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 June 30, 1999 Commission file number 33-81010
Aetna Insurance Company of America
- --------------------------------------------------------------------------------
(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
------------------
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 July 31, 1999
- -------------- ------------------
<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.
1
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
TABLE OF CONTENTS
<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 ........................ 9
Item 2. Management's Analysis of the Results of Operations ......... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 16
Item 5. Other Information .......................................... 16
Item 6. Exhibits and Reports on Form 8-K ........................... 16
Signature ............................................................ 17
</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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 3.9 $ 2.8 $ 7.4 $ 5.1
Net investment income 2.9 2.4 5.9 4.8
Net realized capital gains 0.1 - 0.2 0.1
Other income 0.4 0.3 0.6 0.3
------- ------- ------- -------
Total revenue 7.3 5.5 14.1 10.3
Benefits and expenses:
Current and future benefits 2.0 2.9 4.0 4.9
Operating expenses 1.9 1.2 3.8 2.6
Amortization of deferred policy acquisition costs 1.1 0.6 2.1 1.4
------- ------- ------- -------
Total benefits and expenses 5.0 4.7 9.9 8.9
Income before income taxes 2.3 0.8 4.2 1.4
Income taxes 0.8 0.2 1.4 0.4
------- ------- ------- -------
Net income $ 1.5 $ 0.6 $ 2.8 $ 1.0
======= ======= ======= =======
</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>
June 30, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Assets
- ------
Investments:
Debt securities, available for sale, at fair value:
(amortized cost: $148.1 and $138.2) $ 146.2 $ 142.3
Equity securities, available for sale:
Nonredeemable preferred stock (amortized cost: $1.1 and $3.1) 1.0 3.0
Cash and cash equivalents 26.9 16.5
Deferred policy acquisition costs 60.5 59.9
Accrued investment income 2.2 2.1
Deferred income taxes 0.1 -
Income taxes receivable 0.1 -
Premiums due and other receivables 5.9 13.3
Other assets 0.4 0.4
Separate Accounts assets 1,079.5 1,008.0
--------- ---------
Total assets $ 1,322.8 $ 1,245.5
========= =========
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Policyholders' funds left with the Company $ 149.5 $ 153.2
Other liabilities 20.0 13.3
Due to parent and affiliates 3.4 0.9
Income taxes:
Current - 0.1
Deferred - 0.7
Separate Accounts liabilities 1,080.9 1,006.5
--------- ---------
Total liabilities 1,253.8 1,174.7
--------- ---------
Shareholder's equity:
Common stock, par value $2,000 (1,275 shares
authorized, issued and outstanding) 2.5 2.5
Paid-in capital 62.5 62.5
Accumulated other comprehensive (loss) income (3.4) 1.2
Retained earnings 7.4 4.6
--------- ---------
Total shareholder's equity 69.0 70.8
--------- ---------
Total liabilities and shareholder's equity $ 1,322.8 $ 1,245.5
========= =========
</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>
Six Months Ended June 30,
-------------------------
1999 1998
------- -------
<S> <C> <C>
Shareholder's equity, beginning of period $ 70.8 $ 52.2
Comprehensive (loss) income
Net income 2.8 1.0
Other comprehensive loss, net of tax:
Unrealized losses on securities ($(7.1), pretax in 1999) (1) (4.6) -
------- -------
Total comprehensive (loss) income (1.8) 1.0
------- -------
Shareholder's equity, end of period $ 69.0 $ 53.2
======= =======
</TABLE>
(1) Net of relassification adjustments
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>
Six Months Ended June 30,
-------------------------
1999 1998
------ ------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2.8 $ 1.0
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net amortization of discount on debt securities - (0.3)
------ ------
Cash flows provided by operating activities and net
realized capital gains before changes in assets and liabilities 2.8 0.7
Net realized capital gains (0.2) (0.1)
------ ------
Cash flows provided by operating activities before
changes in assets and liabilities 2.6 0.6
Changes in assets and liabilities:
(Increase) decrease in accrued investment income (0.1) 0.1
Increase in deferred policy acquisition costs (0.6) (10.1)
Net change in amounts due to/from parent and affiliates 2.5 (0.9)
Net change in other assets and liabilities 10.9 0.8
Increase in income taxes 1.4 1.2
------ ------
Net cash provided by (used for) operating activities 16.7 (8.3)
------ ------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 6.5 24.4
Equity securities 2.0 -
Investment maturities and repayments of:
Debt securites available for sale 13.6 1.3
Cost of investment purchases in:
Debt securities available for sale (26.5) (21.6)
------ ------
Net cash (used for) provided by investing activities (4.4) 4.1
------ ------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 7.1 10.5
Withdrawal of investment contracts (9.0) (6.2)
------ ------
Net cash (used for) provided by financing activities (1.9) 4.3
------ ------
Net increase in cash and cash equivalents 10.4 0.1
Cash and cash equivalents, beginning of period 16.5 12.5
------ ------
Cash and cash equivalents, end of period $ 26.9 $ 12.6
====== ======
Supplemental cash flow information:
Income taxes received, net $ - $ (2.3)
====== ======
</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 the state 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 1998 financial information to conform to the 1999
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 financial statements should be read in
conjunction with the financial statements and related notes as presented in
the Company's 1998 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. Future Accounting Standard
--------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to
record all derivatives on the balance sheet as either assets or liabilities
and measure those instruments at fair value. The manner in which companies
are to record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. As amended by FAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. The
Company is currently evaluating the impact of the adoption of this standard
and the potential effect on its financial position and results of operations.
7
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiaryof Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements (continued)
3. Additional Information - Accumulated Other Comprehensive (Loss) Income
----------------------------------------------------------------------
Changes in accumulated other comprehensive (loss) income related to changes
in unrealized losses on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
(Millions) 1999 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during the period (1) $ (4.5) $ 0.3
Less: reclassification adjustments for amortization of net
investment discounts and gains included in net income (2) 0.1 0.3
-------------------------------------------------------------------------------------------------
Net unrealized losses on securities $ (4.6) $ -
=================================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the period were
$(6.9) million and $0.4 million for 1999 and 1998, respectively.
(2) Pretax reclassification adjustments for amortization of net investment
discounts and gains included in net income were $0.2 million and $0.4
million for 1999 and 1998, respectively.
4. Litigation
----------
The Company is not currently involved in any material litigation.
8
<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 June 30, 1999, and the related condensed statements of
income for the three-month and six-month periods ended June 30, 1999 and 1998
and the related condensed statement of changes in shareholder's equity and cash
flows for the six-month periods ended June 30, 1999 and 1998. 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, 1998, 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 24, 1999, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed balance sheet as of December 31, 1998, is fairly
presented, in all material respects, in relation to the balance sheet from which
it has been derived.
/s/ KPMG LLP
Hartford, Connecticut
July 28, 1999
9
<PAGE>
Item 2. Management's Analysis of the Results of Operations
The following discussion and analysis presents a review of the Company for the
three and six months ended June 30, 1999 and 1998. This review should be read in
conjunction with the financial statements and other data presented herein as
well as the "Management's Analysis of the Results of Operations" contained in
the Company's 1998 Annual Report on Form 10-K.
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
(Millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 3.9 $ 2.8 $ 7.4 $ 5.1
Net investment income 2.9 2.4 5.9 4.8
Net realized capital gains 0.1 - 0.2 0.1
Other income 0.4 0.3 0.6 0.3
- ---------------------------------------------------------------------------------------------------------
Total revenue 7.3 5.5 14.1 10.3
- ---------------------------------------------------------------------------------------------------------
Benefits and expenses:
Current and future benefits 2.0 2.9 4.0 4.9
Operating expenses 1.9 1.2 3.8 2.6
Amortization of deferred policy acquisition costs 1.1 0.6 2.1 1.4
- ---------------------------------------------------------------------------------------------------------
Total benefits and expenses 5.0 4.7 9.9 8.9
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 2.3 0.8 4.2 1.4
Income taxes 0.8 0.2 1.4 0.4
- ---------------------------------------------------------------------------------------------------------
Net income $ 1.5 $ 0.6 $ 2.8 $ 1.0
=========================================================================================================
Net realized capital gains, net of tax (included above) $ 0.1 $ - $ 0.1 $ 0.1
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
Deposits not included above:
Annuities - Fixed Options $ 1.9 $ 24.5 $ 6.5 $ 53.4
Annuities - Variable Options 4.2 58.4 15.0 110.4
--------------------------------------------------------------------------------------------------------
Total $ 6.1 $ 82.9 $ 21.5 $ 163.8
=========================================================================================================
- ---------------------------------------------------------------------------------------------------------
Assets under management: (1)
Annuities - Fixed Options (2) $ 233.6 $ 272.6
Annuities - Variable Options (3) 988.8 782.1
- ---------------------------------------------------------------------------------------------------------
Total (4) $1,222.4 $1,054.7
=========================================================================================================
</TABLE>
(1) Excludes a net unrealized capital loss of $1.9 million and a net unrealized
capital gain of $3.8 million at June 30, 1999 and 1998, respectively.
(2) Includes $86.1 million and $124.3 million related to the assets supporting a
guaranteed interest option at June 30, 1999 and 1998, respectively.
(3) Includes $778.0 million and $616.5 million at June 30, 1999 and 1998,
respectively, of assets invested through the Company's products in
unaffiliated mutual funds.
(4) Includes $343.6 million and $351.5 million of assets managed by Aeltus
Investment Management, Inc., an affiliate of the Company, at June 30, 1999
and 1998, respectively, and includes $100.8 million and $86.7 million of
assets managed by its parent, ALIAC, at June 30, 1999 and 1998,
respectively.
10
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Results of Operations (continued)
The Company reported net income of $1.5 million and $0.6 million for the three
months ended June 30, 1999 and 1998, respectively, and $2.8 million and $1.0
million for the six months ended June 30, 1999 and 1998, respectively. Excluding
net realized capital gains, results for the three and six months ended June 30,
1999 increased $0.8 million and $1.8 million compared to the same periods a year
ago due to increased fee income from higher levels of assets under management
partially offset by increased operating expenses.
Assets under management at the end of the second quarter of 1999 increased over
the same period in 1998 primarily because of appreciation in the stock market.
Deposits for the three months and six months ended June 30, 1999 decreased over
the same periods in 1998 because of a decrease in sales (see "Outlook" below).
Outlook
The Company anticipates that, in the near term, it will stop selling certain
existing products. This will not affect contracts the Company has already
issued, as the Company will continue to maintain and accept additional
contributions into these existing contracts. However, the Company anticipates
that deposits may decrease over time.
There is a possibility that the Company will begin selling new products in the
future. If new products are marketed, it is expected that sales will increase
following any start of significant marketing of new products.
General Account Investments
The Company's invested assets were comprised of the following:
<TABLE>
<CAPTION>
(Millions) June 30, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities, available for sale, at fair value $146.2 $142.3
Nonredeemable preferred stock 1.0 3.0
- ----------------------------------------------------------------------------------------
Total investments $147.2 $145.3
========================================================================================
</TABLE>
11
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
General Account Investments (continued)
Debt Securities
At June 30, 1999 and December 31, 1998, $134.2 million (92% of the total debt
securities) and $133.4 million (94% of total debt securities), respectively,
supported experience-rated contracts.
Debt securities reflected net unrealized capital losses of $1.9 million at June
30, 1999 compared to net unrealized capital gains of $4.1 million at December
31, 1998. Of the total net unrealized capital losses at June 30, 1999, a net
unrealized capital gain of $2.0 million relates to assets supporting
experience-rated contracts.
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 June 30, 1999 and December 31, 1998 was AA- for both
periods.
The percentage of total debt securities by quality rating category is as
follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------------
<S> <C> <C>
AAA 38.4% 38.4%
AA 8.0 8.5
A 32.8 33.5
BBB 20.8 19.6
---------------------------------------
100.0% 100.0%
=======================================
</TABLE>
The percentage of total debt securities by market sector is as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------------------------------
<S> <C> <C>
U.S. Corporate Securities 56.9% 56.7%
U.S. Treasuries/Agencies 14.8 16.4
Residential Mortgage-Backed Securities 10.3 6.9
Commercial/Multifamily Mortgage-Backed
Securities 6.4 7.4
Foreign Securities - U.S. Dollar Denominated 6.0 6.3
Asset-Backed Securities 5.6 6.3
======================================
100.0% 100.0%
======================================
</TABLE>
12
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Year 2000
The Company relies heavily on information technology ("IT") systems and other
systems and facilities, such as telephones, building access control systems and
heating and ventilation equipment ("embedded systems"), to conduct its business.
The Company also has business relationships with financial institutions,
financial intermediaries, public utilities and other critical vendors, as well
as regulators and customers, who are themselves reliant on IT and embedded
systems to conduct their businesses.
State of Readiness
In 1997, the Company's ultimate parent, Aetna, organized a multi-disciplinary
Year 2000 Project Team, including outside consultants. The Year 2000 Project
Team and Aetna's businesses and subsidiaries, including the Company, have
developed and are currently executing a comprehensive plan designed to make
their mission-critical IT systems and embedded systems Year 2000 ready. Outside
consultants have reviewed Aetna's overall process, plan and progress to date.
Aetna's plan for IT systems consists of several phases: (i) inventory -
identifying all IT systems and risk rating each according to its potential
business impact; (ii) assessment - identifying IT systems that use date
functions and assessing them for Year 2000 functionality; (iii) remediation -
reprogramming, or replacing where necessary, inventoried items to make them Year
2000 ready; and (iv) testing and certification - testing the code modifications
and new inventory with other associated systems, including extensive date
testing, and performing quality assurance testing to determine if they will
successfully operate in the post-1999 environment. The Company shares the same
IT systems as its parent, ALIAC, which is addressing those systems in a manner
consistent with Aetna's plan. The following discussion, therefore, focuses on
ALIAC's and Aetna's Year 2000 program.
Aetna completed the inventory and assessment phases for substantially all of its
IT systems and those of its subsidiaries, including those of the Company, by
year-end 1997. Aetna completed the remediation, testing and certification of
substantially all of its IT systems and those of its subsidiaries, including all
of the IT systems of the Company, by June 30, 1999.
Aetna is handling substantially all aspects of the Year 2000 issue as it relates
to the Company's embedded systems. Aetna has inventoried and risk rated
substantially all of its embedded systems and those of its subsidiaries,
including those of the facilities the Company occupies. The results of these
processes indicate that embedded systems should not present a material Year 2000
risk to the Company. Aetna's remaining steps include testing selected embedded
systems and remediating and certifying systems that exhibit Year 2000 issues.
Aetna is focusing its testing and remediation efforts on select embedded systems
of its mission-critical facilities, such as data centers, service centers,
communications centers and select office locations. Aetna plans to complete the
testing of these systems by September 30, 1999, and the remediation and
certification of these systems by year-end 1999.
The Company believes that its Year 2000 project is on schedule.
13
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Year 2000 (continued)
External Relationships
The Company also faces the risk that one or more of its critical suppliers
("external relationships") will not be able to interact with the Company due to
the third party's inability to resolve its own Year 2000 issues, including those
associated with its own external relationships. ALIAC has completed its
inventory of the Company's external relationships and risk rated each external
relationship based upon the potential business impact, available alternatives
and cost of substitution. In the case of mission-critical suppliers, such as
certain banks, telecommunications providers and other utilities, mutual fund
companies, IT vendors and financial market data providers, either Aetna or ALIAC
is engaged in discussions with the third parties and is attempting to obtain
detailed information as to those parties' Year 2000 plans and state of
readiness. A significant portion of ALIAC's and the Company's critical external
relationships have informed them that they are not aware of any Year 2000
related reason that they will not be able to perform their obligations to ALIAC
and the Company in all material respects.
Year 2000 Costs
Year 2000 project costs are not allocated to the Company.
Year 2000 readiness is critical to ALIAC and the Company. ALIAC has redeployed
some resources from non-critical system enhancements to address Year 2000
issues. Due to the importance of IT systems to ALIAC's and the Company's
business, management has not deferred mission-critical systems enhancements to
become Year 2000 ready. The Company does not expect these redeployments to have
a material impact on the Company's financial condition or results of operations.
Risks and Contingency/Recovery Planning
If the Company's Year 2000 issues were unresolved, potential consequences would
include, among other possibilities, the inability to accurately and timely
update customers' accounts; process financial transactions; price securities;
bill customers; assess exposure to investment risks; determine liquidity
requirements or report accurate data to management, shareholders, customers,
regulators and others; as well as business interruptions or shutdowns; financial
losses; reputational harm; increased scrutiny by regulators; and litigation
related to Year 2000 issues. ALIAC is attempting to limit the potential impact
of the Year 2000 by monitoring the progress of its own Year 2000 project and
those of its and the Company's critical external relationships and by developing
contingency/recovery plans. ALIAC cannot guarantee that it will be able to
resolve all of its and the Company's Year 2000 issues. Any critical unresolved
Year 2000 issues at ALIAC or the Company or their external relationships,
however, could have a material adverse effect on the Company's results of
operations, liquidity or financial condition.
14
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Year 2000 (continued)
ALIAC is developing contingency/recovery plans aimed at sustaining the
continuity of critical business functions before and after December 31, 1999. As
part of its contingency planning process, ALIAC has identified reasonably
possible Year 2000 failure scenarios and is developing contingency plans for
those failure scenarios it believes could have a significant impact on its or
the Company's operations. These scenarios include, but are not limited to,
limitations on suppliers' and customers' ability to interact electronically with
ALIAC or the Company, Year 2000 related failures at key external relationships,
limitations on the ability of ALIAC's or the Company's suppliers or customers to
move funds electronically, failures in pricing securities and increased call
volumes. ALIAC's planned responses to these scenarios include, but are not
limited to, use of alternative suppliers, use of outside providers to supplement
internal capabilities and reallocation of existing resources.
ALIAC has completed its high level contingency plans for itself and the Company
and is continuing to review and refine the detailed plans it has developed.
ALIAC expects contingency/recovery planning to be substantially complete by
September 1999.
Forward-Looking Information/Risk Factors
Refer to "Forward-Looking Information/Risk Factors" in the Company's 1998 Annual
Report on Form 10-K for factors that could cause actual Year 2000 results to
differ from ALIAC's and the Company's expectations. The "Forward-Looking
Information/Risk Factors" portion of that Annual Report also contains a general
discussion of other important risks related to the Company's businesses.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently involved in any material litigation.
Item 5. Other Information
Ratings
The Company's claims paying/financial strength ratings are as follows:
<TABLE>
<CAPTION>
Rating Agencies
--------------------------------------------------------------
A.M. Best Duff & Phelps Moody's Standard &
Investors Poor's
Service
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April 27, 1999 A AA Aa3 AA-
July 28, 1999 (1) A AA Aa3 AA-
- -----------------------------------------------------------------------------------
</TABLE>
(1) Moody's Investors Service and Standard and Poor's currently have the
Company's financial strength rating on outlook negative.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10) Material Contracts
10.1 The Aetna Services, Inc. Supplemental Pension Benefit Plan
Amended and Restated as of January 1, 1999 incorporated herein by
reference to Aetna Inc.'s Form 10-Q filed on July 29, 1999. *
10.2 The Aetna Services, Inc. Supplemental Incentive Savings Plan
Amended and Restated as of January 1, 1999 incorporated herein by
reference to Aetna Inc.'s Form 10-Q filed on July 29, 1999. *
10.3 Employment Agreement, dated as of April 6, 1999, by and between
the Company and Thomas J. McInerney incorporated herein by
reference to Aetna Inc.'s Form 10-Q filed on July 29, 1999. *
* Management contract or compensatory plan or arrangement.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA INSURANCE COMPANY OF AMERICA
----------------------------------
(Registrant)
August 12, 1999 By /s/ Deborah Koltenuk
- ---------------- -------------------------------------
(Date) Deborah Koltenuk
Vice President, Corporate Controller
and Assistant Treasurer
(Chief Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATMENTS CONTAINED IN THE FORM 10-Q FOR THE SIX MONTHS
ENDED JUNE 30, 1999 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
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 146
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 147
<CASH> 27
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 61
<TOTAL-ASSETS> 1,323
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 150
<NOTES-PAYABLE> 0
0
0
<COMMON> 3
<OTHER-SE> 66
<TOTAL-LIABILITY-AND-EQUITY> 1,323
0
<INVESTMENT-INCOME> 6
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 1
<BENEFITS> 4
<UNDERWRITING-AMORTIZATION> 2
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4
<INCOME-TAX> 1
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-BASIC> 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>
