SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999 Commission file number
------------------
33-81010
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Aetna Insurance Company of America
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-1286272
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0123
--------------
None
- --------------------------------------------------------------------------------
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 October 29, 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
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Income.......................................... 3
Balance Sheets................................................ 4
Statements of Changes in Shareholder's Equity................. 5
Statements of Cash Flows...................................... 6
Condensed Notes to Financial Statements....................... 7
Independent Auditors' Review Report.............................. 9
Item 2. Management's Analysis of the Results of Operations............... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 17
Item 5. Other Information................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 17
Signature ................................................................. 18
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 September 30, Nine Months Ended September 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 4.0 $ 3.0 $ 11.4 $ 8.1
Net investment income 2.8 2.8 8.7 7.6
Net realized capital losses (0.4) (0.4) (0.2) (0.3)
Other income 0.4 0.2 1.0 0.5
--------------- --------------- --------------- ----------------
Total revenue 6.8 5.6 20.9 15.9
Benefits and expenses:
Current and future benefits 2.0 2.0 6.0 6.9
Operating expenses:
Salaries and related benefits 0.7 0.6 2.1 2.3
Other 1.0 1.3 3.4 2.2
Amortization of deferred policy acquisition costs 1.2 1.2 3.3 2.6
--------------- --------------- --------------- ----------------
Total benefits and expense 4.9 5.1 14.8 14.0
Income before income taxes 1.9 0.5 6.1 1.9
Income taxes 0.6 - 2.0 0.4
--------------- --------------- --------------- ----------------
Net income $ 1.3 $ 0.5 $ 4.1 $ 1.5
=============== =============== =============== ================
</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>
September 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Assets
- ------
Investments:
Debt securities, available for sale, at fair value:
(amortized cost: $141.7 and $138.2) $ 138.1 $ 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 33.8 16.5
Deferred policy acquisition costs 59.9 59.9
Accrued investment income 1.9 2.1
Premiums due and other receivables 7.4 13.3
Other assets 0.6 0.4
Separate Accounts assets 1,035.0 1,008.0
------------- ------------
Total assets $ 1,277.7 $ 1,245.5
============= ============
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Policyholders' funds left with the Company $ 142.4 $ 153.2
Other liabilities 19.4 13.3
Due to parent and affiliates 4.0 0.9
Income taxes:
Current 0.5 0.1
Deferred 2.1 0.7
Separate Accounts liabilities 1,036.8 1,006.5
------------- ------------
Total liabilities 1,205.2 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 (1.2) 1.2
Retained earnings 8.7 4.6
------------- ------------
Total shareholder's equity 72.5 70.8
------------- ------------
Total liabilities and shareholder's equity $ 1,277.7 $ 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>
Nine Months Ended September 30,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Shareholder's equity, beginning of period $ 70.8 $ 52.2
Comprehensive income
Net income 4.1 1.5
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities ($(3.7) and $0.2, pretax)(1) (2.4) 0.1
------------- -------------
Total comprehensive income 1.7 1.6
------------- -------------
Shareholder's equity, end of period $ 72.5 $ 53.8
============= =============
</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>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4.1 $ 1.5
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net amortization of discount on debt securities - (0.1)
Net realized capital losses 0.2 0.3
Changes in assets and liabilities:
Decrease in accrued investment income 0.2 0.2
Increase in deferred policy acquisition costs - (12.9)
Net change in amounts due to/from parent and affiliates 3.1 3.3
Net change in other assets and liabilities 11.4 (3.1)
Increase in income taxes 3.0 1.7
----------- ---------
Net cash provided by (used for) operating activities 22.0 (9.1)
----------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 17.1 27.8
Equity securities 2.0 -
Investment maturities and repayments of:
Debt securites available for sale 16.2 1.9
Cost of investment purchases in:
Debt securities available for sale (36.6) (30.7)
---------- ---------
Net cash used for investing activities (1.3) (1.0)
----------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 9.7 15.1
Withdrawal of investment contracts (13.1) (10.1)
----------- ---------
Net cash (used for) provided by financing activities (3.4) 5.0
----------- ---------
Net increase (decrease) in cash and cash equivalents 17.3 (5.1)
Cash and cash equivalents, beginning of period 16.5 12.5
----------- ---------
Cash and cash equivalents, end of period $ 33.8 $ 7.4
=========== =========
Supplemental cash flow information:
Income taxes received, net $ (0.9) $ (2.8)
=========== =========
</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 subsidiary of 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>
Nine Months Ended September 30,
----------------- -----------------
(Millions) 1999 1998
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during the period (1) $ (2.5) $ 0.2
Less: reclassification adjustments for amortization of net
investment discounts and gains included in net income (2) (0.1) 0.1
================================================================================================================
Net unrealized (losses) gains on securities $ (2.4) $ 0.1
================================================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the period were
$(3.9) million and $0.3 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 $0.1
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 September 30, 1999, and the related condensed
statements of income for the three-month and nine-month periods ended September
30, 1999 and 1998, and the related condensed statements of changes in
shareholder's equity and cash flows for the nine-month periods ended September
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
October 27, 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 nine months ended September 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 Nine Months Ended
September 30, September 30,
-------------------------------------------------------
(Millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Charges assessed against policyholders $ 4.0 $ 3.0 $ 11.4 $ 8.1
Net investment income 2.8 2.8 8.7 7.6
Net realized capital losses (0.4) (0.4) (0.2) (0.3)
Other income 0.4 0.2 1.0 0.5
- -------------------------------------------------------------------------------------------------------------------------
Total revenue 6.8 5.6 20.9 15.9
- -------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Current and future benefits 2.0 2.0 6.0 6.9
Operating expenses 1.7 1.9 5.5 4.5
Amortization of deferred policy acquisition costs 1.2 1.2 3.3 2.6
- -------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 4.9 5.1 14.8 14.0
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1.9 0.5 6.1 1.9
Income taxes 0.6 - 2.0 0.4
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 1.3 $ 0.5 $ 4.1 $ 1.5
=========================================================================================================================
Net realized capital losses, net of tax (included above) $ (0.3) $ (0.3) $ (0.1) $ (0.2)
=========================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------
Deposits not included above:
Annuities - fixed options $ 1.0 $ 13.9 $ 7.5 $67.2
Annuities - variable options 3.2 39.8 18.2 150.3
- -------------------------------------------------------------------------------------------------------------------------
Total $ 4.2 $ 53.7 $ 25.7 $ 217.5
=========================================================================================================================
- -------------------------------------------------------------------------------------------------------------------------
Assets under management: (1)
Annuities - fixed options (2) $ 226.5 $ 260.6
Annuities - variable options (3) 942.4 743.8
- -------------------------------------------------------------------------------------------------------------------------
Total (4) 1,168.9 $ 1,004.4
=========================================================================================================================
</TABLE>
(1) Excludes a net unrealized capital loss of $(3.6) million and a net
unrealized capital gain of $4.7 million at September 30, 1999 and 1998,
respectively.
(2) Includes $80.3 million and $111.6 million related to the assets supporting a
guaranteed interest option at September 30, 1999 and 1998, respectively.
(3) Includes $734.3 million and $581.7 million at September 30, 1999 and 1998,
respectively, of assets invested through the Company's products in
unaffiliated mutual funds.
(4) Includes $337.8 million and $347.5 million of assets managed by Aeltus
Investment Management, Inc., an affiliate of the Company, at September 30,
1999 and 1998, respectively, and includes $96.7 million and $75.2 million of
assets managed by its parent, ALIAC, at September 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 $1.3 million and $0.5 million for the three
months ended September 30, 1999 and 1998, respectively, and $4.1 million and
$1.5 million for the nine months ended September 30, 1999 and 1998,
respectively. Excluding net realized capital losses, results for the three and
nine months ended September 30, 1999 increased $0.8 million and $2.5 million
compared to the same periods a year ago due to increased fee income from higher
levels of assets under management.
Assets under management at the end of the third quarter of 1999 increased over
the same period in 1998 primarily because of appreciation in the stock market.
Deposits for the three months and nine months ended September 30, 1999 decreased
over the same periods in 1998 because of a decline in sales (see "Outlook"
below).
Outlook
Since 1990, the Company has offered group and individual products, principally
as a non-qualified annuity, a qualified individual retirement annuity (IRA) or
as a qualified contract for use with certain employer sponsored retirement
plans. Qualified contracts offered under employer retirement plans and qualified
IRAs are those that meet certain requirements of the Internal Revenue Code.
Employers sponsoring and individuals participating in these qualified retirement
plans are allowed special tax considerations.
A majority of the contracts are deferred, although a portion of the contracts
are immediate payout annuities. Although the Company is not actively marketing
these products, the Company plans to continue to make them available through
dedicated agents, although some sales, in particular the non-qualified and IRA
sales, may be made through brokering agents and certain banks that have selling
agreements with the Company.
In the third quarter of 1999, the Company began the process of changing its
state of domicile from Connecticut to Florida to take advantage of new
distribution opportunities. In the fourth quarter of 1999, the Company will
begin to focus its marketing efforts principally on expanding its group annuity
products with the offering, through dedicated agents, of contracts to public,
tax exempt and private employers sponsoring retirement plans. The Company also
plans to explore alternative methods of distribution, such as direct marketing.
General Account Investments
The Company's invested assets were comprised of the following:
<TABLE>
<CAPTION>
(Millions) September 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities, available for sale, at fair value $ 138.1 $ 142.3
Nonredeemable preferred stock 1.0 3.0
- --------------------------------------------------------------------------------------------------------------------
Total investments $ 139.1 $ 145.3
====================================================================================================================
</TABLE>
11
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
General Account Investments (continued)
Debt Securities
At September 30, 1999 and December 31, 1998, $126.0 million (91% 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 $3.6 million at
September 30, 1999 compared to net unrealized capital gains of $4.1 million at
December 31, 1998. The net unrealized capital losses at September 30, 1999
related entirely 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 September 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>
September 30, 1999 December 31, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
AAA 36.5% 38.4%
AA 9.7 8.5
A 31.6 33.5
BBB 22.2 19.6
- ------------------------------------------------------------------------------------
100.0% 100.0%
====================================================================================
</TABLE>
The percentage of total debt securities by market sector is as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Corporate Securities 58.6% 56.7%
U.S. Treasuries/Agencies 13.0 16.4
Residential Mortgage-Backed Securities 10.4 6.9
Commercial/Multifamily Mortgage-Backed Securities 6.5 7.4
Foreign Securities - U.S. Dollar Denominated 6.3 6.3
Asset-Backed Securities 5.2 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
operate successfully 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 has completed the inventory, assessment, remediation, testing and
certification of its IT systems and those of its subsidiaries, including those
of the Company.
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 has completed the
testing, remediation and certification of a significant portion of these
systems, and the remaining work will be completed by year-end 1999.
13
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Year 2000 (continued)
The Company believes that its Year 2000 project is on schedule.
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 has obtained 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 ALIAC or the Company 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 has developed 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 has developed contingency plans for
those failure scenarios it believes could have a significant impact on its or
the Company's operations. ALIAC is continuing to validate, refine and test these
plans. The scenarios ALIAC is planning for 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, reallocation of existing resources, use of alternative processes and
procedures, use of outside providers to supplement internal capabilities and use
of alternative suppliers.
Forward-Looking Information/Risk Factors
The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a
"safe harbor" for forward-looking statements, so long as (1) those statements
are identified as forward-looking and (2) the statements are accompanied by
meaningful cautionary statements that identify important factors that could
cause actual results to differ materially from those discussed in the statement.
The Company wants to take advantage of these safe harbor provisions.
Certain information contained in this Management's Analysis of the Results of
Operations is forward-looking within the meaning of the 1995 Act or SEC rules.
This information includes, but is not limited to the information that appears
under the headings "Results of Operations/Outlook" and "Year 2000." In writing
this Management's Analysis, the following words, or variations of such words and
similar expressions, were used and were intended to identify forward-looking
statements:
o Expects o Plans
o Projects o Believes
o Anticipates o Seeks
o Intends o Estimates
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to significant uncertainties and contingencies,
many of which are outside the control of the Company, that could cause actual
results to differ materially from these statements. Undue reliance should not be
placed on these forward-looking statements. The Company disclaims any intention
or obligation to update or revise forward-looking statements, whether as a
result of new information, future events or otherwise.
15
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Forward-Looking Information/Risk Factors (continued)
Set forth below are certain important risk 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.
Adverse changes in regulation could affect the operations of the Company's
businesses. The Company's businesses are subject to comprehensive regulation.
These businesses could be adversely affected by:
o increases in minimum capital and other financial viability requirements for
insurance operations.
o removal of barriers between the banking, insurance and mutual fund
businesses, such as the so-called "Gramm/Leach Act of 1999" which was
recently passed by Congress.
o changes in the taxation of insurance companies.
o changes in the tax treatment of annuity and other insurance products as well
as changes in capital gains tax rates. Certain of these changes, should they
occur, could affect the attractiveness to customers of the Company's annuity
products.
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.
16
<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 Investors Standard & Poor's
Service
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
July 28, 1999 A AA Aa3 AA-
October 27, 1999 (1) A AA Aa3 AA-
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Moody's Investors Service and Standard & Poor's have the Company's financial
strength rating on outlook negative.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA INSURANCE COMPANY OF AMERICA
----------------------------------
(Registrant)
November 12, 1999 By /s/ Deborah Koltenuk
------------------ ------------------------------
(Date) Deborah Koltenuk
Vice President, Corporate Controller
and Assistant Treasurer
(Chief Accounting Officer)
18
<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 NINE MONTHS
ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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0
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0
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