect forward-looking statements and
the Company's business generally.
6
<PAGE>
Ratings. Adverse changes in the claims-paying ratings of the Company could have
the effect of decreasing new sales and deposits and increasing withdrawals and
surrenders in the Company's businesses, which would adversely affect the level
of asset-based fees and investment margins.
Product Retention. The Company incurs up-front costs, such as commissions, in
sales of its annuity products. These costs are generally deferred and recognized
by the Company over time, and the retention of assets under those products is an
important component of profitability. The Company generally seeks to structure
its products to encourage retention of assets under management, through
surrender charges, more favorable credited rates to customers on assets the
Company retains for longer periods, renewal commissions, service fees or other
terms. However, customer withdrawal of assets earlier than anticipated by the
Company in pricing its products would adversely affect profitability.
Significant Changes in Financial Markets. Significant changes in financial
markets could impact the level of assets under management in the Company's
businesses, and, in turn, the Company's level of asset-based fees and
investment margins. For example, significant increases in interest rates or
decreases in equity markets, in addition to directly affecting the level of
assets under management, may increase the level of withdrawals and decrease
the level of deposits by customers. Customers under those circumstances may
seek to diversify among asset managers or seek investment alternatives not
offered by the Company. Significant declines in the value of investments may
also affect the Company's ability to pass through investment losses to
certain experience rated customers, whether due to triggering minimum
guarantees or other business reasons.
Retention of Key Senior Executives. The Company's success is dependent, in part,
on Aetna's ability to attract and retain key senior executives. Aetna has
entered into employment agreements with certain of these executives, although an
employment agreement does not guarantee that an executive's services with the
Company will continue.
Other Adverse Changes in Regulation. The Company's business is subject to
comprehensive regulation. This business could be adversely affected by: (i)
increases in minimum capital and other financial viability requirements for
insurance operations (ii) removal of barriers preventing banks from engaging in
insurance and mutual fund businesses, (iii) the taxation of insurance companies,
and (iv) changes in the tax treatment of insurance products.
Item 2. Properties.
The Company occupies office space that is owned or leased by Aetna Life
Insurance Company or other affiliates. 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 is not currently involved in litigation.
7
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
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 1996, 1995 and 1994, the Company did not pay dividends to
ALIAC. The Company received a capital contribution of $20.0 million in cash from
ALIAC in 1996.
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 $2.1 million in dividend distributions in 1997.
Item 6. Selected Financial Data.
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.
Item 7. Management's Analysis of the Results of Operations.
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction I(2)(a) of Form 10-K.
8
<PAGE>
Item 7. Management's Analysis of the Results of Operations
<TABLE>
<CAPTION>
Results of Operations
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
(thousands)
<S> <C> <C> <C>
Charges assessed against policyholders $ 1,293.0 $ 132.7 $ --
Net investment income 1,556.9 721.0 619.3
Net realized capital gains (losses) (11.2) 8.3 --
Other income 66.4 -- --
--------------------------------------------------------------------------------------------------
Total revenue 2,905.1 862.0 619.3
--------------------------------------------------------------------------------------------------
Current and future benefits 1,651.9 -- --
Operating expenses 2,430.4 481.8 85.6
Amortization of deferred policy acquisition costs 242.0 -- --
--------------------------------------------------------------------------------------------------
Total benefits and expenses 4,324.3 481.8 85.6
--------------------------------------------------------------------------------------------------
Income (loss) before income taxes (benefits) (1,419.2) 380.2 533.7
Income taxes (benefits) (723.4) 212.3 185.1
--------------------------------------------------------------------------------------------------
Net income (loss) $ (695.8) $ 167.9 $ 348.6
========================================================================================================
Net realized capital gains (losses), net of tax
(included above) $ (7.3) $ 5.4 $ --
========================================================================================================
- --------------------------------------------------------------------------------------------------------
Deposits not included above:
Annuities--fixed options $ 157,000.0 $ 13,000.0 $ --
Annuities--variable options 151,300.0 29,800.0 --
-------------------------------------------
Total $ 308,300.0 $ 42,800.0 $ --
========================================================================================================
Assets under management: (1)(2)
Annuities--fixed options $ 148,900.0 $ 10,600.0 $ --
Annuities--variable options 218,900.0 33,200.0 --
-------------------------------------------
Total $ 367,800.0 $ 43,800.0 $ --
========================================================================================================
</TABLE>
(1) Excludes net unrealized capital gains of $33.5 thousand and $234.4
thousand at December 31, 1996 and 1995, respectively.
(2) Includes $203.6 million and $33.8 million at December 31, 1996 and 1995,
respectively, of assets held and managed by unaffiliated mutual funds.
The Company had net losses of $(695.8) thousand for the year ended December 31,
1996, compared to net income of $167.9 thousand for the same period a year ago.
1996 results reflect the revenues and expenses associated with commencement of
the Company's business operations (the Company commenced operations in the
second quarter of 1995) which have produced losses due to start up costs,
particularly in the first six months of 1996. 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 year ended December 31 1996, current and future benefits
exceeded net investment income. The lower level of investment income is
primarily due to lower levels of invested assets 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 began to reposition the portfolio into
long-term higher yielding securities in the fourth quarter of 1996. On
October 23, 1996, the Company received a capital contribution of $20.0
million from ALIAC.
9
<PAGE>
During the year ended December 31, 1996, the Company's net deferred tax asset
increased by $822.1 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 asset.
General Account Investments
The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of
these investments is monitored, and investment purchases and sales are executed
with the objective of having adequate funds available to satisfy the Company's
maturing liabilities. The risks associated with investments supporting
experience rated products are assumed by those customers subject to, among other
things, certain minimum guarantees.
The Company's invested assets were comprised entirely of debt securities. At
December 31, 1996, $16.5 million or 67% of total debt securities supported
experience rated products. There were no experience rated products in 1995.
It is management's objective that the portfolio of debt securities be of high
quality and be well-diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies, and, if not
externally rated, are rated by the Company on a basis believed to be similar to
that used by the rating agencies. The average quality rating of the Company's
debt security portfolio was AA- at December 31, 1996. As of December 31, 1995,
all of the Company's debt securities were issued by the U. S. Treasury.
Debt Securities Quality Ratings Debt Securities Investments by Market Sector
at December 31, 1996 at December 31, 1996
- ------------------------------- --------------------------------------------
AAA 47.3% U.S. Corporate Securities 44.7%
A 25.4 U.S. Treasuries/Agencies 33.3
BBB 27.3 Commercial/Multifamily Mortgage-
------ Backed Securities 10.0
100.0% Foreign Securities - U.S. Dollar
===== Denominated 8.0
Asset-Backed Securities 4.0
-----
100.0%
=====
10
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Assets ............................................. $ 404,384.5 $ 58,689.0 $ 11,736.2
------------ -------------- -----------
Shareholder's Equity ............................... $ 31,320.1 $ 12,133.0 $ 11,675.3
------------ -------------- -----------
Net cash (used for) provided by operating activities $ (22,556.7) $ 242.8 $ 219.8
------------ -------------- -----------
Net cash used for investing activities ............. $ (14,196.0) $ (931.3) $ --
------------ -------------- -----------
Net cash provided by financing activities .......... $ 84,550.8 $ -- $ --
------------ -------------- -----------
Cash and Cash Equivalents .......................... $ 51,842.3 $ 4,044.2 $ 4,732.7
------------ -------------- -----------
</TABLE>
The liquidity needs of the Company's businesses generally have been and are
met by cash provided by deposits, income received on investments and capital
contributions. In 1996, a $20 million capital contribution was received from
ALIAC. Cash provided from these sources is used primarily for operating
expenses and contract withdrawals which were nominal in 1996.
Debt securities have durations that were selected to approximate the durations
of the liabilities they support. The general account of the Company has been
segmented to improve the asset/liability matching process. The duration of these
investments is monitored, and investment purchases and sales are executed with
the objective of having adequate funds available to satisfy the Company's
maturing liabilities.
As the Company's investment strategy focuses on matching asset and liability
durations, and not specific cash flows, and since these duration assessments are
dependent on numerous cash flow assumptions, asset sales may, from time to time,
be required to satisfy liability obligations and/or rebalance asset portfolios.
The investment portfolios are closely monitored to assess asset and liability
matching in order to rebalance the portfolios as conditions warrant.
The Company has significant short-term liquidity supporting its business. At
year-end 1996, cash and cash equivalents were $51.8 million.
Given the high quality of the debt securities portfolio (see "General Account
Investments"), management expects the vast majority of the Company's investments
in debt securities to be repaid in accordance with contractual terms. In
addition, most of the debt securities in the portfolio are highly marketable and
can be sold to enhance cash flow before maturity.
The Company's cash flow requirements for 1996 were met by funds provided by
financing activities (including a $20 million capital contribution from ALIAC).
The Company has no debt.
11
<PAGE>
The amount of dividends that may be paid to the shareholder in 1997 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 $2.1 million in dividend distributions in 1997.
12
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Page
----
Independent Auditors' Report 14
Financial Statements:
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 15
Balance Sheets as of December 31, 1996
and 1995 16
Statements of Changes in Shareholder's Equity for
the Years Ended December 31, 1996, 1995 and 1994 17
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 18
Notes to Financial Statements 19
13
<PAGE>
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, 1996 and 1995, 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, 1996. 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
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 20, 1997
14
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 1,293.0 $ 132.7 $ --
Net investment income 1,556.9 721.0 619.3
Net realized capital gains (losses) (11.2) 8.3 --
Other income 66.4 -- --
---------------------------------
Total revenue 2,905.1 862.0 619.3
Benefits and expenses:
Current and future benefits 1,651.9 -- --
Operating expenses 2,430.4 481.8 85.6
Amortization of deferred policy acquisition costs 242.0 -- --
------------ ---------- --------
Total benefits and expenses 4,324.3 481.8 85.6
Income (loss) before income taxes (benefits) (1,419.2) 380.2 533.7
Income taxes (benefits) (723.4) 212.3 185.1
------------ ---------- --------
Net Income (loss) $ (695.8) $ 167.9 $ 348.6
------------ ---------- --------
------------ ---------- --------
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands, except share data)
<TABLE>
<CAPTION>
December 31,
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $24,736.8 and $7,953.0) $ 24,770.3 $ 8,187.4
Cash and cash equivalents 51,842.3 4,044.2
Deferred policy acquisition costs 21,057.0 2,066.4
Accrued investment income 325.8 112.6
Deferred tax asset 1,289.7 467.6
Income taxes receivable 1,133.2 --
Other assets 447.6 0.8
Separate Accounts assets 303,518.6 43,810.0
------------- ------------
Total assets $ 404,384.5 $ 58,689.0
------------- ------------
------------- ------------
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Policyholders' funds left with the Company $ 64,445.4 $ --
Other liabilities 4,753.2 1,874.2
Due to parent and affiliates 347.2 174.6
Income taxes payable -- 697.2
Separate Accounts liabilities 309,518.6 43,810.0
------------- ------------
Total liabilities 373,064.4 46,556.0
------------- ------------
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 27,550.0 7,550.0
Net unrealized capital gains 90.3 152.4
Retained earnings 1,129.8 1,880.6
------------- ------------
Total shareholder's equity 31,320.1 12,133.0
------------- ------------
Total liabilities and shareholder's equity $ 404,384.5 $ 58,689.0
------------- ------------
------------- ------------
</TABLE>
See Notes to financial Statements.
16
<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)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Shareholder's equity, beginning of year $ 12,133.0 $ 11,675.3 $ 11,584.2
Capital contribution 20,000.0 -- --
Net income (loss) (695.8) 167.9 348.6
Net change in unrealized capital gains (losses) (62.1) 289.8 (257.5)
Other changes (55.0) -- --
-------------- ------------- ----------
Shareholder's equity, end of year $ 31,320.1 $ 12,133.0 $ 11,675.3
-------------- ------------- ----------
-------------- ------------- ----------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
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,
------------------------
<S> <C> 1996 1995 1994
---- ---- ----
Cash Flows from Operating Activities:
Net income (loss) $ (695.8) $ 167.9 $ 348.6
Adjustments to reconcile net income (loss) to net cash (used for)
provided by operating activities:
Increase in accrued investment income (213.2) (21.1) --
Increase in deferred policy acquisition costs (18,990.6) (2,066.4) --
Net change in amounts due to/from parent and affiliates 172.6 164.1 (79.2)
Net increase (decrease) in other assets and liabilities (25.6) 1,915.9 1.2
Net (decrease) increase in income taxes (2,710.7) 60.2 (138.9)
Net amortization of (discount) premium on debt securities (104.6) 22.2 88.1
Net realized capital losses 11.2 -- --
---------- -------- --------
Net cash (used for) provided by operating activities (22,556.7) 242.8 219.8
---------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 2,510.0 3,000.0 --
Investment maturities and repayments of:
Short-term investments -- 500.0 --
Cost of investment purchases in:
Debt securities available for sale (16,706.0) (3,939.2) --
Short-term investments -- (492.1) --
---------- --------- --------
Net cash used for investing activities (14,196.0) (931.3) --
---------- --------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 64,936.2 -- --
Withdrawal of investment contracts (385.4)
Capital contribution 20,000.0 -- --
---------- --------- --------
Net cash provided by financing activities 84,550.8 -- --
---------- --------- --------
Net increase (decrease) in cash and cash equivalents 47,798.1 (688.5) 219.8
Cash and cash equivalents, beginning of year 4,044.2 4,732.7 4,512.9
---------- --------- --------
Cash and cash equivalents, end of year $51,842.3 $4,044.2 $4,732.7
---------- --------- --------
---------- --------- --------
Supplemental cash flow information:
Income taxes paid, net $ 1,866.8 $ 92.4 $336.7
---------- --------- --------
---------- --------- --------
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements
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 Holdings, Inc. ("HOLDCO"). HOLDCO is a
wholly owned subsidiary of Aetna Retirement Services, Inc., whose ultimate
parent is Aetna Inc. ("Aetna"). During the second quarter of 1995, the
Company began marketing and servicing variable annuities 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 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
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 any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on
its financial position or results of operations.
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.
19
<PAGE>
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 90 days or less when purchased.
Investments
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
capital losses) for other than temporary declines in value. Unrealized
capital gains and losses related to available for sale investments, other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the
estimated remaining term of the securities, adjusted for anticipated
prepayments.
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 a period of up to
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 are not adequate to cover related losses and expenses.
20
<PAGE>
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)
Reserves
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts. Reserves on such contracts are equal to
cumulative deposits less charges and withdrawals plus credited interest
thereon (rates range from 4.85% to 6.75%), net of adjustments for
investment experience that the Company is entitled to reflect in future
credited interest. Reserves on contracts subject to experience rating
reflect the rights of contractholders, plan participants and the Company.
Charges Assessed Against Policyholders and Other Income
Charges assessed against policyholders' funds for surrender charges,
actuarial margin and other fees are recorded as revenue when earned. Other
amounts received for these contracts are reflected as deposits and are not
recorded as revenue. Other income includes maintenance and surrender fees.
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 Aeltus or other selected mutual funds
not managed by Aeltus.
Separate accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company
bears the investment risk where the contract is held to maturity, the
assets of the separate account supporting the guaranteed interest option
are carried at an amortized cost of $82.5 million for 1996 (fair value of
$82.9 million) and $10.1 million for 1995 (fair value $9.3 million).
Reserves relating to the guaranteed interest option are maintained at fund
value and reflect interest credited at rates ranging from 4.74% to 6.60%
in 1996 and 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
and losses of the non-guaranteed separate accounts are not reflected in
the Statements of Income (with the exception of realized capital gains and
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.
21
<PAGE>
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)
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 expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis
of assets and liabilities.
2. Investments
Debt securities available for sale as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(thousands)
<S> <C> <C> <C> <C>
U.S. government and government agencies and
authorities $ 8,111.1 $ 140.0 $ 1.1 $ 8,250.0
U.S. corporate securities:
Financial 7,375.4 -- 59.2 7,316.2
Healthcare & consumer products 2,506.2 -- 4.1 2,502.1
Natural resources 1,250.0 0.8 -- 1,250.8
--------- --------- --------- ---------
Total U.S. corporate securities 11,131.6 0.8 63.3 11,069.1
Foreign securities 2,032.3 -- 46.0 1,986.3
Commercial/multifamily mortgage-backed
securities 2,480.9 3.5 -- 2,484.4
Other asset-backed securities 980.9 -- 0.4 980.5
--------- --------- --------- ---------
Total Debt Securities $24,736.8 $ 144.3 $ 110.8 $24,770.3
========= ========= ========= =========
</TABLE>
22
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(thousands)
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $7,953.0 $ 237.4 $ 3.0 $8,187.4
======== ======== ======== ========
</TABLE>
At December 31, 1996 net unrealized appreciation of $33.5 thousand on
available for sale debt securities included unrealized losses of $105.4
thousand related to experience rated contracts, which were not reflected
in shareholder's equity but in Policyholders' funds left with the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may
be restructured, called or prepaid.
Amortized Fair
Cost Value
---- -----
(thousands)
Due to mature:
One year or less $ 1,477.5 $ 1,480.6
After one year through five years 10,785.5 10,907.8
After five years through ten years 7,998.6 7,936.0
After ten years 1,013.4 981.0
Mortgage-backed securities 2,480.9 2,484.4
Other asset-backed securities 980.9 980.5
--------- ---------
Total $24,736.8 $24,770.3
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, 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, 1996 and 1995, the Company had no
securities out on loan.
23
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, debt securities carried at $4.7 million and
$4.4 million, respectively, were on deposit as required by various state
regulatory agencies.
The Company does not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1996.
24
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(thousands) (thousands)
<S> <C> <C> <C> <C>
Liabilities:
Investment contract liabilities:
Without a fixed maturity $64,445.4 $59,401.6 $ -- $ --
</TABLE>
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 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 many cases, the fair
value estimates cannot be substantiated by comparison to independent
markets, nor can the disclosed value be realized in immediate settlement
of the instrument. In evaluating the Company's management of interest
rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented
above.
The following valuation methods and assumptions were used by the Company
in estimating the fair value of the above financial instruments:
Investment contract liabilities (included in policyholders' funds left
with the Company) without a fixed maturity:
Fair value is estimated as the amount payable to the contractholder upon
demand. However, the Company has the right under such contracts to delay
payment of withdrawals which may ultimately result in paying an amount
different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments
The Company did not have transactions in off-balance sheet instruments in
1996 or 1995.
25
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(thousands)
Debt securities $ 547.6 $ 457.5 $ 414.1
Cash equivalents 1,041.6 261.1 205.2
Other -- 2.4 --
-------- -------- --------
Gross investment income 1,589.2 721.0 619.3
Less investment expenses 32.3 -- --
-------- -------- --------
Net investment income $1,556.9 $ 721.0 $ 619.3
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $855.2 thousand for the year ended December 31, 1996.
There were no experience rated contractholders in 1995 and 1994. Interest
credited to contractholders is included in current and future benefits.
5. Capital Gains and Losses
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains (losses) on debt securities, as reflected in
the Statements of Income for the years ended December 31, 1996 and 1995,
were $(11.2) thousand and $8.3 thousand, respectively. For the year ended
December 31, 1994 there was no realized capital gains or losses.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(thousands)
Proceeds on sales $2,510.0 $3,000.0 $ --
Gross gains 12.7 8.3 --
Gross losses 23.9 -- --
26
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
5. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders in 1996), were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Debt securities $(95.5) $371.8 $(257.5)
Deferred income taxes (See Note 6) (33.4) 82.0 --
------ ------ -------
Net change in unrealized capital gains (losses) $(62.1) $289.8 $(257.5)
====== ====== =======
</TABLE>
Net unrealized capital losses allocable to experience rated contracts of
$105.4 thousand at December 31, 1996 are reflected on the Balance Sheets
in policyholders' funds left with the Company and are not included in
shareholder's equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders in 1996, at December 31:
1996 1995 1994
---- ---- ----
(thousands)
Debt securities
Gross unrealized gains $140.0 $237.4 $ 4.2
Gross unrealized losses (1.1) (3.0) (141.6)
------ ------ ------
138.9 234.4 (137.4)
Deferred federal income taxes (see Note 6) 48.6 82.0 --
------ ------ ------
Net unrealized capital gains (losses) $ 90.3 $152.4 $(137.4)
====== ====== ======
27
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
6. Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna and combined Connecticut state 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 used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(thousands)
Current taxes (benefits):
Income taxes:
Federal $ 98.8 $635.2 $188.1
State (58.4) 123.4 (2.6)
Net realized capital gains (losses) (3.9) 2.9 --
------- ------ ------
36.5 761.5 185.5
------- ------ ------
Deferred tax benefits:
Federal (759.9) (549.2) (0.4)
------- ------ ------
Total $(723.4) $212.3 $185.1
======= ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(thousands)
<S> <C> <C> <C>
Income (loss) before income taxes $(1,419.2) $ 380.2 $ 533.7
Tax rate 35% 35% 35%
-------- -------- --------
Application of the tax rate (496.7) 133.1 186.8
Tax effect of:
State income tax, net of federal benefit (37.9) 80.2 (1.7)
Excludable dividends (182.0) -- --
Other, net (6.8) (1.0) --
-------- -------- --------
Income taxes (benefit) $ (723.4) $ 212.3 $ 185.1
======== ======== ========
</TABLE>
28
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
6. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1996 1995
---- ----
(thousands)
Deferred tax assets:
Insurance reserves $6,932.6 $1,054.6
Postretirement benefits other than pensions 41.7 --
Pension 52.6 --
Other 9.2 0.2
-------- --------
Total gross assets 7,036.1 1,054.8
Deferred tax liabilities:
Deferred policy acquisition costs 5,697.5 496.4
Net unrealized capital gains 48.6 82.0
Other 0.3 8.8
-------- --------
Total gross liabilities 5,746.4 587.2
-------- --------
Net deferred tax asset $1,289.7 $ 467.6
======== ========
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
29
<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
The Company utilizes the employees of Aetna and its affiliates
(primarily ALIAC). The benefit plan charges allocated to the
Company in 1996 and 1995 were immaterial. There were no charges to
the Company in 1994.
As of December 31, 1996, Aetna transferred to the Company approximately
$84.0 thousand of accrued liabilities, primarily related to the allocation
of ALIAC pension and postretirement benefit plans that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$55.0 thousand) is reported as a reduction in retained earnings.
8. Dividend Restrictions and Shareholder's Equity
The amount of dividends that may be paid to the shareholder in 1997
without prior approval by the Insurance Commissioner of the State of
Connecticut is $2.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus 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 (loss) was $(7.9) million, $378.9 thousand and $348.1 thousand
for the years ended December 31, 1996, 1995 and 1994, respectively.
Statutory capital and surplus was $23.5 million and $12.1 million as of
December 31, 1996 and 1995, respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
9. 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 $4,716.5 thousand (of which $2,728 thousand
was capitalized as deferred policy acquisition costs) and $350.0 thousand
for the years ended December 31, 1996 and 1995, respectively. There were
no charges in 1994.
30
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
9. Related Party Transactions (Continued)
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,
included in Charges Assessed Against Policyholders, amounted to $1,293
thousand and $132.7 thousand for the years ended December 31, 1996 and
1995, respectively. There were no charges assessed against policyholders
for the year ended December 31, 1994.
The Company received a capital contribution of $20.0 million in cash from
ALIAC in 1996. The Company received no capital contributions in 1995 and
1994.
Aeltus Investment Management, Inc. ("Aeltus"), a wholly owned subsidiary
of HOLDCO, was named the subadviser of all of the Company's affiliated
mutual funds and general account investments effective August 1, 1996 when
ALIAC combined 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
year ended December 31, 1996 amounted to $32.4 thousand.
10. Commitments and Contingent Liabilities
Commitments
At December 31, 1996 and 1995 the Company had no commitments or contingent
liabilities.
Litigation
The Company is not currently involved in litigation.
31
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted pursuant to General Instruction I(2) of Form 10-K .
Item 11. Executive Compensation.
Omitted pursuant to General Instruction I(2) of Form 10-K .
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted pursuant to General Instruction I(2) of Form 10-K .
Item 13. Certain Relationships and Related Transactions.
Omitted pursuant to General Instruction I(2) of Form 10-K .
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 13.
2. Financial statement schedules. See Index to Financial Statement Schedules
on Page 34.
3. Exhibits:
3(i) Certificate of Incorporation
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.
3(ii) By-Laws
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.
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.
32
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(Continued)
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 January 17, 1996.
Incorporated herein by reference to Registration Statement on Form
S-2, File No. 33-63657, as filed with the Securities and Exchange
Commission on October 25, 1995.
10 Material Contracts (Management contracts / compensatory plans or
arrangements)
The Aetna Inc. Annual Incentive Plan, incorporated by reference to
Aetna Inc.'s Registration Statement on Form S-4 (Registration
Statement No. 333-5791) filed on June 12, 1996.*
The Supplemental Pension Benefit Plan for Certain Employees of Aetna
Services, Inc., incorporated herein by reference to Aetna Services,
Inc.'s Form 10-Q filed on October 25, 1996.*
The Aetna Inc. 1996 Stock Incentive Plan, incorporated herein by
reference to Aetna Inc.'s Registration Statement on Form S-4
(Registration Statement No. 333-5791) filed on June 12, 1996.*
* Management contract or compensatory plan or arrangement.
24 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.
33
<PAGE>
Index to Financial Statement Schedules
Page
----
Independent Auditors' Report.............................................. 35
III. Supplementary Insurance Information as of and for the years
ended December 31, 1996, 1995, 1994................................ 36
Schedules other than those listed above are omitted because they are not
required or are not applicable.
34
<PAGE>
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, 1996 and 1995, 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, 1996. 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
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 20, 1997
35
<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, 1996, 1995 and 1994
(Thousands)
<TABLE>
<CAPTION>
Amortization
Deferred Policyholders' Other Income of Deferred
Policy Funds Left Net (Including Current Policy Other
Acquisition with the Investment Realized Capital and Future Acquisition Operating
Segment Costs Company Income (1) Gains and Losses) Benefits Costs Expenses
- ----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
1996 $21,057.0 $64,445.4 $1,556.9 $1,348.2 $1,651.9 $242.0 $2,430.4
- ----
----------------------------------------------------------------------------------------------------------
1995 $ 2,066.4 $ -- $ 721.0 $ 141.0 $ -- $ -- $ 481.8
- ----
----------------------------------------------------------------------------------------------------------
1994 $ -- $ -- $ 619.3 $ -- $ -- $ -- $ 85.6
- ----
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The allocation of net investment income is based upon the investment year
method or specific identification of certain portfolios within specific
segments.
36
<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 March 28, 1997 By /s/ Deborah Koltenuk
-------------- --------------------
Deborah Koltenuk
Vice President and Treasurer,
Corporate Controller 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 28, 1997.
Signature Title
* President and Director
- ------------------------ (Principal Executive Officer)
Daniel P. Kearney
* Senior Vice President and Director
- ------------------------
Laura R. Estes
* Vice President and Treasurer, Corporate
- ------------------------ Controller and Director
Deborah Koltenuk (Principal Accounting Officer)
* Vice President and Director
- ------------------------
James J. Mallozzi
*By: /s/ Maria McKeon
----------------
Maria McKeon, Corporate Secretary and Counsel
37
<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 Deborah
Koltenuk 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 1996 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 28th day of March, 1997.
Signature Title
/s/ Daniel P. Kearney President and Director
- --------------------------------- (Principal Executive Officer)
Daniel P. Kearney
/s/ Laura R. Estes Senior Vice President and Director
- ---------------------------------
Laura R. Estes
/s/ Deborah Koltenuk Vice President and Treasurer,
- --------------------------------- Corporate Controller and Director
Deborah Koltenuk (Principal Accounting Officer)
/s/ James J. Mallozzi Vice President and Director
- ---------------------------------
James J. Mallozzi
38
<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, 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 AMERICA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 24,770
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 24,770
<CASH> 51,842
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 21,057
<TOTAL-ASSETS> 404,385
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 64,445
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,550
<OTHER-SE> 28,770
<TOTAL-LIABILITY-AND-EQUITY> 404,385
0
<INVESTMENT-INCOME> 1,557
<INVESTMENT-GAINS> (11)
<OTHER-INCOME> 66
<BENEFITS> 1,652
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (1,419)
<INCOME-TAX> (723)
<INCOME-CONTINUING> (696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (696)
<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>
