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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission file numbers:
33-62953, 33-88360, 33-89676, 33-91400, 333-00995, 333-02867,
333-24989, 333-25733, 333-25761, 333-26695 and 333-51896
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Incorporated in the State of Connecticut
Connecticut 06-1241288
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Corporate Drive, Shelton, Connecticut 06484
- -- -------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code: (203) 926-1888
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
---
As of March 30, 2001, there were 25,000 shares of outstanding common stock, par value $100 per share, of the
registrant, consisting of 100 shares of voting and 24,900 shares of non-voting all of which were owned by American
Skandia, Inc., a wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation.
PART I
Item 1. BUSINESS
General
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American Skandia Life Assurance Corporation ("the Company"), with its principal offices in Shelton, Connecticut, is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI"), whose ultimate parent is Skandia Insurance Company Ltd.
("SICL"), a Swedish corporation. The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida")
which is a life insurance company domiciled in Mexico.
The Company was established in 1988 and is one of the largest providers of variable annuity contracts for the
individual market in the United States during 2000, according to Info-One's Variable Annuity Research & Data Service
("VARDS") and also offers variable life insurance and fixed annuity products.
The Company's products are sold to individuals, businesses and pension plans to provide for long-term savings and
retirement purposes and to address the economic impact of premature death, estate and business planning concerns and
supplemental retirement needs. The investment performance of the mutual funds supporting the variable annuity and
variable life insurance contracts directly impacts the ability to sell these products.
Products
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The Company offers a wide array of annuities, including: a) certain deferred and immediate annuities that are
registered with the Securities and Exchange Commission, including variable annuities and fixed interest rate
annuities that include a market value adjustment feature; b) certain other fixed deferred annuities that are not
registered with the Securities and Exchange Commission; c) non-registered group variable annuities designed as
funding vehicles for various types of qualified retirement plans; and d) fixed, adjustable and variable immediate
annuities.
Annuity contracts represent a contractual obligation to make payments over a given period of time (often measured by
the life of the recipient), undertaken by the insurer in return for the payment of either a single purchase payment or
a series of scheduled or flexible purchase payments. The insurer's obligation to pay may commence immediately or be
deferred. If the payments are deferred, the insurer generally incurs an obligation to make a surrender value
available during the deferral period based on an account value established using the purchase payments. The account
value may be credited interest, or may vary with the performance of investments made by the insurer. Gains in the
contracts before distribution generally are tax deferred. Distributions are taxed as ordinary income. During the
deferral period, distributions are assumed to come first from any gain in contract and loans are deemed
distributions. Distributions may be subject to a tax penalty. For immediate annuities and annuitized deferred
annuities, a portion of each distribution may be treated as the return of the taxpayer's investment in the contract.
During 1998 and 1999 the Company expanded its product offerings with the introduction of single premium and
flexible premium variable life insurance products and a term life insurance product. Life insurance policies
represent a contractual obligation to pay proceeds to a beneficiary upon the death of the insured. This obligation
is undertaken by the insurer in return for either a single premium, or a series of scheduled or flexible premiums.
Cash value life insurance represents an additional obligation to make amounts available upon surrender or, in many
cases, for loans collateralized by policy values. Distributions upon the death of the insured are tax free in most
circumstances. Gains in the contracts before distribution are tax deferred. Distributions subject to tax are
subject to ordinary income treatment. Distributions before the death of the insured from policies deemed to be
modified endowment contracts ("MEC") are generally taxed in a manner similar to deferred annuities. Distributions
from non-MEC policies before the insured's death are assumed to come first from the taxpayer's investment in the
policy and loans are not deemed distributions.
Certain variable annuity products contain a benefit feature (called "Performance Advantage") which provide certain
benefits if the policyowner's account value has not reached a "target value" on its tenth anniversary. At the
option of the policyowner, the benefit will be distributed in the form of an annual or, if annuitization is
selected, a lump-sum credit to the contractowner's account.
Distribution
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The Company sells its wide array of products through multiple distribution channels including, (a) independent
financial planners; (b) broker-dealers that generally are members of the New York Stock Exchange, including
"wirehouse" and regional broker-dealer firms; and (c) broker-dealers affiliated with banks or that specialize in
marketing to customers of banks. The Company continues to be successful in expanding the number of selling
agreements to include relationships with over 1,200 broker/dealer firms and financial institutions.
The Company believes its continued success is reliant on the ability to enhance its relationships with both the
selling firms and their registered representatives. The Company utilizes focused marketing teams providing
specialized support to the primary distribution channels. In addition, the Company also offers a number of private
label and proprietary products distributed by select large distributors.
Segments
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Segment reporting is aligned based on the three major product offerings: variable annuity, variable life insurance
and qualified retirement plans. In recent years, in order to complete the array of products offered by the Company
and its affiliates to meet a wide variety of financial planning, the Company developed the variable life insurance
and qualified retirement plan funding products. The marketing and distribution of these plans are in the early
stages and have not yet generated significant sales.
Reserves
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The Company is obligated to carry in its statutory financial statements, as liabilities, actuarial
reserves to meet its obligations on outstanding annuity or life insurance contracts. This is required by the life
insurance laws and regulations in the jurisdictions in which the Company does business. Such reserves are based on
mortality and/or morbidity tables in general use in the United States. In general, reserves are computed amounts
that, with additions from premiums to be received, and with interest on such reserves compounded at certain assumed
rates, are expected to be sufficient to meet contractual obligations. In the accompanying financial statements,
these reserves for contractual obligations are determined in accordance with generally accepted accounting principles
and are included in the balance sheet captions "separate account liabilities" and "reserve for future insurance
policy and contract benefits."
Employees
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As of December 31, 2000, the Company had 1,200 direct salaried employees.
Item 2. PROPERTIES
The Company occupies office space leased from an affiliate, American Skandia Information Services and Technology
Corporation, and believes that the current facilities are satisfactory for its near term needs. The Company also
entered into a lease for office space in Westminster, Colorado, effective January 1, 2001.
Item 3. LEGAL PROCEEDINGS
As of the date of this filing, the Company is not involved in any legal proceedings outside of the ordinary course
of business. The Company is involved in pending and threatened legal proceedings in the normal course of its
business, however, the Company does not anticipate that its financial condition will be affected materially as a
result of the outcome of such legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding shares are owned by American Skandia, Inc., a wholly-owned subsidiary of Skandia
Insurance Company Ltd. The Company did not pay any dividends to ASI in 2000, 1999 or 1998.
Item 6. SELECTED FINANCIAL DATA
The following table summarizes information with respect to the operations of the Company:
(in thousands) For the Year Ended December 31,
2000 1999 1998 1997 1996
STATEMENT OF OPERATIONS DATA
Revenues:
Annuity and life insurance charges and fees* $424,578 $289,989 $186,211 $121,158 $69,780
Fee income 130,610 83,243 50,839 27,593 16,420
Net investment income 11,656 10,441 11,130 8,181 1,586
Premium income and other revenues 4,778 3,688 1,360 1,082 265
Total revenues $571,622 $387,361 $249,540 $158,014 $88,051
Benefits and Expenses:
Annuity and life insurance benefits $751 $612 $558 $2,033 $613
Change in annuity and life insurance
policy reserves 45,018 3,078 1,053 37 635
Cost of minimum death benefit reinsurance - 2,945 5,144 4,545 2,867
Return credited to contractowners 9,046 -1,639 -8,930 -2,018 673
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790 90,496 49,887
Interest expense 85,998 69,502 41,004 24,895 10,791
Total benefits and expenses $476,026 $280,848 $206,619 $119,988 $65,466
Income tax expense (benefit) $30,779 $30,344 $8,154 $10,478 ($4,038)
Net income $64,817 $76,169 $34,767 $27,548 $26,623
STATEMENT OF FINANCIAL CONDITION DATA
Total Assets $31,702,705 $30,881,579 $18,848,273 $12,894,290 $8,268,696
Future fees payable to parent $934,410 $576,034 $368,978 $233,034 $47,112
Surplus Notes $159,000 $179,000 $193,000 $213,000 $213,000
Shareholder's Equity $496,911 $359,434 $250,417 $184,421 $126,345
======== ======== ======== ======== ========
* On annuity and life insurance sales of $8,216,167, $6,862,968, $4,159,662, $3,697,990, and $2,795,114 during
the years ended December 31, 2000, 1999, 1998, 1997, and 1996, respectively, with contractowner assets under
management of $29,751,822, $29,396,693, $17,854,761, $12,119,191, and $7,764,891 as of December 31, 2000,
1999, 1998, 1997 and 1996, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction
with the consolidated financial statements and the notes thereto and Item 6, Selected Financial Data.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain
forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual
results could differ materially due to factors not currently known. These factors include significant changes in
financial markets and other economic and business conditions, state and federal legislation and regulation,
ownership and competition.
Results of Operations
---------------------
Annuity and life insurance sales increased 20% in 2000 to $8,216,167,000 as compared to 65% in 1999. Overall sales
growth in 2000 was driven by significant sales volume in the first quarter of 2000 due to the strong equity market
performance. However, the decline in the equity markets during the remainder of the year negatively impacted sales
as the first quarter growth rate was not sustained. The Company continues to focus on increasing sales through
innovative product development activities, the recruitment and retention of top producers, high quality customer
service and improvements in web-based technology. All three major distribution channels achieved sales growth in
2000.
Average assets under management totaled $31,413,809,000 in 2000 and $21,984,759,000 in 1999, representing an
increase of 43%. As a result of the growth in sales and average assets under management, annuity and life
insurance charges and fees increased 46% in 2000 and 56% in 1999. Fee income generated from transfer agency-type
and investment support activities increased 57% in 2000 and 64% in 1999.
Net investment income increased 12% in 2000 compared to 1999 and decreased 6% in 1999 compared to 1998. The
increase in 2000 is primarily due to a higher level of investments, partially offset by $6,939,000 of amortization
of premiums paid on derivative instruments. The decrease in 1999 was primarily the result of $1,036,000 of
amortization of the premium paid on a derivative instrument purchased during 1999. See Note 2D to the consolidated
financial statements for information related to derivative instruments used to hedge the guaranteed minimum death
benefit ("GMDB") reserve fluctuations. Excluding the derivative amortization, net investment income increased 62%
in 2000 and increased 3% in 1999 as a result of increased bond holdings that support the Company's risk-based
capital objectives.
Premium income represents premiums earned on the sale of ancillary contracts such as immediate annuities with life
contingencies, supplementary contracts with life contingencies and certain life insurance products. Increased
sales of these products led to an increase in premium income in 2000. The increase in 2000 and 1999 was primarily
due to higher sales of supplementary contracts. Management expects supplementary contracts to grow over time with
the maturing of core business lines.
Net realized investment losses totaled $688,000 in 2000, compared to gains of $578,000 in 1999 and $99,000 in
1998. The change from 1999 to 2000 is primarily due to realized losses on sales of securities in the fixed
maturity portfolio. These losses were partially offset by realized gains on sales of fixed maturities and mutual
funds. The increase in realized gains in 1999 compared to 1998 is due to higher gains on sales of mutual fund
investments.
The change in annuity policy reserves includes changes in reserves related to annuity contracts with mortality
risks as well as the Company's GMDB liability. In 2000, equity markets declined and the underlying fund
performance was lower than the prior year. In contrast, the equity markets and underlying fund performance were up
significantly in 1999 compared to 1998. The combination of these events resulted in an increase in GMDB reserves
of $39,866,000 in 2000. This compares to an increase in GMDB reserves of $2,323,000 in 1999.
In 1999, the Company began to develop a program utilizing equity put options to manage the risks embedded in the
GMDB in annuity contracts that would result from significant declines in the equity markets. Prior to the
implementation of the hedge strategies utilizing equity put options, the Company had reinsured substantially all of
its exposure on the GMDB liability. The reinsurance was terminated during the second quarter of 1999 as the
reinsurer had exited this market.
Return credited to contractowners consists of revenues on the variable and market value adjusted annuities and
variable life insurance, offset by the benefit payments and changes in reserves required on this business. Market
value adjusted annuity activity has the largest impact on this benefit. In 2000 and 1999, the Separate Account
investment returns on the market value adjusted annuities were less than the expected returns as calculated in the
reserves, contributing to the significant increase in the return credited to contractholders benefit. In addition,
this benefit increased as a result of the amortization of unearned Performance Advantage target value credits,
which increased $6,826,000 in 2000 over 1999. Other significant contributors to the change from 1999 to 2000
include guaranteed minimum death benefit payments on variable annuities which were driven up due to the market
declines in 2000 as well as increased costs associated with processing of backdated financial transactions. These
increased costs were partially offset by a 2000 experience refund on certain reinsurance treaties in the amount of
$4,339,000.
Underwriting, acquisition and other insurance expenses for 2000, 1999 and 1998 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Commissions and purchase credits $ 393,494 $ 358,279 $ 201,008
General operating expenses 252,206 214,269 141,586
Acquisition costs deferred during the year (495,103) (450,059) (261,432)
Acquisition costs amortized during the year 184,616 83,861 86,628
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Net capitalization of deferred acquisition costs (310,487) (366,198) 174,804)
---------- ----------- ---------
Underwriting, acquisition and other
insurance expenses $ 335,213 $206,350 $167,790
========= ======== ========
Underwriting, acquisition and other insurance expenses increased 62% and 23% in 2000 and 1999, respectively.
Increased commissions and purchase credits reflect the increase in sales in both 2000 and 1999. Significant
investments in new product development and internet-based technology contributed to general operating expense
increases in both 2000 and 1999. The amortization of acquisition costs increased substantially in 2000 compared to
1999 as the associated costs from record sales in late 1999 and early 2000 were recognized in accordance with
accounting principles generally accepted in the United States profit and expense recognition models.
Interest expense increased $16,496,000 in 2000 and $28,498,000 in 1999 as a result of additional securitized
financing transactions, which consist of the transfer of rights to receive future fees to the Parent
("securitization transactions"). In addition, the Company retired surplus notes on December 10, 2000 and December
31, 1999 of $20,000,000 and $14,000,000, respectively. Surplus notes outstanding as of December 31, 2000 and 1999
totaled $159,000,000 and $179,000,000, respectively.
The effective income tax rates for the years ended December 31, 2000, 1999 and 1998 were 32%, 28% and 19%,
respectively. The effective rate is lower than the corporate rate of 35% due to permanent differences, with the
most significant item being the dividend received deduction. Management believes that based on the taxable income
produced in the past two years, as well as the continued growth in annuity sales, the Company will produce
sufficient taxable income in future years to realize its deferred tax assets.
The Company generated net income after tax of $64,817,000, $76,169,000 and $34,767,000 in 2000, 1999 and 1998,
respectively. Revenue increases in 2000 were more than offset by higher benefits and expenses driven primarily from
the increase in the reserve requirement related to the GMDB as a result of the decline in the equity markets.
Investments in new product development and technology also contributed to the increase in expenses. These factors
resulted in the 15% decline in net income. Net income increased 119% in 1999 due to strong sales growth and
favorable market conditions which led to higher asset-based revenue. The Company considers Mexico an emerging market
and has invested in the Skandia Vida operations with the expectation of generating profits from long-term savings
products in future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000
for the years ended December 31, 2000, 1999 and 1998, respectively. The Company expects to transfer ownership of
Skandia Vida to an upstream affiliate during 2001.
On March 22, 2001, the Company announced that it will begin an aggressive operating expense reduction program to
better align its operating infrastructure with the current investment environment. The planned moves include a
reduction of approximately 150 positions, representing 13% of the Company's workforce, reductions in the
compensation and benefit programs and the curtailment of certain discretionary expenses.
Total assets grew 3% in 2000 partially as a result of the modest increase in separate account assets reflecting the
impact of strong sales which were almost entirely offset by the decline in equity markets. Increased deferred
acquisition costs also contributed to the increase in assets. Liabilities grew 2% in 2000 due to higher reserves
required to support the increase in annuity and life insurance business, and increased financing activity related to
the transfer of rights to receive future fees and charges.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirement was met by cash from insurance operations, investment activities, borrowings
from ASI and the securitization transactions with ASI.
The majority of the operating cash outflow resulted from the sale of variable annuity and variable life products that
carry a contingent deferred sales charge. This type of product causes a temporary cash strain in that 100% of the
proceeds are invested in separate accounts supporting the product leaving a cash (but not capital) strain caused by
the acquisition cost for the new business. This cash strain required the Company to look beyond the cash made
available by insurance operations and investments of the Company to financing in the form of surplus notes, capital
contributions, securitization transactions and modified coinsurance reinsurance arrangements:
o During 2000 and 1999, the Company received $69,000,000 and $34,800,000, respectively, from ASI to support
the capital needs and anticipated growth in business of its U.S. operations. In addition, the Company
received $2,450,000 and $1,690,000 from ASI in 2000 and 1999, respectively, to support its investment in
Skandia Vida.
o Funds received from new securitization transactions amounted to $476,288,000 in 2000 and $265,710,000 in
1999 (see Note 8 to the consolidated financial statements).
o During 2000 and 1999, the Company extended its reinsurance agreements. The Company also entered into an
agreement with SICL in 2000. The reinsurance agreements are modified coinsurance arrangements where the
reinsurer shares in the experience of a specific book of business.
The Company expects the continued use of reinsurance and securitization transactions to fund the cash strain
anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 2000 and 1999, shareholder's equity totaled $496,911,000 and $359,434,000, respectively. The
increases were driven by the previously mentioned capital contributions received from ASI and net income from
operations.
The Company has long-term surplus notes and short-term borrowings with ASI. No dividends have been paid to ASI.
The National Association of Insurance Commissioners ("NAIC") requires insurance companies to report information
regarding minimum Risk Based Capital ("RBC") requirements. These requirements are intended to allow insurance
regulators to identify companies that may need regulatory attention. The RBC model law requires that insurance
companies apply various factors to asset, premium and reserve items, all of which have inherent risks. The formula
includes components for asset risk, insurance risk, interest rate risk and business risk. The Company has complied
with the NAIC's RBC reporting requirements and has total adjusted capital well above required capital.
Effects of Inflation
--------------------
The rate of inflation has not had a significant effect on the Company's financial statements.
Outlook
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The Company believes that it is well positioned to retain and enhance its position as a leading provider of
financial products for long-term savings and retirement purposes as well as to address the economic impact of
premature death, estate and business planning concerns and supplemental retirement needs. The Company continues to
focus on offering innovative long-term savings and income products and providing superior customer service in order
to gain market share and improve profitability in an increasingly competitive market.
The Gramm-Leach-Bliley Act of 1999 (the Financial Services Modernization Act) permits affiliation among banks,
securities firms and insurance companies. This legislative change has created opportunities for continued
consolidation in the financial services industry and increased competition as large companies offer a wide array of
financial products and services.
Various other legislative initiatives could impact the Company such as pension reform, capital gains and estate tax
changes, privacy standards and internet regulation. Pension reform may change current tax deferral rules and allow
increased contributions to retirement plans, which may lead to higher investments in tax-deferred products and
create growth opportunities for the Company. A capital gains tax reduction may cause tax-deferred products to be
less attractive to consumers, which could adversely impact the Company. New privacy standards and internet
regulation may impact the Company's strategic initiatives especially related to potential partnerships with
web-based technology providers.
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and
liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity
prices. The following discussion focuses on specific exposures the Company has to interest rate and equity price
risk and describes strategies used to manage these risks. The discussion is limited to financial instruments
subject to market risks and is not intended to be a complete discussion of all of the risks to which the Company is
exposed.
Interest Rate Risk
------------------
Fluctuations in interest rates can potentially impact the Company's profitability and cash flows. The Company has
97% of assets held under management that are in non-guaranteed Separate Accounts for which the Company's exposure
is not significant as the contractowner assumes substantially all the investment risk. On the remaining 3% of
assets, the interest rate risk from contracts that carry interest rate exposure is managed through an
asset/liability matching program which takes into account the risk variables of the insurance liabilities supported
by the assets.
At December 31, 2000, the Company held fixed maturity investments in its general account that are sensitive to
changes in interest rates. These securities are held in support of the Company's fixed immediate annuities,
supplementary contracts, the fixed components of variable life insurance contracts, and in support of the Company's
target solvency capital. The Company has a conservative investment philosophy with regard to these investments.
All investments are investment grade corporate securities, government agency or U.S. government securities.
The Company's deferred annuity products offer a fixed option which subjects the Company to interest rate risk. The
fixed option guarantees a fixed rate of interest for a period of time selected by the contractowner. Guarantee
period options available range from one to ten years. Withdrawal of funds before the end of the guarantee period
subjects the contractowner to a market value adjustment ("MVA"). In the event of rising interest rates, which make
the fixed maturity securities underlying the guarantee less valuable, the MVA could be negative. In the event of
declining interest rates, which make the fixed maturity securities
underlying the guarantee more valuable, the MVA could be positive. The resulting increase or decrease in the value
of the fixed option, from calculation of the MVA, should substantially offset the increase or
decrease in the market value of the securities underlying the guarantee. The Company maintains strict
asset/liability matching to enable this offset. However, the Company still takes on the default risk for the
underlying securities, the interest rate risk of reinvestment of interest payments and the risk of failing to
maintain the asset/liability matching program with respect to duration and convexity.
Liabilities held in the Company's general account and guaranteed separate account as of December 31, 2000 totaled
$1,095,100,000. Fixed income investments supporting those liabilities had a fair value of $1,098,500,000. The
Company performed a sensitivity analysis on these interest-sensitive liabilities and assets at December 31, 2000.
The analysis showed that an immediate decrease of 100 basis points in interest rates would result in a net increase
in liabilities and the corresponding assets of approximately $37,300,000 and $41,500,000, respectively. An
analysis of a 100 basis point decline in interest rates at December 31, 1999 showed a net increase in
interest-sensitive liabilities and the corresponding assets of approximately $10,200,000 and $24,800,000,
respectively.
Equity Market Exposure
----------------------
The primary equity market risk to the Company comes from the nature of the variable annuity and variable life
products sold by the Company. Various fees and charges earned are substantially derived as a percentage of the
market value of assets under management. In a market decline, this income would be reduced. This could be further
compounded by customer withdrawals, net of applicable surrender charge revenues, partially offset by transfers to
the fixed option discussed above. A 10% decline in the market value of the assets under management at December 31,
2000, sustained throughout 2001, would result in an approximate drop in related annual fee income of $54,000,000.
This result was not materially different than the result obtained from the analysis performed as of December 31,
1999.
Another equity market risk exposure of the Company relates to the guaranteed minimum death benefit liability.
Declines in equity markets and correspondingly the performance of the underlying mutual funds, increases the
guaranteed minimum death benefit liabilities. As discussed in Note 2D of the consolidated financial statements,
the Company utilizes derivative instruments to hedge against the risk of significant decreases in equity markets.
Prior to the implementation of this program the Company utilized reinsurance to transfer this risk.
The Company has a small portfolio of equity investments; mutual funds which are held in support of a deferred
compensation program. In the event of a decline in market values of underlying securities, the value of the
portfolio would decline, however the accrued benefits payable under the related deferred compensation program would
decline by a corresponding amount.
Estimates of interest rate risk and equity price risk were obtained using computer models that take into
consideration various assumptions about the future. Given the uncertainty of future interest rate movements,
volatility in the equity markets and consumer behavior, actual results may vary from those predicted by the
Company's models.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Consolidated Financial Statements and Supplementary Data on page 13.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained in the "Executive Officers and Directors" section of the prospectus of the Company's
registration statement on Form S-2, (Reg. 333-91400) is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table: The summary table below summarizes the compensation payable to the Chief Executive
Officer and to the most highly compensated of our executive officers whose compensation exceeded $100,000 in 2000.
(in thousands)
Name and Annual LTIP
Principal Position Year Salary Payouts
- ------------------ ---- ------ -------
Wade A. Dokken 2000 $2,160 $882
Chief Executive Officer (effective 6/1/00) 1999 1,434 480
1998 1,574 325
Jan R. Carendi 2000 255 5,127
Chief Executive Officer (through 5/31/00) 1999 908 497
1998 784 302
Gordon C. Boronow 2000 567 933
Deputy Chief Executive Officer 1999 414 343
1998 325 278
Bayard F. Tracy 2000 1,042 339
Senior Vice President 1999 712 150
1998 514 147
Yat Kan Chan 2000 957 -
Senior Vice President & 1999 502 -
Chief Information Officer 1998 - -
Christian W. Thwaites 2000 693 8
Senior Vice President 1999 445 -
1998 363 -
Long Term Incentive Plans (LTIP) - Awards in the last fiscal year: The following table provides information
regarding the long-term incentive plan. Units are awarded to executive officers and other personnel. The table
shows units awarded to the Chief Executive Officer and the most highly compensated of our executive officers whose
compensation exceeded $100,000 in the fiscal year immediately preceding the date of this submission. This program
is designed to induce participants to remain with the Company over long periods of time and to tie a portion of
their compensation to the fortunes of the Company.
Currently, the program consists of multiple plans. Participants are awarded units at the beginning of a plan. Generally,
participants must remain employed by the Company or its affiliates at the time such units
are payable in order to receive any payments under the plan. There are certain exceptions, such as in cases of
retirement or death.
Changes in the value of units reflect changes in the "embedded value" of the Company. "Embedded value" is the net asset
value of the Company (valued at market value and not including the present value of future profits), plus the
present value of the anticipated future profits (valued pursuant to state insurance law) on its existing
contracts. Units will not have any value for participants if the embedded value does not increase by certain
target percentages during the first four years of a plan. The target percentages may differ between each plan.
Any amounts available under a plan are paid out in the fifth through eighth years of a plan. A portion of the
payments under a particular year's plan may be postponed if total payments due eligible participants for that year
would exceed 20% of any pretax profit (as determined under state insurance law) earned by the Company and certain
affiliates in the prior fiscal year.
The amount to be received by a participant at the time any payment is due will be the then current number of units
payable multiplied by the then current value of such units.
(in thousands)
Estimated Future Payouts
Number Period until
Name of Units Payout Threshold Target Maximum
---- -------- ------ --------- ------ -------
Wade A. Dokken 329,574 Various $3,967
Jan R. Carendi - Various -
Gordon C. Boronow 307,500 Various 3,672
Bayard F. Tracy 130,000 Various 1,494
Yat Kan Chan 40,000 Various 138
Christian W. Thwaites 65,000 Various 514
The following directors' compensation for 2000 is shown below:
Wade A. Dokken 0
Patricia J. Abram 0
Gordon C. Boronow 0
Malcolm M. Campbell 0
Yat Kan Chan 0
Lincoln R. Collins 0
Ian B. Kennedy 0
Thomas M. Mazzaferro 0
Gunnar J. Moberg 0
Christian W. Thwaites 0
Bayard F. Tracy 0
Deborah G. Ullman 0
Brett M. Winson 0
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Information
(1) Financial Statements See Index to Consolidated Financial Statements on
Page 13
(2) Financial Statement Schedules None
(b) Exhibits
(2) Plans of acquisition, reorganization,
arrangement, liquidation or succession None
(3) Articles of Incorporation and By-Laws Incorporated by reference to
the Company's Form N-4
(Reg. 33-19363)
(4) Instruments defining the right of Incorporated by reference to
security holders including indentures the Company's Reg. 333-08853,
33-59993, 33-86866, 33-87010,
33-62793, 33-62933, 333-26685,
33-88362
(9) Voting Trust Agreement None
(10) Material Contracts Incorporated by reference to
the Company's Forms S-2
(Reg. 33-26122 and 33-86918)
(11) Statement of Computation of per share
earnings Not required to be filed
(12) Statements of Computation of Ratios Not required to be filed
(13) Annual Report to security holders None
(18) Letter re change in accounting principles None
(19) Previously unfiled documents None
(21) Subsidiaries of the registrant Incorporated by reference to
Part II of Reg. 333-26695
(22) Published report regarding matters
submitted to vote of security holders None
(23) Consents of experts and counsel Not required to be filed
(24) Powers of Attorney Incorporated by reference to
the Company's Forms S-2
(Reg. 333-25733)
(99) Additional exhibits None
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Financial Statements
December 31, 2000
Index
Page
Independent Auditors' Report 14
Consolidated Statements of Financial Condition
as of December 31, 2000 and 1999 15
Consolidated Statements of Income for the
Years ended December 31, 2000, 1999 and 1998 16
Consolidated Statements of Shareholder's Equity for the
Years ended December 31, 2000, 1999 and 1998 17
Consolidated Statements of Cash Flows for the
Years ended December 31, 2000, 1999 and 1998 18
Notes to Consolidated Financial Statements 19
Schedules are omitted because they are either not applicable or because the information required therein is
included in the Notes to Consolidated Financial Statements.
Report of Independent Auditors
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the consolidated statements of financial condition of American Skandia Life Assurance Corporation
(the "Company" which is a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31,
2000 and 1999, and the related consolidated statements of operations, shareholder's equity and cash flows for the three
year period ended December 31, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of American Skandia Life Assurance Corporation at December 31, 2000 and 1999, and
the consolidated results of their operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young
February 2, 2001
Hartford, Connecticut
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands)
See notes to consolidated financial statements.
As of December 31,
2000 1999
---------------- ----------------
ASSETS
Investments:
Fixed maturities - at fair value $ 285,708 $ 198,165
Fixed maturities - at amortized cost - 3,360
Equity securities - at fair value 20,402 16,404
Derivative instruments 3,015 189
Policy loans 3,746 1,270
-------------- --------------
Total investments 312,871 219,388
Cash and cash equivalents 76,499 89,212
Accrued investment income 5,209 4,054
Deferred acquisition costs 1,398,192 1,087,705
Reinsurance receivable 3,642 4,062
Receivable from affiliates 3,327 -
Income tax receivable 34,620 -
Income tax receivable - deferred - 51,726
State insurance licenses 4,113 4,263
Fixed assets 10,737 3,305
Other assets 96,403 36,698
Separate account assets 29,757,092 29,381,166
---------------- ----------------
Total assets $ 31,702,705 $ 30,881,579
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Reserves for future insurance policy and contract benefits $ 135,545 $ 73,292
Drafts outstanding 63,758 51,059
Accounts payable and accrued expenses 137,040 158,590
Income tax payable - 24,268
Income tax payable - deferred 8,949 -
Payable to affiliates - 68,736
Future fees payable to parent 934,410 576,034
Short-term borrowing 10,000 10,000
Surplus notes 159,000 179,000
Separate account liabilities 29,757,092 29,381,166
---------------- ----------------
Total liabilities 31,205,794 30,522,145
---------------- ----------------
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Additional paid-in capital 287,329 215,879
Retained earnings 205,979 141,162
Accumulated other comprehensive income (loss) 1,103 (107)
---------------- ----------------
Total shareholder's equity 496,911 359,434
---------------- ----------------
Total liabilities and shareholder's equity $ 31,702,705 $ 30,881,579
================ ================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Operations
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
REVENUES
Annuity and life insurance charges and fees $ 424,578 $ 289,989 $ 186,211
Fee income 130,610 83,243 50,839
Net investment income 11,656 10,441 11,130
Premium income 3,118 1,278 874
Net realized capital (losses) gains (688) 578 99
Other 2,348 1,832 387
---------------- --------------- ---------------
Total revenues 571,622 387,361 249,540
---------------- --------------- ---------------
EXPENSES
Benefits:
Annuity and life insurance benefits 751 612 558
Change in annuity and life insurance policy reserves 45,018 3,078 1,053
Cost of minimum death benefit reinsurance - 2,945 5,144
Return credited to contractowners 9,046 (1,639) (8,930)
---------------- --------------- ---------------
54,815 4,996 (2,175)
Expenses:
Underwriting, acquisition and other insurance
expenses 335,213 206,350 167,790
Interest expense 85,998 69,502 41,004
---------------- --------------- ---------------
421,211 275,852 208,794
---------------- --------------- ---------------
Total benefits and expenses 476,026 280,848 206,619
---------------- --------------- ---------------
Income from operations before income tax 95,596 106,513 42,921
Income tax expense 30,779 30,344 8,154
---------------- --------------- ---------------
Net income $ 64,817 $ 76,169 $ 34,767
================ =============== ===============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
--------------- ------------------ -----------------
Common stock:
Beginning balance $ 2,500 $ 2,000 $ 2,000
Increase in par value - 500 -
--------------- ------------------ -----------------
Ending balance 2,500 2,500 2,000
--------------- ------------------ -----------------
Additional paid in capital:
Beginning balance 215,879 179,889 151,527
Transferred to common stock - (500) -
Additional contributions 71,450 36,490 28,362
--------------- ------------------ -----------------
Ending balance 287,329 215,879 179,889
--------------- ------------------ -----------------
Retained earnings:
Beginning balance 141,162 64,993 30,226
Net income 64,817 76,169 34,767
--------------- ------------------ -----------------
Ending balance 205,979 141,162 64,993
--------------- ------------------ -----------------
Accumulated other comprehensive income (loss):
Beginning balance (107) 3,535 668
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------------- ------------------ -----------------
Ending balance 1,103 (107) 3,535
--------------- ------------------ -----------------
Total shareholder's equity $ 496,911 $ 359,434 $ 250,417
=============== ================== =================
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flow
(in thousands)
See notes to consolidated financial statements.
For the Year Ended December 31,
2000 1999 1998
------------- ------------- -------------
Cash flow from operating activities:
Net income $ 64,817 76,169 $ 34,767
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization and depreciation 7,565 1,495 251
Deferred tax expense 60,023 (10,903) (14,242)
Change in unrealized losses on derivatives (2,935) 3,749 -
Increase in policy reserves 50,892 4,367 1,130
(Decrease) increase in payable to affiliates (72,063) 69,897 166
Change in income tax payable/receivable (58,888) 17,611 7,704
Increase in other assets (59,987) (32,954) (1,173)
Increase in accrued investment income (1,155) (1,174) (438)
Decrease in reinsurance receivable 420 129 2,152
Net increase in deferred acquisition costs (310,487) (366,198) (174,804)
(Decrease) increase in accounts payable and accrued expenses (21,550) 66,763 20,637
Increase in drafts outstanding 12,699 22,118 9,663
Change in foreign currency translation, net (101) 701 (22)
Net realized capital gain on expiration of derivatives (500) - -
Net realized capital losses (gains) 688 (578) (99)
------------- ------------- -------------
Net cash used in operating activities (330,562) (148,808) (114,308)
------------- ------------- -------------
Cash flow from investing activites:
Purchase of fixed maturity investments (380,737) (99,250) (31,828)
Proceeds from sale and maturity of fixed
maturity investments 303,736 36,226 4,049
Purchase of derivatives (6,722) (4,974) -
Purchase of shares in mutual funds (18,136) (17,703) (7,158)
Proceeds from sale of shares in mutual funds 8,345 14,657 6,086
Purchase of fixed assets (7,348) (3,178) (18)
Increase in policy loans (2,476) (701) 118
------------- ------------- -------------
Net cash used in investing activities (103,338) (74,923) (28,751)
------------- ------------- -------------
Cash flow from financing activities:
Capital contribution from parent 51,450 22,490 8,362
Increase in future fees payable to parent, net 358,376 207,056 135,944
Net deposits to (withdrawals from) contractowner accounts 11,361 5,872 (5,696)
------------- ------------- -------------
Net cash provided by financing activities 421,187 235,418 138,610
------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents (12,713) 11,687 (4,449)
Cash and cash equivalents at beginning of period 89,212 77,525 81,974
------------- ------------- -------------
Cash and cash equivalents at end of period $ 76,499 89,212 $ 77,525
============= ============= =============
Income taxes paid $ 29,644 23,637 $ 14,651
============= ============= =============
Interest paid $ 85,551 69,697 $ 35,588
============= ============= =============
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company") is a wholly-owned subsidiary of American
Skandia, Inc. ("ASI") whose ultimate parent is Skandia Insurance Company Ltd., ("SICL") a Swedish
Corporation.
The Company develops long-term savings and retirement products which are distributed through its affiliated
broker/dealer company, American Skandia Marketing, Incorporated ("ASM"). The Company currently issues
variable and term life insurance and variable, fixed, market value adjusted and immediate annuities for
individuals, groups and qualified pension plans.
The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. ("Skandia Vida") which is a life insurance
company domiciled in Mexico. Skandia Vida had total shareholder's equity of $4,402,000 and $4,592,000 as of
December 31, 2000, and 1999, respectively. The Company considers Mexico an emerging market and has invested
in the Skandia Vida operations with the expectation of generating profits from long-term savings products in
future years. As such, Skandia Vida has generated net losses of $2,540,000, $2,523,000 and $2,514,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
------------------
The accompanying consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. Intercompany transactions and
balances have been eliminated in consolidation.
Certain reclassifications have been made to prior year amounts to conform with the current year
presentation.
B. New Accounting Standard
-----------------------
The FASB has issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138
(collectively, "SFAS 133"). SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000; accordingly, the Company adopted SFAS 133 on January 1, 2001.
This statement establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 requires that all derivative financial instruments be measured at fair
value and recognized in the statement of condition as either assets or liabilities. Changes in
the fair value of the derivative financial instruments will be reported in either earnings or
comprehensive income, depending on the use of the derivative and whether or not it qualifies for
hedge accounting.
Special hedge accounting treatment is permitted only if specific criteria are met, including that
the hedging relationship be highly effective both at inception and on an ongoing basis.
Accounting for hedges varies based on the type of hedge - fair value or cash flow. Results of
effective hedges are recognized in current earnings for fair value hedges and in other
comprehensive income for cash flow hedges. Ineffective portions of hedges are recognized
immediately in earnings.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The derivative instruments held by the Company in 2000 and 1999 consisted of equity put options
utilized to manage the market risk and reserve fluctuations associated with the guaranteed
minimum death benefit ("GMDB"). The adoption of SFAS No. 133 did not have a material effect on
the Company's financial statements.
C. Investments
-----------
The Company has classified its fixed maturity investments as either held-to-maturity or
available-for-sale. Investments classified as held-to-maturity are investments that the Company
has the ability and intent to hold to maturity. Such investments are carried at amortized cost.
Those investments which are classified as available-for-sale are carried at fair value and
changes in unrealized gains and losses are reported as a component of other comprehensive income.
The Company has classified its mutual fund investments held in support of a deferred compensation
plan (see Note 13) as available-for-sale. Such investments are carried at fair value and changes
in unrealized gains and losses are reported as a component of other comprehensive income.
Policy loans are carried at their unpaid principal balances.
Realized gains and losses on disposal of investments are determined by the specific
identification method and are included in revenues.
D. Derivative Instruments
----------------------
The Company uses derivative instruments which consist of equity option contracts for risk
management purposes, and not for trading or speculation. The Company hedges the market value
fluctuations of the GMDB exposure embedded in its policy reserves. Premiums paid on option
contracts are amortized into net investment income over the terms of the contracts. The options
are carried at amortized cost plus intrinsic value, if any, at the valuation date. An option has
intrinsic value if it is "in-the-money." For a put option to be "in-the-money," the exercise
price must be greater than the value of the underlying index. Changes in intrinsic value are
recorded as a component of the change in annuity and life insurance policy reserves consistent
with changes in the GMDB reserve.
E. Cash Equivalents
----------------
The Company considers all highly liquid time deposits, commercial paper and money market mutual
funds purchased with a maturity at date of acquisition of three months or less to be cash
equivalents.
F. Fair Values of Financial Instruments
------------------------------------
The methods and assumptions used to determine the fair value of financial instruments are as
follows:
Fair values of fixed maturities with active markets are based on quoted market prices. For fixed
maturities that trade in less active markets, fair values are obtained from an independent
pricing service.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair values of investments in mutual funds are based on quoted market prices.
The intrinsic value portion of the derivative instrument is determined based on the current value
of the underlying index.
The carrying value of cash and cash equivalents (cost) approximates fair value due to the
short-term nature of these investments.
The carrying value of short-term borrowings (cost) approximates fair value due to the short-term
nature of these liabilities.
Fair values of certain financial instruments, such as future fees payable to parent and surplus
notes are not readily determinable and are excluded from fair value disclosure requirements.
G. State Insurance Licenses
------------------------
Licenses to do business in all states have been capitalized and reflected at the purchase
price of $6,000,000 less accumulated amortization. The cost of the licenses is being
amortized on a straight-line basis over 40 years.
H. Software Capitalization
-----------------------
The Company capitalizes certain costs associated with internal use software in accordance with
the American Institute of Certified Public Accountants Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Software Developed or Obtained for Internal Use. The SOP, which was
adopted prospectively as of January 1, 1999, requires the capitalization of certain costs
incurred in connection with developing or obtaining internal use software. Prior to the adoption
of SOP 98-1, the Company expensed all internal use software related costs as incurred. Details
of the capitalized software costs, which are included in fixed assets, and related amortization
for the years ended December 31, are
as follows:
(in thousands) 2000 1999
---- ----
Balance at beginning of year $2,920 $0
------ ----
Software costs capitalized during the year 4,804 3,035
Software costs amortized during the year (512) (115)
----- -----
4,292 2,920
----- ------
Balance at end of year $7,212 $2,920
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I. Income Taxes
------------
The Company is included in the consolidated federal income tax return and combined state income tax
return of an upstream company, Skandia AFS Development Holding Corporation and certain of its
subsidiaries. In accordance with the tax sharing agreement, the federal and state income tax
provisions are computed on a separate return basis as adjusted for consolidated items such as net
operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes.
J. Recognition of Revenue and Contract Benefits
--------------------------------------------
Revenues for variable deferred annuity contracts consist of charges against contractowner account
values for mortality and expense risks, administration fees, surrender charges and an annual
maintenance fee per contract. Benefit reserves for variable annuity contracts represent the
account value of the contracts and are included in the separate account liabilities.
Revenues for variable immediate annuity contracts with and without life contingencies consist of
certain charges against contractowner account values including mortality and expense risks and
administration fees. Benefit reserves for variable immediate annuity contracts represent the
account value of the contracts and are included in the separate account liabilities.
Revenues for market value adjusted fixed annuity contracts consist of separate account investment
income reduced by benefit payments and changes in reserves in support of contractowner
obligations, all of which are included in return credited to contractowners. Benefit reserves
for these contracts represent the account value of the contracts, and are included in the general
account reserve for future contractowner benefits to the extent in excess of the separate account
assets.
Revenues for immediate annuity contracts without life contingencies consist of net investment
income. Revenues for immediate annuity contracts with life contingencies consist of single
premium payments recognized as annuity considerations when received. Benefit reserves for these
contracts are based on the Society of Actuaries 1983 Table-a with assumed interest rates that
vary by issue year. Assumed interest rates ranged from 6.25% to 8.25% at December 31, 2000 and
1999.
Revenues for variable life insurance contracts consist of charges against contractowner account
values for mortality and expense risk fees, cost of insurance fees, taxes and surrender charges.
Certain contracts also include charges against premium to pay state premium taxes. Benefit
reserves for variable life insurance contracts represent the account value of the contracts and
are included in the separate account liabilities.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
K. Deferred Acquisition Costs
--------------------------
The costs of acquiring new business, which vary with and are primarily related to the production
of new business, are being deferred, net of reinsurance. These costs include commissions, costs
of contract issuance, and certain selling expenses that vary with production. These costs are
being amortized generally in proportion to expected gross profits from surrender charges, policy
and asset based fees and mortality and expense margins. This amortization is adjusted
retrospectively and prospectively when estimates of current and future gross profits to be
realized from a group of products are revised.
Details of the deferred acquisition costs and related amortization for the years ended December
31, are as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Balance at beginning of year $1,087,705 $ 721,507 $546,703
---------- --------- --------
Acquisition costs deferred during the year 495,103 450,059 261,432
Acquisition costs amortized during the year (184,616) ( 83,861) (86,628)
------------ ------------ ---------
310,487 366,198 174,804
--------- ---------- --------
Balance at end of year $1,398,192 $1,087,705 $721,507
========== ========== ========
L. Reinsurance
-----------
The Company cedes reinsurance under modified co-insurance arrangements. These reinsurance
arrangements provide additional capacity for growth in supporting the cash flow strain from the
Company's variable annuity and variable life insurance business. The reinsurance is effected
under quota share contracts.
The Company reinsured its exposure to market fluctuations associated with its GMDB liability in
the first half of 1999 and in 1998. Under this reinsurance agreement, the Company ceded premiums
of $2,945,000 and $5,144,000; received claim reimbursements of $242,000 and $9,000; and, recorded
increases/(decreases) in reserves of ($2,763,000) and $323,000 in 1999 and 1998, respectively.
At December 31, 2000 and 1999, in accordance with the provisions of modified coinsurance agreements,
the Company accrued $4,339,000 and $41,000, respectively, for amounts receivable from favorable reinsurance
experience on certain blocks of variable annuity business.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
M. Translation of Foreign Currency
-------------------------------
The financial position and results of operations of Skandia Vida are measured using local currency
as the functional currency. Assets and liabilities are translated at the exchange rate in effect
at each year-end. Statements of income and shareholder's equity accounts are translated at the
average rate prevailing during the year. Translation adjustments arising from the use of
differing exchange rates from period to period are reported as a component of other comprehensive
income.
N. Separate Accounts
-----------------
Assets and liabilities in Separate Accounts are included as separate captions in the consolidated
statements of financial condition. Separate Account assets consist principally of long term
bonds, investments in mutual funds, short-term securities and cash and cash equivalents, all of
which are carried at fair value. The investments are managed predominately through the Company's
investment advisory affiliate, American Skandia Investment Services, Inc. ("ASISI"), utilizing
various fund managers as sub-advisors. The remaining investments are managed by independent
investment firms. The contractowner has the option of directing funds to a wide variety of
mutual funds. The investment risk on the variable portion of a contract is borne by the
contractowner. A fixed option with a minimum guaranteed interest rate is also available. The
Company is responsible for the credit risk associated with these investments.
Included in Separate Account liabilities are reserves of $1,059,987,000 and $896,205,000 at December
31, 2000 and 1999, respectively, relating to annuity contracts for which the contractowner is
guaranteed a fixed rate of return. Separate Account assets of $1,059,987,000 and $896,205,000 at
December 31, 2000 and 1999, respectively, consisting of long term bonds, short-term securities,
transfers due from the general account and cash and cash equivalents are held in support of these
annuity contracts, pursuant to state regulation.
O. Estimates
---------
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires that management make estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition costs and involve policy lapses,
investment return and maintenance expenses. Actual results could differ from those estimates.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Net income $64,817 $76,169 $34,767
Other comprehensive income:
Unrealized investment (losses) gains on
available for sale securities (1,681) (3,438) 2,801
Reclassification adjustment for realized losses (gains)
included in investment income 2,957 (660) 88
--------- -------- -------
Net unrealized gains (losses) on securities 1,276 (4,098) 2,889
Foreign currency translation (66) 456 (22)
--------- ---------- -------
Other comprehensive income (loss) 1,210 (3,642) 2,867
--------- --------- -------
Comprehensive income $66,027 $72,527 $37,634
======= ======= =======
The components of accumulated other comprehensive income, net of tax, as of December 31 were as follows:
(in thousands) 2000 1999
---- ----
Unrealized investment gains (losses) $1,021 ($255)
Foreign currency translation 82 148
------ ------
Accumulated other comprehensive income (loss) $1,103 ($107)
====== ======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS
The amortized cost, gross unrealized gains/losses and estimated fair value of available-for-sale and
held-to-maturity fixed maturities and investments in mutual funds as of December 31, 2000 and 1999 are
shown below. All securities held at December 31, 2000 and 1999 were publicly traded.
Investments in fixed maturities as of December 31, 2000 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $206,041 $4,445 $ (11) $210,475
Foreign government obligations 2,791 195 - 2,986
Obligations of state and political
subdivisions 253 1 - 254
Corporate securities 72,237 1,565 (1,809) 71,993
--------- ----- ------- --------
Totals $281,322 $6,206 $(1,820) $285,708
======== ====== ======== ========
The amortized cost and fair value of fixed maturities, by contractual maturity, at December 31, 2000 are
shown below.
(in thousands) Available-for-Sale
------------------
Amortized Fair
Cost Value
---- -----
Due in one year or less $ 7,005 $ 7,018
Due after one through five years 157,111 158,344
Due after five through ten years 107,729 110,469
Due after ten years 9,477 9,877
------- -------
Total $281,322 $285,708
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
Investments in fixed maturities as of December 31, 1999 consisted of the following:
(in thousands) Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $ 81,183 $ - $ (678) $ 80,505
Obligations of state and political
subdivisions 253 - (3) 250
Corporate securities 121,859 - (4,449) 117,410
------- - ------- -------
Totals $203,295 $ - $(5,130) $198,165
======== === ======== ========
(in thousands) Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government obligations $1,105 $ - $ (1) $1,104
Corporate securities 2,255 - (15) 2,240
------- - ---- ------
Totals $3,360 $ - $(16) $3,344
====== === ===== ======
Proceeds from sales of fixed maturities during 2000, 1999 and 1998 were $302,632,000, $32,196,000, and
$999,000, respectively. Proceeds from maturities during 2000, 1999 and 1998 were $1,104,000, $4,030,000,
and $3,050,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (continued)
The cost, gross unrealized gains/losses and fair value of investments in mutual funds at December 31, 2000 and 1999
are shown below:
(in thousands) Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
2000 $23,218 $ 372 $(3,188) $20,402
======= ===== ======== =======
1999 $11,667 $4,763 $ (26) $16,404
======= ====== ====== =======
Net realized investment gains (losses) were as follows for the years ended December 31:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities:
Gross gains $1,002 $ 253 $ -
Gross losses (3,450) (228) (1)
Investment in mutual funds:
Gross gains 1,913 990 281
Gross losses (153) (437) (181)
-------- ------- -------
Totals $ (688) $ 578 $ 99
======= ===== ====
5. NET INVESTMENT INCOME
The sources of net investment income for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Fixed maturities $13,502 $ 9,461 $ 8,534
Cash and cash equivalents 5,154 2,159 1,717
Investment in mutual funds 99 32 1,013
Policy loans 97 31 45
Derivative instruments (6,939) (1,036) -
------- ------- ---------
Total investment income 11,913 10,647 11,309
Investment expenses 257 206 179
--------- --------- ---------
Net investment income $11,656 $10,441 $11,130
======= ======= =======
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES
The significant components of income tax expense for the years ended December 31 were as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Current tax (benefit) expense ($29,244) $41,248 $22,384
Deferred tax expense (benefit) 60,023 (10,904) (14,230)
--------- --------- --------
Total income tax expense $30,779 $30,344 $ 8,154
======= ======= =======
The tax effects of significant items comprising the Company's deferred tax balance as of December 31, 2000
and 1999 are as follows:
(in thousands) 2000 1999
---- ----
Deferred tax liabilities:
Deferred acquisition costs ($411,417) ($321,873)
Payable to reinsurers (29,985) (26,733)
Future contractowner benefits (11,526) -
Internal use software (2,524) (1,022)
Policy fees (1,551) (1,146)
Net unrealized gains (550) -
Foreign exchange translation (45) (80)
--------- -------
Total (457,598) (350,854)
--------- ---------
Deferred tax assets:
Net separate account liabilities
421,662 333,521
Future contractowner benefits
- 3,925
Other reserve differences
2,675 39,645
Deferred compensation
17,869 18,844
Surplus notes interest
5,536 5,030
Net unrealized losses
- 137
Other
907 1,478
--------- ---------
Total
448,649 402,580
------- -------
Income tax (payable) receivable - deferred $(8,949) $ 51,726
======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (continued)
The income tax expense was different from the amount computed by applying the federal statutory tax rate
of 35% to pre-tax income from continuing operations as follows:
(in thousands) 2000 1999 1998
---- ---- ----
Income (loss) before taxes
Domestic $98,136 $109,036 $45,435
Foreign (2,540) (2,523) (2,514)
------- ------- -------
Total 95,596 106,513 42,921
Income tax rate 35% 35% 35%
-------- -------- --------
Tax expense at federal statutory income tax rate 33,459 37,280 15,022
Tax effect of:
Dividend received deduction (7,350) (9,572) (9,085)
Losses of foreign subsidiary 889 883 880
Meals and entertainment 841 664 487
State income taxes (524) 1,071 673
Other 3,464 18 177
-------- ---------- ---------
Income tax expense $ 30,779 $ 30,344 $ 8,154
======== ======== =======
7. COST ALLOCATION AGREEMENTS WITH AFFILIATES
Certain operating costs (including personnel, rental of office space, furniture, and equipment) have been
charged to the Company at cost by American Skandia Information Services and Technology Corporation
("ASIST"), an affiliated company. The Company has also charged operating costs to ASISI. The total cost
to the Company for these items was $13,974,000, $11,136,000, and $7,722,000 for the years ended December
31, 2000, 1999 and 1998, respectively. Income received for these items was $11,186,000, $3,919,000 and
$1,355,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Beginning in 1999, the Company was reimbursed by ASM for certain distribution related costs associated with
the sales of business through an investment firm where ASM serves as an introducing broker dealer. Under
this agreement, the expenses reimbursed were $5,842,000 and $1,441,000 for the years ended December 31, 2000
and 1999. As of December 31, 2000 and 1999, amounts receivable under this agreement were $492,000 and
$245,000, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT
In a series of transactions with ASI, the Company transferred certain rights to receive future fees
and contract charges expected to be realized on variable portions of designated blocks of deferred
annuity contracts.
The proceeds from the transfers have been recorded as a liability and are being amortized over the
remaining surrender charge period of the designated contracts using the interest method. The Company did
not transfer the right to receive future fees and charges after the expiration of the surrender charge
period.
In connection with these transactions, ASI issued collateralized notes in private placements, which are
secured by the rights to receive future fees and charges purchased from the Company.
Under the terms of the Purchase Agreements, the rights transferred provide for ASI to receive a percentage
(60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges
and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining
surrender charge period of the designated contracts (6 to 8 years).
Payments representing fees and charges in the aggregate amount of $219,454,000, $131,420,000 and
$69,226,000 were made by the Company to the Parent for the years ended December 31, 2000, 1999 and 1998,
respectively. Related interest expense of $70,667,000, $52,840,000 and $22,978,000 has been included in
the statement of income for the years ended December 31, 2000, 1999 and 1998, respectively.
The Commissioner of the State of Connecticut has approved the transfer of future fees and charges;
however, in the event that the Company becomes subject to an order of liquidation or rehabilitation,
the Commissioner has the ability to stop the payments due to the Parent under the Purchase Agreement
subject to certain terms and conditions.
The present values of the transactions as of the respective effective date were as follows:
Closing Effective Contract Issue Discount Present
Transaction Date Date Period Rate Value
----------- ---- ---- ------ ---- -----
1996-1 12/16/96 9/1/96 1/1/94 - 6/30/96 7.5% $50,221
1997-1 7/23/97 6/1/97 3/1/96 - 4/30/97 7.5% 58,767
1997-2 12/30/97 12/1/97 5/1/95 - 12/31/96 7.5% 77,552
1997-3 12/30/97 12/1/97 5/1/96 - 10/31/97 7.5% 58,193
1998-1 6/30/98 6/1/98 1/1/97 - 5/31/98 7.5% 61,180
1998-2 11/10/98 10/1/98 5/1/97 - 8/31/98 7.0% 68,573
1998-3 12/30/98 12/1/98 7/1/96 - 10/31/98 7.0% 40,128
1999-1 6/23/99 6/1/99 4/1/94 - 4/30/99 7.5% 120,632
1999-2 12/14/99 10/1/99 11/1/98 - 7/31/99 7.5% 145,078
2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459
2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399
2000-3 12/28/00 12/1/00 5/1/00 - 10/31/00 7.25% 107,291
2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,139
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. FUTURE FEES PAYABLE TO PARENT (continued)
Expected payments of future fees payable to ASI as of December 31, 2000 are as follows:
Year Ended
(in thousands) December 31, Amount
------------ ------
2001 $164,892
2002 169,511
2003 165,626
2004 151,516
2005 128,053
2006 and thereafter 154,812
-------
Total $934,410
========
9. LEASES
The Company leases office space under a lease agreement established in 1989 with ASIST. The Company
entered into a lease agreement for office space in Westminster, Colorado, effective January 1, 2001.
Lease expense for 2000, 1999 and 1998 was $6,593,000, $5,003,000 and $3,588,000 respectively. Future
minimum lease payments per year and in aggregate as of December 31, 2000 are as follows:
(in thousands) 2001 $6,487
2002 8,032
2003 8,098
2004 8,209
2005 8,756
2006 and thereafter 51,922
-----------
Total $91,504
===========
10. RESTRICTED ASSETS
To comply with certain state insurance departments' requirements, the Company maintains cash, bonds and
notes on deposit with various states. The carrying value of these deposits amounted to $4,636,000 and
$4,868,000 as of December 31, 2000, and 1999, respectively. These deposits are required to be maintained
for the protection of contractowners within the individual states.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
11. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $342,804,000 and $286,385,000 at December 31, 2000 and 1999,
respectively.
The statutory basis net income for the year ended December 31, 2000 was $11,550,000, as compared to losses
of $17,672,000 and $13,152,000 for the years ended December 31, 1999 and 1998, respectively.
Under various state insurance laws, the maximum amount of dividends that can be paid to shareholders
without prior approval of the state insurance department is subject to restrictions relating to statutory
surplus and net gain from operations. At December 31, 2000, no amounts may be distributed without prior
approval.
On November 8, 1999, the Board of Directors authorized the Company to increase the par value of its
capital stock from $80 per share to $100 per share in order to comply with minimum capital levels as
required by the California Department of Insurance. This transaction resulted in a corresponding decrease
in paid in and contributed surplus of $500,000 and had no effect on capital and surplus.
12. STATUTORY ACCOUNTING PRACTICES
The National Association of Insurance Commissioners ("NAIC") revised the Accounting Practices and
Procedures Manual in a process referred to as Codification. The State of Connecticut has adopted the
provisions of the revised manual, which is effective January 1, 2001. The revised manual has changed, to
some extent, prescribed statutory accounting practices and will result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial statements. The adoption of the
revised accounting practices is not expected to have a material adverse effect on the Company's
statutory-basis capital and surplus.
13. EMPLOYEE BENEFITS
The Company has a 401(k) plan for which substantially all employees are eligible. Under this plan, the
Company contributes 3% of salary for all participating employees and matches employee contributions at a
50% level up to an additional 3% Company contribution. Company contributions to this plan on behalf of
the participants were $3,734,000, $3,164,000 and $2,115,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
The Company has a deferred compensation plan, which is available to the internal field marketing staff and
certain officers. Company contributions to this plan on behalf of the participants were $399,000,
$193,000 and $342,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company and certain affiliates cooperatively have a long-term incentive program under which units are
awarded to executive officers and other personnel. The Company and certain affiliates also have a profit
sharing program which benefits all employees below the officer level. These programs consist of multiple
plans with new plans instituted each year. Generally, participants must remain employed by the Company or
its affiliates at the time such units are payable in order to receive any payments under the programs.
The accrued liability representing the value of these units was $31,632,000 and $42,619,000 as of December
31, 2000 and 1999, respectively. Payments under these programs were $13,542,000, $4,079,000 and
$2,407,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
14. REINSURANCE
The effect of reinsurance for the years ended December 31, 2000, 1999 and 1998 is as follows:
(in thousands) 2000
----
Annuity and Life Insurance Change in Annuity and Life
Charges and Fees Insurance Return Credited
---------------- Policy Reserves to Contractowners
--------------- -----------------
Gross $477,802 $45,784 $13,607
Ceded (53,224) (766) (4,561)
----------- ----------- ---------
Net $424,578 $45,018 $ 9,046
======== ======= =======
1999
----
Annuity and Life Insurance Change in Annuity and Life
Charges and Fees Insurance Return Credited
---------------- Policy Reserves to Contractowners
--------------- -----------------
Gross $326,670 $4,151 ($1,382)
Ceded (36,681) (1,073) (257)
------------ ---------- ------------
Net $289,989 $3,078 ($1,639)
======== ====== ========
1998
----
Annuity and Life Insurance Change in Annuity and Life
Charges and Fees Insurance Return Credited
----------------
Policy Reserves to Contractowners
--------------- -----------------
Gross $215,425 $ 691 ($8,921)
Ceded (29,214) 362 (9)
-------- ------ ------
Net $186,211 $1,053 ($8,930)
======== ====== ========
In December 2000, the Company entered into a modified coinsurance agreement with SICL effective January
1996. During 2000, ceded premiums received net of commission expenses and reserve adjustments were
$10,360,000. At December 31, 2000, $6,109,000 was payable to SICL under this agreement.
Such ceded reinsurance does not relieve the Company of its obligations to policyholders. The Company
remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not
meet its obligations assumed under the reinsurance agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
15. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for cash. Surplus notes outstanding as of December 31,
2000 and 1999 were as follows:
(in thousands)
Interest for the
Interest 2000 1999 Years Ended December 31,
Issue Date Rate Amount Amount 2000 1999 1998
---------- ---- ------ ------ ---- ---- ----
December 29, 1993 6.84% - - - - 1,387
February 18, 1994 7.28% - 10,000 732 738 738
March 28, 1994 7.90% - 10,000 794 801 801
September 30, 1994 9.13% 15,000 15,000 1,392 1,389 1,389
December 28, 1994 9.78% - - - 1,308 1,388
December 19, 1995 7.52% 10,000 10,000 765 762 762
December 20, 1995 7.49% 15,000 15,000 1,142 1,139 1,139
December 22, 1995 7.47% 9,000 9,000 684 682 682
June 28, 1996 8.41% 40,000 40,000 3,420 3,411 3,411
December 30, 1996 8.03% 70,000 70,000 5,715 5,698 5,699
------ ------ ----- ----- ------
Total $159,000 $179,000 $14,644 $15,928 $17,396
======== ======== ======= ======= =======
Surplus notes for $10,000,000 dated February 18, 1994 and $10,000,000 dated March 28, 1994 were converted
to additional paid-in capital on December 27, 2000. A surplus note for $14,000,000 dated December 28,
1994 was converted to additional paid-in capital on December 10, 1999. All surplus notes mature seven
years from the issue date.
Payment of interest and repayment of principal for these notes is subject to certain conditions and require
approval by the Insurance Commissioner of the State of Connecticut. At December 31, 2000 and 1999,
$15,816,000 and $14,372,000, respectively, of accrued interest on surplus notes was not approved for payment
under these criteria.
16. SHORT-TERM BORROWING
The Company had a $10,000,000 short-term loan payable to ASI at December 31, 2000 and 1999 as part of a
revolving loan agreement. The loan has an interest rate of 7.13% and matures on March 12, 2001. The total
interest expense to the Company was $687,000, $585,000 and $622,000 and for the years ended December 31,
2000, 1999 and 1998, respectively. Accrued interest payable was $222,000 and $197,000 as of December 31,
2000 and 1999, respectively.
17. CONTRACT WITHDRAWAL PROVISIONS
Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by
contractowners at market value or with market value adjustment. Separate account assets which are carried
at fair value are adequate to pay such withdrawals which are generally subject to surrender charges
ranging from 10% to 1% for contracts held less than 10 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
18. SEGMENT REPORTING
In recent years, in order to complete the array of products offered by the Company and its affiliates to
meet a wide variety of financial planning, the Company developed the variable life insurance and qualified
retirement plan annuity products. Assets under management and sales for the products other than variable
annuities have not been significant enough to warrant full segment disclosures as required by SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information."
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the operations of the Company on a quarterly
basis:
(in thousands) Three months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2000
----
Premiums and other insurance
revenues $137,255 $139,317 $147,923 $136,159
Net investment income 2,876 3,628 4,186 966
Net realized capital gains (losses) 729 (1,436) (858) 877
------- ------- -------- ---------
Total revenues 140,860 141,509 151,251 138,002
Benefits and expenses 106,641 121,356 137,514 110,515
------- ------- ------- -------
Pre-tax net income 34,219 20,153 13,737 27,487
Income taxes 10,038 5,225 3,167 12,349
------ ------- ------- ------
Net income $24,181 $14,928 $10,570 $15,138
======= ======= ======= =======
1999
----
Premiums and other insurance
revenues $78,509 $88,435 $97,955 $111,443
Net investment income 2,654 2,842 2,735 2,210
Net realized capital gains 295 25 206 52
------ ------- ------ -------
Total revenues 81,458 91,302 100,896 113,705
Benefits and expenses 64,204 67,803 71,597 77,244
------ ------- ------- --------
Pre-tax net income 17,254 23,499 29,299 36,461
Income taxes 3,844 7,142 7,898 11,460
------- ------- ------- -------
Net income $ 13,410 $ 16,357 $ 21,401 $ 25,001
======== ======== ======== ========
1998
Premiums and other insurance
revenues $50,593 $57,946 $62,445 $67,327
Net investment income 3,262 2,410 2,469 2,989
Net realized capital gains (losses) 156 13 (46) (24)
-------- ------- ------ ------
Total revenues 54,011 60,369 64,868 70,292
Benefits and expenses 46,764 42,220 48,471 69,164
------- ------ -------- -------
Pre-tax net income 7,247 18,149 16,397 1,128
Income taxes 1,175 4,174 2,223 582
------ ------ ------ -------
Net income $6,072 $13,975 $14,174 $ 546
====== ======= ======= =====
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 30, 2001.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: /s/Thomas M. Mazzaferro
------------------------
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on March 30, 2001.
*Wade A. Dokken
---------------
Wade A. Dokken
Chief Executive Officer,
Chairman of the Board and Director
Board of Directors
*Patricia J. Abram *Gordon C. Boronow *Malcolm M. Campbell
----------------- ----------------- -------------------
*Yat Kan Chan *Lincoln R. Collins *Wade A. Dokken
------------ ------------------- --------------
*Ian B. Kennedy *Thomas M. Mazzaferro *Gunnar J. Moberg
-------------- -------------------- -------------------
*Christian W. Thwaites *Bayard F. Tracy *Deborah G. Ullman
--------------------- --------------- -----------------
*Brett M. Winson
---------------
By: /s/M. Priscilla Pannell
-----------------------------------------
M. Priscilla Pannell
Corporate Secretary
*Pursuant to Powers of Attorney filed with the Registration Statement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 30, 2001.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: ___________________________
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on March 30, 2001.
*Wade A. Dokken
---------------
Wade A. Dokken
Chief Executive Officer,
Chairman of the Board and Director
Board of Directors
*Patricia J. Abram *Gordon C. Boronow *Malcolm M. Campbell
----------------- ----------------- -------------------
*Yat Kan Chan *Lincoln R. Collins *Wade A. Dokken
------------ ------------------- --------------
*Ian B. Kennedy *Thomas M. Mazzaferro *Gunnar J. Moberg
-------------- -------------------- -------------------
*Christian W. Thwaites *Bayard F. Tracy *Deborah G. Ullman
--------------------- --------------- -----------------
*Brett M. Winson
---------------
By: ___________________________________
M. Priscilla Pannell
Corporate Secretary
*Pursuant to Powers of Attorney filed with the Registration Statement.