SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 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 April 27, 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.
<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............................................ 10
Item 2. Management's Analysis of the Results of Operations............................. 11
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 March 31,
----------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Revenues:
Charges assessed against policyholders $ 4.5 $ 3.5
Net investment income 2.7 3.0
Net realized capital (losses) gains (0.5) 0.1
Other income 0.4 0.2
---------------- ----------------
Total revenue 7.1 6.8
---------------- ----------------
Benefits and expenses:
Current and future benefits 2.0 2.0
Operating expenses:
Salaries and related benefits 0.2 0.7
Other 1.0 1.2
Amortization of deferred policy acquisition costs 1.5 1.0
---------------- ----------------
Total benefits and expenses 4.7 4.9
---------------- ----------------
Income before income taxes 2.4 1.9
Income taxes 0.8 0.6
---------------- ----------------
Net income $ 1.6 $ 1.3
================ ================
</TABLE>
See Condensed Notes to Financial Statements.
3
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 2000 1999
- ------ ---------------- ----------------
<S> <C> <C>
Investments:
Debt securities, available for sale, at fair value:
(amortized cost: $133.4 and $132.8) $ 129.6 $ 128.3
Equity securities, at fair value:
Nonredeemable preferred stock (amortized cost: $1.0 and $1.0) 0.9 0.9
Cash and cash equivalents 33.4 22.9
Short-term investments under securities loan agreement 21.3 -
Deferred policy acquisition costs 57.9 58.8
Accrued investment income 1.8 2.0
Premiums due and other receivables 0.3 9.0
Other assets 0.4 0.6
Separate Accounts assets 1,225.9 1,194.6
---------------- ---------------
Total assets $ 1,471.5 $ 1,417.1
================ ================
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Policyholders' funds left with the Company 135.1 138.8
Payables under securities loan agreement 21.3 -
Other liabilities 6.1 6.5
Due to parent and affiliates 3.7 0.5
Income taxes
Current 1.0 0.7
Deferred 3.2 2.6
Separate Accounts liabilities 1,225.9 1,194.6
---------------- ----------------
Total liabilities 1,396.3 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 (1.4) (1.6)
Retained earnings 11.6 10.0
---------------- ----------------
Total shareholder's equity 75.2 73.4
---------------- ----------------
Total liabilities and shareholder's equity $ 1,471.5 $ 1,417.1
================ ================
</TABLE>
See Condensed Notes to Financial Statements.
4
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Shareholder's equity, beginning of period $ 73.4 $ 70.8
Comprehensive income
Net income 1.6 1.3
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
($0.3 million and ($1.1) million, pretax) 0.2 (0.8)
-------------- --------------
Total comprehensive income 1.8 0.5
-------------- --------------
Shareholder's equity, end of period $ 75.2 $ 71.3
============== ==============
</TABLE>
See Condensed Notes to Financial Statements.
5
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1.6 $ 1.3
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net realized capital losses (gains) 0.5 (0.1)
Changes in assets and liabilities:
Decrease in accrued investment income 0.2 0.3
Decrease (increase) in deferred policy acquisition costs 0.9 (1.1)
Net change in amounts due to/from parent and affiliates 3.2 0.7
Net decrease in other assets and liabilities (0.8) 1.4
Increase in income taxes 0.8 0.6
-------- --------
Net cash provided by operating activities 6.4 3.1
-------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 16.3 4.5
Investment maturities and repayments of:
Debt securities available for sale 2.6 8.0
Cost of investment purchases in:
Debt securities available for sale (18.3) (12.6)
-------- --------
Net cash provided by (used for) investing activities 0.6 (0.1)
-------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 2.3 4.1
Withdrawal of investment contracts (6.7) (5.0)
Other, net 7.9 2.2
-------- --------
Net cash provided by financing activities 3.5 1.3
-------- --------
Net increase in cash and cash equivalents 10.5 4.3
Cash and cash equivalents, beginning of period 22.9 16.5
-------- --------
Cash and cash equivalents, end of period $ 33.4 $ 20.8
======== ========
Supplemental cash flow information:
Income taxes paid, net $ 0.3 $ 0.1
======== ========
</TABLE>
See Condensed Notes to Financial Statements.
6
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements
1. Basis of Presentation
---------------------
Aetna Insurance Company of America (the "Company") is a stock life
insurance company organized in 1990 under the insurance laws of 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
-------------------
On March 12, 2000, Aetna announced that it plans to separate its health and
financial services businesses into two independent publicly-traded
companies (the "Separation"). One company will consist of Aetna's health
and group life and disability businesses that comprise its Aetna U.S.
Healthcare segment, Aetna's Large Case Pensions segment and the health
businesses reported in the Aetna International segment, excluding any of
Aetna International's health businesses that are sold prior to the
Separation. The other company will consist of Aetna's financial services
businesses that comprise its Aetna Financial Services segment and the
financial services businesses reported in its Aetna International segment,
excluding any of Aetna International's financial services businesses that
are sold prior to the Separation. The Company is currently part of the
Aetna Financial Services segment and will be part of the financial services
company after the Separation.
7
<PAGE>
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 has stated its intention to complete the Separation as soon as
it can be achieved in an orderly manner, with the goal of completing the
Separation by year end 2000. However, completion of the Separation remains
subject to a number of conditions, including final approval by Aetna's
Board of Directors. These conditions also include obtaining regulatory
approvals and satisfying certain tax and other legal requirements. The full
impact of the Separation on the Company's financial position, results of
operations and cash flows cannot be predicted 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. 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
impact of FAS No. 133 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
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.
8
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Condensed Notes to Financial Statements (continued)
5. Additional Information - Accumulated Other Comprehensive Income (Loss)
----------------------------------------------------------------------
Changes in accumulated other comprehensive income (loss) related to changes
in unrealized losses on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
Three months Ended March 31,
----------------------------
(Millions) 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrealized holding losses arising during the period (1) $ (0.2) $ (0.7)
Less: reclassification adjustments for (losses) gains included in net
income (2) (0.4) 0.1
----------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $ 0.2 $ (0.8)
================================================================================================================
(1) Pretax unrealized holding losses arising during the period were $(0.3)
million and $(1.0) million for 2000 and 1999, respectively.
(2) Pretax reclassification adjustments for (losses) gains included in net
income were $(0.6) million and $0.1 million for 2000 and 1999,
respectively.
</TABLE>
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 lawsuits, including 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. On April 27, 2000, the
case was 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.
9
<PAGE>
Independent Auditors' Review Report
The Board of Directors
Aetna Insurance Company of America:
We have reviewed the accompanying condensed balance sheet of Aetna Insurance
Company of America as of March 31, 2000, and the related condensed statements of
income, changes in shareholder's equity and cash flows for the three-month
periods ended March 31, 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
April 26, 2000
10
<PAGE>
Item 2. Management's Analysis of the Results of Operations
The following analysis presents a review of the Company for the three months
ended March 31, 2000 and March 31,1999. 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 January 5, 2000, the Company changed its state of domicile from Connecticut
to Florida. Refer to "Outlook" in this Report.
On March 12, 2000, Aetna Inc. ("Aetna"), the ultimate parent of the Company,
announced that it plans to separate its health and financial services businesses
into two independent publicly-traded companies (the "Separation"). One company
will consist of Aetna's health and group life and disability businesses that
comprise its Aetna U.S. Healthcare segment, Aetna's Large Case Pensions segment
and the health businesses reported in its Aetna International segment, excluding
any of Aetna International's health businesses that are sold prior to the
Separation. The other company will consist of Aetna's financial services
businesses that comprise its Aetna Financial Services segment and the financial
services businesses reported in its Aetna International segment, excluding any
of Aetna International's financial services businesses that are sold prior to
the Separation. The Company is currently part of the Aetna Financial Services
segment and will be part of the financial services company after the Separation.
Aetna has stated its intention to complete the Separation as soon as it can be
achieved in an orderly manner, with the goal of completing the Separation by
year end 2000. However, completion of the Separation remains subject to a number
of conditions, including final approval by Aetna's Board of Directors. These
conditions also include obtaining regulatory approvals and satisfying certain
tax and other legal requirements. The full impact of the Separation on the
Company's financial position, results of operations and cash flows cannot be
predicted at this time.
11
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Millions) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charges assessed against policyholders $ 4.5 $ 3.5
Net investment income 2.7 3.0
Net realized capital (losses) gains (0.5) 0.1
Other income 0.4 0.2
- ---------------------------------------------------------------------------------------------------------------------
Total revenue 7.1 6.8
- ---------------------------------------------------------------------------------------------------------------------
Current and future benefits 2.0 2.0
Operating expenses:
Salaries and related benefits 0.2 0.7
Other 1.0 1.2
Amortization of deferred policy acquisition costs 1.5 1.0
- ---------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 4.7 4.9
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 2.4 1.9
Income taxes 0.8 0.6
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1.6 $ 1.3
=====================================================================================================================
Net realized capital (losses) gains, net of tax (included above) $ (0.3) $ 0.1
=====================================================================================================================
Deposits not included above:
Annuities - fixed options $ 0.9 $ 4.6
Annuities - variable options 3.6 10.8
- ---------------------------------------------------------------------------------------------------------------------
Total $ 4.5 $ 15.4
=====================================================================================================================
Assets under management:
Annuities - fixed options (1)(2) $ 216.9 $ 239.3
Annuities - variable options (3) 1,149.5 932.1
- ---------------------------------------------------------------------------------------------------------------------
Total (4) $ 1,366.4 $ 1,171.4
=====================================================================================================================
</TABLE>
(1) Excludes net unrealized capital losses of $3.8 million at March 31, 2000
and net unrealized capital gains of $1.8 million at March 31, 1999.
(2) Includes $76.9 million and $90.8 million related to the assets supporting a
guaranteed interest option at March 31, 2000 and March 31, 1999,
respectively.
(3) Includes $901.2 million and $723.2 million at March 31, 2000 and March 31,
1999, respectively, of assets invested through the Company's products in
unaffiliated mutual funds.
(4) Includes $334.1 million and $356.6 million of assets managed by Aeltus
Investment Management, Inc., an affiliate of the Company, at March 31, 2000
and March 31, 1999, respectively, and includes $131.1 million and $91.6
million of assets managed by the Company's parent, ALIAC, at March 31, 2000
and March 31,1999, respectively.
12
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
Results of Operations (continued)
The Company reported net income of $1.6 million and $1.3 million for the three
months ended March 31, 2000 and March 31, 1999, respectively. Excluding net
realized capital gains and losses, results for the three months ended March 31,
2000 increased $0.7 million over the corresponding period in 1999 due primarily
to increased fee income from higher levels of assets under management.
As of the end of the first quarter of 2000, assets under management were 17%
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, including new
contracts, less surrenders) decreased for the three months ended March 31, 2000
compared to the same period in 1999 primarily due to decreases in deposits from
new contracts. The decrease in deposits from new contracts occurred because the
Company was not actively marketing its annuity products to individuals (see
"Outlook" below).
Outlook
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) March 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities, available for sale, at fair value $ 129.6 $ 128.3
Nonredeemable preferred stock 0.9 0.9
- --------------------------------------------------------------------------------------------------------------------
Total investments $ 130.5 $ 129.2
====================================================================================================================
</TABLE>
13
<PAGE>
Item 2. Management's Analysis of the Results of Operations (continued)
General Account Investments (continued)
Debt Securities
At March 31, 2000 and December 31, 1999, $118.3 million (91% of total debt
securities) and $126.1 million (98% of total debt securities), respectively,
supported experience-rated contracts.
Debt securities reflected net unrealized capital losses of $3.8 million at March
31, 2000 and $4.5 million at December 31, 1999. Of the net unrealized capital
losses at March 31, 2000, a net unrealized loss of $3.7 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 March 31, 2000 and December 31, 1999.
The percentage of total debt securities by quality rating category is as
follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 37.8% 39.0%
AA 6.6 8.8
A 38.3 35.3
BBB 17.3 16.9
- --------------------------------------------------------------------------------
100.0% 100.0%
================================================================================
</TABLE>
The percentage of total debt securities by market sector is as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Corporate Securities 57.1% 55.8%
U.S. Treasuries/Agencies 15.7 16.5
Foreign Securities - U.S. Dollar Denominated 8.1 8.1
Residential Mortgage-Backed Securities 7.9 6.8
Commercial/Multifamily Mortgage-Backed Securities 6.6 7.9
Asset-Backed Securities 4.6 4.9
- ---------------------------------------------------------------------------------------------------------------------
100.0% 100.0%
=====================================================================================================================
</TABLE>
14
<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 contains a discussion of important risk factors related to
the Company's businesses.
We also face certain risks related to Aetna's pending Separation into
independent health and wealth businesses. The full impact of the Separation on
the Company's financial position, results of operations and cash flows cannot be
predicted at this time.
Aetna's ability to complete the Separation is subject to, among other things,
receipt of required regulatory approvals and satisfaction of certain tax and
other legal requirements. Aetna cannot control the timing of those matters.
Completion of the Separation, therefore, could be delayed beyond the end of
2000, which could, among other things, increase the cost to Aetna of
implementing the Separation. It cannot yet be determined how this delay could
affect us.
Uncertainty resulting from Aetna's March 12, 2000 announcement of the Separation
may negatively influence our customers' and potential customers' decisions to
select the Company's products and/or services, which could have an adverse
effect on our results of operations and otherwise adversely affect us.
In order for us to achieve the benefits we expect from the Separation, including
improved performance, Aetna must be able to, among other things, successfully
separate its businesses in a manner that does not significantly increase overall
expenses for the financial services company while at the same time replicate in
the financial services company the functions that currently are performed in
Aetna's Corporate segment.
Recent regulatory developments could adversely affect our businesses. As
described in the Company's 1999 Annual Report on Form 10-K, additional
legislation or regulation related to our businesses has been enacted or is being
considered by the federal government and many states and this could adversely
impact our operations and results of operations. It is uncertain whether we can
recoup, through higher fees, premiums or other measures, the increased costs
that may result from these types of legislation.
For example, President Clinton has signed the Gramm-Leach-Bliley Act (the "GLB
Act"), which permits affiliations among banks, insurance companies and
securities firms. The GLB Act may have competitive, operational, financial and
other implications for us. In particular, the GLB Act includes privacy
protections requiring all financial services providers to disclose their privacy
policies and restrict the sharing of personal information for marketing
purposes. Various states are considering even more restrictive privacy measures
that could potentially affect our operations and results of operations.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including 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. On April 27, 2000, the case was 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.
Item 5. Other Information
Ratings
The Company's financial strength ratings at March 22, 2000 and May 10, 2000 are
as follows:
<TABLE>
<CAPTION>
Rating Agencies
--------------------------------------------------------------------------------
Moody's Standard &
A.M. Best Duff & Phelps Investors Service Poor's
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 22, 2000 A AA Aa3 AA-
May 10, 2000 (1) A AA Aa3 AA-
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A. M. Best has placed the Company's rating under review with developing
implications. Duff & Phelps Credit Rating Company has placed the Company's
rating on "Rating Watch-Uncertain". Moody's Investors Service has the
Company's rating on review, direction uncertain. Standard & Poor's has the
Company's rating on Credit Watch with developing implications.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(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)
May 12, 2000 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 statements contained in the Form 10-Q for the three
months ended March 31, 2000 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> 3-Mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 130
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 131
<CASH> 33
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 58
<TOTAL-ASSETS> 1,472
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 135
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
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0
<INVESTMENT-INCOME> 3
<INVESTMENT-GAINS> (1)
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<INCOME-PRETAX> 3
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2
<EPS-BASIC> 0
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<PROVISION-PRIOR> 0
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</TABLE>
