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, 2000 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)
Florida 06-1286272
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
5100 West Lemon Street, Suite 213, Tampa, Florida 33609
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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.
Shares Outstanding
Title of Class at July 31, 2000
-------------- -----------------
Common Capital Stock, par value $100 1,275
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
----
PART I. FINANCIAL INFORMATION (Unaudited)
<S> <C> <C>
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..................................... 11
Item 2. Management's Analysis of the Results of Operations...................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 16
Item 5. Other Information....................................................... 17
Item 6. Exhibits and Reports on Form 8-K........................................ 17
Signature ........................................................................ 18
</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,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Charges assessed against policyholders $ 4.4 $ 3.9 $ 8.9 $ 7.4
Net investment income 2.6 2.9 5.3 5.9
Net realized capital (losses) gains (0.4) 0.1 (0.9) 0.2
Other income 0.4 0.4 0.8 0.6
-------------- -------------- -------------- --------------
Total revenue 7.0 7.3 14.1 14.1
-------------- -------------- -------------- --------------
Benefits and expenses:
Current and future benefits 1.9 2.0 3.9 4.0
Operating expenses:
Salaries and related benefits 0.3 0.8 0.5 1.5
Other 1.1 1.1 2.1 2.3
Amortization of deferred policy acquisition costs 1.3 1.1 2.8 2.1
-------------- -------------- -------------- --------------
Total benefits and expenses 4.6 5.0 9.3 9.9
-------------- -------------- -------------- --------------
Income before income taxes 2.4 2.3 4.8 4.2
Income taxes 0.8 0.8 1.6 1.4
-------------- -------------- -------------- --------------
Net income $ 1.6 $ 1.5 $ 3.2 $ 2.8
============== ============== ============== ==============
</TABLE>
See Condensed Notes to Financial Statements.
3
<PAGE>
Item 1. Financial Statements (continued)
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,
Assets 2000 1999
--------------- ---------------
<S> <C> <C>
Investments:
Debt securities, available for sale, at fair value
(amortized cost: $128.3 and $132.8) $ 123.8 $ 128.3
Equity securities, at fair value
Nonredeemable preferred stock (amortized cost: $1.0 and $1.0) 1.0 0.9
Cash and cash equivalents 38.2 22.9
Short-term investments under securities loan agreement 19.2 -
Deferred policy acquisition costs 57.2 58.8
Accrued investment income 1.9 2.0
Premiums due and other receivables 3.5 9.0
Other assets 0.7 0.6
Separate Accounts assets 1,152.5 1,194.6
--------------- ---------------
Total assets $ 1,398.0 $ 1,417.1
=============== ===============
Liabilities and Shareholder's Equity
Liabilities:
Policyholders' funds left with the Company 125.5 138.8
Payables under securities loan agreement 19.2 -
Other liabilities 13.4 6.5
Due to parent and affiliates 5.8 0.5
Income taxes:
Current 0.6 0.7
Deferred 4.0 2.6
Separate Accounts liabilities 1,152.5 1,194.6
--------------- ---------------
Total liabilities 1,321.0 1,343.7
--------------- ---------------
Shareholder's equity:
Common capital stock, par value $100 (1,275 shares
authorized, issued and outstanding) 0.1 2.5
Paid-in capital 64.9 62.5
Accumulated other comprehensive loss (1.2) (1.6)
Retained earnings 13.2 10.0
--------------- ---------------
Total shareholder's equity 77.0 73.4
--------------- ---------------
Total liabilities and shareholder's equity $ 1,398.0 $ 1,417.1
=============== ===============
</TABLE>
See Condensed Notes to Financial Statements.
4
<PAGE>
Item 1. Financial Statments (continued)
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,
2000 1999
------------- -------------
<S> <C> <C>
Shareholder's equity, beginning of period $ 73.4 $ 70.8
Comprehensive income (loss)
Net income 3.2 2.8
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities
($0.6 million and ($7.1) million, pretax) 0.4 (4.6)
------------- -------------
Total comprehensive income (loss) 3.6 (1.8)
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Shareholder's equity, end of period $ 77.0 $ 69.0
============= =============
</TABLE>
See Condensed Notes to Financial Statements.
5
<PAGE>
Item 1. Financial Statements (continued)
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,
2000 1999
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3.2 $ 2.8
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized capital losses (gains) 0.9 (0.2)
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 0.1 (0.1)
Decrease (increase) in deferred policy acquisition costs 1.6 (0.6)
Net change in amounts due to/from parent and affiliates 5.3 2.5
Net decrease in other assets and liabilities 1.5 3.7
Increase in income taxes 1.0 1.4
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Net cash provided by operating activities 13.6 9.5
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Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 31.0 6.5
Equity securities - 2.0
Investment maturities and repayments of:
Debt securites available for sale 3.4 13.6
Cost of investment purchases in:
Debt securities available for sale (27.2) (26.5)
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Net cash provided by (used for) investing activities 7.2 (4.4)
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Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 4.4 7.1
Withdrawal of investment contracts (17.7) (9.0)
Other, net 7.8 7.2
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Net cash (used for) provided by financing activities (5.5) 5.3
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Net increase in cash and cash equivalents 15.3 10.4
Cash and cash equivalents, beginning of period 22.9 16.5
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Cash and cash equivalents, end of period $ 38.2 $ 26.9
========== ===========
Supplemental cash flow information:
Income taxes paid, net $ 0.6 $ -
========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
6
<PAGE>
Item 1. Financial Statements (continued)
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. Effective January 5, 2000, the Company changed its state of
domicile from Connecticut to Florida. The Company is a wholly owned
subsidiary of Aetna Life Insurance and Annuity Company ("ALIAC"). ALIAC is
a wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO").
HOLDCO is a wholly owned subsidiary of Aetna Retirement Services, Inc.,
whose ultimate parent is Aetna Inc. ("Aetna"). The Company has one
operating segment and all revenue reported by the Company comes from
external customers.
The financial statements have been prepared in accordance with generally
accepted accounting principles and are unaudited. Certain reclassifications
have been made to 1999 financial information to conform to the 2000
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 1999 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) Recent Developments
-------------------
Agreement to sell Aetna Financial Services and Aetna International
On July 20, 2000, Aetna announced that it reached a definitive agreement to
sell its Aetna Financial Services and Aetna International businesses to ING
Groep N.V. ("ING") in a transaction valued at approximately $7.7 billion.
The Company is part of the Aetna Financial Services business and will be
included in the sale to ING. Under the terms of the agreement and in an
integrated transaction, Aetna will spin off to its shareholders the shares
of a standalone health company that will be comprised primarily of its
Aetna U.S. Healthcare and Large Case Pensions businesses. Simultaneously,
Aetna Inc., which then will be comprised of Aetna Financial Services and
Aetna International, will merge with a newly formed subsidiary of ING.
7
<PAGE>
Item 1. Financial Statements (continued)
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements (continued)
2) Recent Developments (continued)
-------------------------------
Aetna's goal is to close the transaction, which is subject to receipt of
required shareholder, regulatory, and other consents and approvals, as well
as other closing conditions, by year-end 2000. Aetna expects that it will
incur certain costs associated with the definitive agreement with ING
related to the consummation of the transaction and such costs may be
material to Aetna and the Company. The full impact of the sale to ING on
the Company's financial position and results of operations cannot be
determined at this time.
3) New Accounting Standard
-----------------------
On January 1, 2000, the Company adopted Statement of Position 98-7, Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk, issued by the American Institute of Certified
Public Accountants. This statement provides guidance on how to account for
all insurance and reinsurance contracts that do not transfer insurance
risk, except for long-duration life and health insurance contracts. The
adoption of this standard had no impact on the Company's financial position
or results of operations.
4) 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. In June 2000, further guidance related
to accounting for derivative instruments and hedging activities was
provided when the FASB issued FAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of
FASB Statement No. 133. This standard, as amended, 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, these standards are effective for the Company's
financial statements beginning January 1, 2001, with early adoption
permitted. The impact of FAS No. 133, as amended, on the Company's
financial statements will vary based on certain factors including future
interpretive guidance from the FASB, the extent of the Company's hedging
activities, the types of hedging
8
<PAGE>
Item 1. Financial Statements (continued)
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements (continued)
4) Future Accounting Standard (continued)
--------------------------
instruments used and the effectiveness of such instruments. The Company is
evaluating the impact of the adoption of this standard and currently does
not believe that this standard will have a material effect on the Company's
financial position or results of operations.
5) Additional Information - Accumulated Other Comprehensive Income (Loss)
----------------------------------------------------------------------
Changes in accumulated other comprehensive income (loss) related to changes
in unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
Six months Ended June 30,
----------------------------
(Millions) 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized holding losses arising during the period (1) $ (0.3) $ (4.5)
Less: reclassification adjustments for (losses) gains and other items
included in net income (2) (0.7) 0.1
--------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $ 0.4 $ (4.6)
==============================================================================================================
</TABLE>
(1) Pretax unrealized holding losses arising during the period were $(0.4)
million and $(6.9) million for 2000 and 1999, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $(1.0) million and $0.2 million for 2000
and 1999, respectively.
6. Shareholder's Equity
--------------------
At the time of the re-domestication of the Company to Florida, the par
value of the Company's common stock was changed from $2,000 per share to
$100 per share to comply with Florida law. This revaluation caused a $2.4
million reclassification within shareholder's equity between common capital
stock and paid-in capital.
7. Litigation
----------
In recent years, several life insurance and annuity companies have been
named as defendants in class action lawsuits relating to life insurance and
annuity pricing and sales practices. A purported class action complaint
(the "Shaner Complaint") was filed in the Circuit Court of Lauderdale
County, Alabama on March 28, 2000 by Loretta Shaner against ALIAC, the
parent of the Company, which serves as principal underwriter for the
securities sold by the Company. This case has been removed to the United
States District Court for the Northern District of Alabama. The Shaner
Complaint seeks unspecified compensatory damages from ALIAC and unnamed
affiliates of ALIAC. The Shaner Complaint claims that ALIAC's sale of
deferred
9
<PAGE>
Item 1. Financial Statements (continued)
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements (continued)
7) Litigation (continued)
----------------------
annuity products for use as investments in tax-deferred contributory
retirement plans (e.g., IRAs) is improper. This litigation is in the
preliminary stages. ALIAC intends to defend the action vigorously.
The Company is not currently involved in any other material litigation.
8) Dividends
---------
On July 18, 2000, a distribution was declared in an amount up to $2.4
million, payable no later than September 26, 2000 to ALIAC.
10
<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, 2000, and the related condensed statements of
income for the three-month and six-month periods ended June 30, 2000 and 1999
and the related condensed statements of changes in shareholder's equity and cash
flows for the six-month periods ended June 30, 2000 and 1999. 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, 1999, 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 22, 2000, 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, 1999, is fairly
presented, in all material respects, in relation to the balance sheet from which
it has been derived.
/s/ KPMG LLP
Hartford, Connecticut
August 3, 2000
11
<PAGE>
Item 2. Management's Analysis of the Results of Operations
The following analysis presents a review of the Company for the three months and
six months ended June 30, 2000 and June 30, 1999. This review should be read in
conjunction with the financial statements and other data presented herein as
well as in the "Management's Analysis of the Results of Operations" section of
the Company's 1999 Annual Report on Form 10-K.
Overview
Recent Developments
On July 20, 2000, Aetna Inc. ("Aetna"), the ultimate parent of the Company,
announced that it reached a definitive agreement to sell its Aetna Financial
Services and Aetna International businesses to ING Groep N.V. ("ING") in a
transaction valued at approximately $7.7 billion. The Company is part of the
Aetna Financial Services business and will be included in the sale to ING. Under
the terms of the agreement and in an integrated transaction, Aetna will spin off
to its shareholders the shares of a standalone health company that will be
comprised primarily of its Aetna U.S. Healthcare and Large Case Pensions
businesses. Simultaneously, Aetna, which then will be comprised of Aetna
Financial Services and Aetna International, will merge with a newly formed
subsidiary of ING.
Aetna's goal is to close the transaction, which is subject to receipt of
required shareholder, regulatory and other consents and approvals, as well as
other closing conditions, by year-end 2000. Aetna expects that it will incur
certain costs associated with the definitive agreement with ING upon
consummation of the transaction and such costs may be material to Aetna and the
Company. The full impact of the sale to ING on the Company's financial position
and results of operations cannot be predicted at this time.
12
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------
(Millions) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charges assessed against policyholders $ 4.4 $ 3.9 $ 8.9 $ 7.4
Net investment income 2.6 2.9 5.3 5.9
Net realized capital (losses) gains (0.4) 0.1 (0.9) 0.2
Other income 0.4 0.4 0.8 0.6
----------------------------------------------------------------------------------------------------------------------
Total revenue 7.0 7.3 14.1 14.1
----------------------------------------------------------------------------------------------------------------------
Current and future benefits 1.9 2.0 3.9 4.0
Operating expenses:
Salaries and related benefits 0.3 0.8 0.5 1.5
Other 1.1 1.1 2.1 2.3
Amortization of deferred policy acquisition
costs 1.3 1.1 2.8 2.1
----------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 4.6 5.0 9.3 9.9
----------------------------------------------------------------------------------------------------------------------
Income before income taxes 2.4 2.3 4.8 4.2
Income taxes 0.8 0.8 1.6 1.4
----------------------------------------------------------------------------------------------------------------------
Net income $ 1.6 $ 1.5 $ 3.2 $ 2.8
======================================================================================================================
Net realized capital (losses) gains, net of tax
(included above) $ (0.3) $ 0.1 $ (0.6) $ 0.1
======================================================================================================================
Deposits not included above:
Annuities - fixed options $ 0.7 $ 1.9 $ 1.6 $ 6.5
Annuities - variable options 2.2 4.2 5.8 15.0
----------------------------------------------------------------------------------------------------------------------
Total $ 2.9 $ 6.1 $ 7.4 $ 21.5
======================================================================================================================
Assets under management:
Annuities - fixed options (1)(2) $ 206.9 $ 233.6
Annuities - variable options (3) 1,071.1 988.8
----------------------------------------------------------------------------------------------------------------------
Total (4) $ 1,278.0 $ 1,222.4
======================================================================================================================
</TABLE>
(1) Excludes net unrealized capital losses of $4.5 million and $1.9 million at
June 30, 2000 and June 30, 1999, respectively.
(2) Includes $75.4 million and $86.1 million related to the assets supporting a
guaranteed interest option at June 30, 2000 and June 30, 1999, respectively.
(3) Includes $828.7 million and $778.0 million at June 30, 2000 and June 30,
1999, respectively, of assets invested through the Company's products in
unaffiliated mutual funds.
(4) Includes $323.9 million and $343.6 million of assets managed by Aeltus
Investment Management, Inc., an affiliate of the Company, at June 30, 2000
and June 30, 1999, respectively, and includes $125.4 million and $100.8
million of assets managed by the Company's parent, ALIAC, at June 30, 2000
and June 30, 1999, respectively.
The Company reported net income of $1.6 million and $1.5 million for the three
months ended June 30, 2000 and June 30, 1999, respectively. Excluding net
realized capital gains and losses, results for the three months ended June 30,
2000 increased $0.5 million over the corresponding period in 1999.
13
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Results of Operations (continued)
The Company reported net income of $3.2 million and $2.8 million for the six
months ended June 30, 2000 and June 30, 1999, respectively. Excluding net
realized capital gains and losses, results for the six months ended June 30,
2000 increased $1.1 million over the corresponding period in 1999.
The increases in net income excluding net realized capital gains and losses for
the three and six month periods ended June 30, 2000 are due primarily to
increased fee income from higher levels of assets under management and lower
operating expenses as a result of the Company's decision to not actively market
its annuity products to individuals. Refer to "Outlook".
As of the end of the second quarter of 2000, assets under management were 5%
higher than those at the end of the same period in 1999 primarily due to
appreciation in the stock market. Net deposits (i.e., deposits less surrenders)
decreased for the three and six month periods ended June 30, 2000 compared to
the same periods in 1999 primarily due to decreases in deposits from new
contracts resulting from the Company's decision to not actively market its
annuity products to individuals. Refer to "Outlook" below.
Outlook
As of the end of the second quarter of 2000, the Company's strategy is to
increase assets under management and improve profitability by focusing on new
distribution opportunities, primarily in Florida. As part of this strategy,
effective January 5, 2000, the Company changed its state of domicile from
Connecticut to Florida. The Company has begun to focus its marketing efforts
principally on expanding its group annuity sales 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.
Although the Company has offered annuities marketed to individuals, principally
non-qualified annuities and qualified individual retirement annuities, it is not
actively marketing these products. The Company plans, however, to continue to
make them available through dedicated agents, although some sales may be made
through brokering agents and certain banks that have selling agreements with the
Company.
General Account Investments
The Company's invested assets were comprised of the following:
<TABLE>
<CAPTION>
(Millions) June 30, 2000 December 31, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities, available for sale, at fair value $ 123.8 $ 128.3
Nonredeemable preferred stock 1.0 0.9
--------------------------------------------------------------------------------------------------------------------
Total investments $ 124.8 $ 129.2
====================================================================================================================
</TABLE>
14
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
General Account Investments (continued)
Debt Securities
At June 30, 2000 and December 31, 1999, $108.4 million (88% of total debt
securities) and $116.4 million (91% of total debt securities), respectively,
supported experience-rated contracts.
Debt securities reflected net unrealized capital losses of $4.5 million at June
30, 2000 and at December 31, 1999. Of the net unrealized capital losses at June
30, 2000, a net unrealized loss of $4.4 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 was AA- at June 30, 2000 and AA at December 31, 1999.
The percentage of total debt securities by quality rating category is as
follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------------------------------------------------------------------
<S> <C> <C>
AAA 37.1% 39.0%
AA 8.4 8.8
A 38.1 35.3
BBB 16.4 16.9
------------------------------------------------------------------------------------
100.0% 100.0%
====================================================================================
</TABLE>
The percentage of total debt securities by market sector is as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Corporate Securities 57.6% 55.8%
U.S. Treasuries/Agencies 14.7 16.5
Foreign Securities - U.S. Dollar Denominated 8.4 8.1
Residential Mortgage-Backed Securities 7.8 7.9
Commercial/Multi-family Mortgage-Backed Securities 6.9 6.8
Asset-Backed Securities 4.6 4.9
---------------------------------------------------------------------------------------------------------------------
100.0% 100.0%
=====================================================================================================================
</TABLE>
15
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Forward-Looking Information/Risk Factors
The "Forward-Looking Information/Risk Factors" portion of AICA's 1999 Annual
Report on Form 10-K and report on Form 10-Q for the quarterly period ended March
31, 2000 and the discussion below contain a discussion of important risk factors
related to the Company's businesses.
We also face certain risks related to Aetna's pending transaction with ING.
Aetna's ability to complete the pending transaction with ING is subject to,
among other things, receipt of required shareholder, regulatory and other
consents and approvals, receipt of an investment grade debt rating of either at
least BBB from Standard & Poor's or Baa2 from Moody's Investors Service for the
standalone health company (which will be influenced by the results of Aetna's
health business prior to closing of the ING transaction) and the satisfaction of
the other closing conditions specified in the transaction documents. Aetna
cannot control the timing or outcome of these consents and approvals or certain
of these other matters, which could be delayed for a variety of reasons related
and unrelated to the transaction itself. For a description of risk factors that
may materially affect the results of Aetna's health business prior to the
closing of the ING transaction, please see the risk factors contained in Aetna's
1999 report on Form 10-K and Aetna's reports on Form 10-Q for the quarterly
periods ended March 31, 2000 and June 30, 2000 filed with the SEC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In recent years, several life insurance and annuity companies have been named as
defendants in class action lawsuits relating to life insurance and annuity
pricing and sales practices. A purported class action complaint (the "Shaner
Complaint") was filed in the Circuit Court of Lauderdale County, Alabama on
March 28, 2000 by Loretta Shaner against ALIAC, the parent of the Company, which
serves as principal underwriter for the securities sold by the Company. This
case has been removed to the United States District Court for the Northern
District of Alabama. The Shaner Complaint seeks unspecified compensatory damages
from ALIAC and unnamed affiliates of ALIAC. The Shaner Complaint claims that
ALIAC's sale of deferred annuity products for use as investments in tax-deferred
contributory retirement plans (e.g., IRAs) is improper. This litigation is in
the preliminary stages. ALIAC intends to defend the action vigorously.
The Company is not currently involved in any other material litigation.
16
<PAGE>
Item 5. Other Information
Ratings
The Company's financial strength ratings at May 10, 2000 and August 9, 2000 are
as follows:
<TABLE>
<CAPTION>
Rating Agencies
-----------------------------------------------------------------------------------
Moody's Investors Standard &
A.M. Best Fitch Service Poor's
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
May 10, 2000 A AA Aa3 AA-
August 9, 2000 (1) A AA Aa3 AA-
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As a result of Aetna's announcement that it had reached a definitive
agreement to sell its Aetna Financial Services and Aetna International
businesses to ING, A. M. Best has placed the Company's rating under review
with positive implications; Fitch has placed the Company's rating on watch,
positive; Moody's Investors Service has the Company's rating on review,
upgrade; and Standard & Poor's has placed the Company's rating on
CreditWatch positive.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.
Agreement and Plan of Restructuring and Merger, dated as of July 19,
2000, among Aetna, ING America Insurance Group Holdings, Inc., ANB
Acquisition Corp. and, for limited purposes only, ING Groep N.V.,
incorporated herein by reference to Exhibit 2.1 to Aetna Inc.'s Form
10-Q filed on August 4, 2000.
(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)
August 11, 2000 By /s/ Deborah Koltenuk
------------------------------ -------------------------------------
(Date) Deborah Koltenuk
Vice President, Corporate Controller
and Assistant Treasurer
(Chief Accounting Officer)
