SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998 Commission file number 33-81010
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Aetna Insurance Company of America
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(Exact name of registrant as specified in its charter)
Connecticut 06-1286272
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0123
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None
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Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding
Title of Class at April 30, 1998
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<S> <C>
Common Capital Stock,
par value $2,000 1,275
</TABLE>
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Income ............................... 3
Balance Sheets ..................................... 4
Statements of Changes in Shareholder's Equity ...... 5
Statements of Cash Flows ........................... 6
Condensed Notes to Financial Statements ............ 7
Independent Auditors' Review Report ................... 8
Item 2. Management's Analysis of the Results of Operations ..... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 11
Item 5. Other Information ...................................... 11
Item 6. Exhibits and Reports on Form 8-K ...................... 11
Signatures ........................................................ 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
Revenue:
Charges assessed against policyholders $ 2.3 $ 0.9
Net investment income 2.4 1.3
Net realized capital gains 0.1 --
------------ ------------
Total revenue 4.8 2.2
Benefits and expenses:
Current and future benefits 2.0 1.2
Operating expenses 1.4 1.0
Amortization of deferred policy acquisition costs 0.8 0.3
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Total expenses 4.2 2.5
Income (loss) before income taxes (benefits) and
cumulative effect adjustment 0.6 (0.3)
Income taxes (benefits) 0.2 (0.1)
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Income (loss) before cumulative effect adjustment 0.4 (0.2)
Cumulative effect adjustment, net of tax -- 0.5
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Net income (loss) $ 0.4 $ (0.7)
============ ============
</TABLE>
See Condensed Notes to Financial Statements.
3
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Assets
Investments:
Debt securities, available for sale, at fair value:
(amortized cost: $135.8 and $135.9) $ 139.3 $ 137.9
Cash and cash equivalents 3.7 12.5
Deferred policy acquisition costs 50.5 45.4
Accrued investment income 1.8 2.0
Deferred tax asset 1.6 2.1
Income taxes receivable 0.5 1.4
Other assets 7.7 2.5
Other receivables 3.6 --
Separate Accounts assets 823.6 676.7
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Total assets $ 1,032.3 $ 880.5
============== =============
Liabilities and Shareholder's Equity
Liabilities:
Policyholders' funds left with the Company $ 149.2 $ 145.6
Other liabilities 5.3 5.2
Due to parent and affiliates 1.6 0.8
Separate Accounts liabilities 823.6 676.7
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Total liabilities 979.7 828.3
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Shareholder's equity:
Common capital stock, par value $2,000 (1,275 shares
authorized, issued and outstanding) 2.5 2.5
Paid-in capital 47.5 47.5
Accumulated other comprehensive income 0.2 0.2
Retained earnings 2.4 2.0
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Total shareholder's equity 52.6 52.2
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Total liabilities and shareholder's equity $ 1,032.3 $ 880.5
=============== =============
</TABLE>
See Condensed Notes to Financial Statements.
4
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1998 1997
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<S> <C> <C>
Shareholder's equity, beginning of period $ 52.2 $ 31.3
Comprehensive income (loss)
Net income (loss) 0.4 (0.7)
Other comprehensive loss, net of tax
Unrealized losses on securities ($.0 and
($.1) pretax, respectively) -- (0.1)
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Total comprehensive income (loss) 0.4 (0.8)
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Other changes -- (0.3)
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Shareholder's equity, end of period $ 52.6 $ 30.2
============= =============
</TABLE>
See Condensed Notes to Financial Statements.
5
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 0.4 $ (0.7)
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Decrease (increase) in accrued investment income 0.2 (0.7)
Increase in other receivables (0.5) --
Increase in deferred policy acquisition costs (5.1) (5.1)
Net change in amounts due to/from parent and affiliates 0.8 --
Net (decrease) increase in other assets and liabilities (2.1) 3.1
Net (decrease) increase in income taxes (0.2) 0.9
Net amortization of discount on debt securities (0.2) (0.1)
Net realized capital gains (0.1) --
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Net cash used for operating activities (6.8) (2.6)
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Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 1.3 7.9
Investment maturities and repayments of:
Debt securites available for sale 0.6 0.3
Cost of investment purchases in:
Debt securities available for sale (6.0) (49.5)
Short-term investments -- (1.0)
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Net cash used for investing activities (4.1) (42.3)
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Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 5.7 20.5
Withdrawal of investment contracts (3.6) (0.5)
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Net cash provided by financing activities 2.1 20.0
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Net decrease in cash and cash equivalents (8.8) (25.0)
Cash and cash equivalents, beginning of period 12.5 51.8
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Cash and cash equivalents, end of period $ 3.7 $ 26.8
========== ==========
Supplemental cash flow information:
Income taxes received, net $ (1.3) $ (1.1)
========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
6
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and
Annuity Company)
Condensed Notes to Financial Statements
1. Basis of Presentation
---------------------
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of Connecticut and is a
wholly owned subsidiary of Aetna Life Insurance and Annuity Company
("ALIAC"). ALIAC is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The financial statements have been prepared in accordance with generally
accepted accounting principles and are unaudited. Certain reclassifications
have been made to 1997 financial information to conform to the 1998
presentation. These interim statements necessarily rely heavily on
estimates, including assumptions as to annualized tax rates. In the opinion
of management, all adjustments necessary for a fair statement of results for
the interim periods have been made. All such adjustments are of a normal,
recurring nature. The accompanying condensed financial statements should be
read in conjunction with the financial statements and related notes as
presented in the Company's 1997 Annual Report on Form 10-K. Certain
financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles, but that is not required for interim reporting purposes, has
been condensed or omitted.
2. Additional Information - Accumulated Other Comprehensive Income
---------------------------------------------------------------
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience rated contractholders) were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
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(Millions) 1998 1997
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<S> <C> <C>
Unrealized holding gains arising during the period (1) $ .2 $ -
Less: reclassification adjustment for gains and other items
included in net income (loss) (2) .2 .1
-------------------------------------------------------------------------------------------------------------
Net unrealized losses on securities $ - $ (.1)
=============================================================================================================
</TABLE>
(1) Pretax unrealized holding gains arising during the period were
$.3 million for 1998. There were no unrealized
holding gains or losses during 1997.
(2) Pretax reclassification adjustments for gains and other items
included in net income were $.3 million and $.1 million for 1998 and
1997, respectively.
3. Litigation
----------
The Company is not currently involved in any material litigation.
7
<PAGE>
Independent Auditors' Review Report
The Board of Directors
Aetna Insurance Company of America:
We have reviewed the accompanying condensed balance sheet of Aetna Insurance
Company of America as of March 31, 1998, and the related condensed statements of
income, changes in shareholder's equity and cash flows for the three-month
periods ended March 31, 1998 and 1997. These condensed financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Aetna Insurance Company of America as of
December 31, 1997, and the related statements of income, changes in
shareholder's equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 25, 1998, we expressed an unqualified
opinion on those financial statements. Our report refers to a change in method
for accounting for guaranty-fund and other insurance related assessments in
1997. In our opinion, the information set forth in the accompanying condensed
balance sheet as of December 31, 1997, is fairly presented, in all material
respects, in relation to the balance sheet from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
May 5, 1998
Hartford, Connecticut
8
<PAGE>
Item 2. Management's Analysis of the Results of Operations
Results of Operations
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
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(Millions) 1998 1997
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<S> <C> <C>
Charges assessed against policyholders $ 2.3 $ .9
Net investment income 2.4 1.3
Net realized capital gains .1 --
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Total revenue 4.8 2.2
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Current and future benefits 2.0 1.2
Operating expenses 1.4 1.0
Amortization of deferred policy acquisition costs .8 .3
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Total benefits and expenses 4.2 2.5
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Income (loss) before income taxes (benefits) and
cumulative effect adjustment .6 (.3)
Income taxes (benefits) .2 (.1)
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Income (loss) before cumulative effect
adjustment .4 (.2)
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Cumulative effect adjustment, net of tax -- .5
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Net income (loss) $ .4 $ (.7)
=====================================================================================================================
Net realized capital gains, net of tax (included
above) $ .1 $ --
=====================================================================================================================
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Deposits not included above:
Annuities - Fixed Options $ 28.9 $ 30.2
Annuities - Variable Options 52.0 59.3
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Total $ 80.9 $ 89.5
=====================================================================================================================
Assets under management: (1)
Annuities - Fixed Options (2) $ 273.9 $ 171.0
Annuities - Variable Options (3) 690.1 283.5
- ---------------------------------------------------------------------------------------------------------------------
Total $ 964.0 $ 454.5
=====================================================================================================================
</TABLE>
(1) Excludes net unrealized capital gains of $3.5 million and $1.4 million at
March 31, 1998 and 1997, respectively.
(2) Includes $127.0 million and $86.4 million related to the assets supporting
a guaranteed interest option at March 31, 1998 and 1997, respectively.
(3) Includes $548.4 million and $262.4 million at March 31, 1998 and 1997,
respectively, of assets invested through the Company's products in
unaffiliated mutual funds.
The Company reported net income of $.4 million for the three months ended March
31, 1998 after reporting a loss for the same period a year ago. The net loss
reported for the three months ended March 31, 1997 has been restated to include
a charge for a cumulative effect adjustment, net of tax of $.5 million related
to a change in the accounting for guaranty fund and other insurance related
assessments. Excluding net realized capital gains and the 1997 cumulative effect
adjustment, the Company would have reported net income of $.3 million for the
three months ended March 31, 1998 compared to a net loss of $.2 million for the
same period a year ago. First quarter results continue to reflect significant
increases in revenues and expenses associated with the growth of the Company's
business operations. Despite this growth in new business, the
9
<PAGE>
Company has been able to contain the growth in expenses at a lower rate than the
growth in its revenues. Assets under management increased by $509 million, or
112%, primarily due to additional net deposits (deposits less surrenders) and
appreciation in the stock market.
General Account Investments
- ---------------------------
The Company's general account invested assets were comprised entirely of debt
securities available for sale with a fair value of $139.3 million and $137.9
million at March 31, 1998 and December 31, 1997, respectively.
At March 31, 1998 and December 31, 1997, $130.6 million and $129.3 million,
respectively, (or 94% for both periods) of total debt securities supported
experienced rated products.
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 at March 31, 1998 and December 31, 1997 was AA- for both
periods.
The percent of total debt securities investments by quality ratings is as
follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------------------------------------------------
<S> <C> <C>
AAA 51.0% 49.6%
AA 6.6 6.0
A 25.4 26.2
BBB 17.0 17.7
B & Below -- 0.5
-------------------------------------------------------
100.0% 100.0%
=======================================================
</TABLE>
The percent of total debt securities investments by market sector is as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------------------------------------------------
<S> <C> <C>
U.S. Corporate Securities 41.7% 41.5%
U.S. Treasuries/Agencies 30.0 28.2
Foreign Securities - U.S. Dollar Denominated 7.4 8.9
Asset-Backed Securities 7.3 7.7
Residential Mortgage-Backed Securities 7.4 7.4
Commercial/Multifamily Mortgage-
Backed Securities 6.2 6.3
-------------------------------------------------------
100.0% 100.0%
=======================================================
</TABLE>
Year 2000
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See "Year 2000" in the Company's 1997 Report on Form 10-K.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently involved in any material legal proceedings.
Item 5. Other Information
Ratings
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The Company's ratings are as follows:
<TABLE>
<CAPTION>
Rating Agencies
--------------------------------------------------------------------
A.M. Best Duff & Moody's Standard &
(1) Phelps (2) Investor Poor's (2)
Service (2)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Claims paying rating on
February 4, 1997 A+ AA+ Aa2 AA-
Claims paying rating on
May 6, 1998 A+ AA+ Aa3 AA-
(1) Rating on review.
(2) Rating on credit watch or review for possible downgrade.
</TABLE>
On the heels of the announcement of Aetna's pending acquisition of New York Life
Insurance Company's NYLCare health plans business, as is typical standard
operating procedures, all of Aetna's ratings were placed on credit watch, until
the rating agencies could do further analysis of the transaction.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10) Material Contracts.
Amendment dated as of February 27, 1998 to the Aetna Inc. 1996 Stock
Incentive Plan, incorporated by reference to Aetna Inc.'s Form 10-Q,
as filed electronically on May 6, 1998 (Accession No.
0000950123-98-004554).
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA INSURANCE COMPANY OF AMERICA
----------------------------------
(Registrant)
May 13, 1998 By /s/ Deborah Koltenuk
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(Date) Deborah Koltenuk
Vice President and Treasurer, Corporate Controller
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements contained in the Form 10-Q for the three months
ended March 31, 1998 for the 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> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 139
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 139
<CASH> 4
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 51
<TOTAL-ASSETS> 1,032
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 149
<NOTES-PAYABLE> 0
0
0
<COMMON> 3
<OTHER-SE> 50
<TOTAL-LIABILITY-AND-EQUITY> 1,032
0
<INVESTMENT-INCOME> 2
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 2
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<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>
