Back to GetFilings.com
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003
Commission file numbers: 333-103889, 33-88360, 33-89676, 33-91400,
333-00995, 333-02867, 333-24989, 333-25761, 333-97939,
333-26695, 333-97943 and 333-97941
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
Incorporated in the State of Connecticut
06-1241288
(Federal Employer Identification No.)
One Corporate Drive
Shelton, Connecticut 06484
Telephone Number (203) 926-1888
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[ X ]
As of April 29, 2003, 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 common stock, all of which were owned by American Skandia, Inc., an indirect
wholly-owned subsidiary of Skandia Insurance Company Ltd., a Swedish corporation.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
March 31, 2003 (unaudited) and December 31, 2002 3
Consolidated Statements of Income (unaudited) -
Three months ended March 31, 2003 and March 31, 2002 4
Consolidated Statements of Shareholder's Equity -
Three months ended March 31, 2003 (unaudited)
and year ended December 31, 2002 5
Consolidated Statements of Cash Flows (unaudited) -
Three months ended March 31, 2003 and March 31, 2002 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
Certifications 18
Exhibit 99 20
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Financial Condition
(in thousands except for number of shares and par value)
March 31, December 31,
2003 2002
(unaudited)
ASSETS
Investments:
Fixed maturities - available for sale, at fair value (amortized
cost of $405,617 and $379,422, respectively) $ 417,892 $ 398,601
Equity securities - available for sale, at fair value (amortized
cost of $63,738 and $52,017, respectively) 64,665 51,769
Policy loans 7,584 7,559
Other short-term investments 5,602 10,370
Total investments 495,743 468,299
Cash and cash equivalents 17,965 51,339
Deferred policy acquisition costs 1,100,745 1,117,544
Accrued investment income 4,626 4,196
Reinsurance receivable 5,032 5,447
Receivables from Parent and affiliates 5,216 3,961
Other assets 159,725 152,186
Separate account assets 21,411,003 21,905,613
Total assets $ 23,200,055 $ 23,708,585
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholders' account balances $ 162,438 $ 140,496
Future policy benefits and other policyholder liabilities 9,736 8,853
Income taxes payable 6,561 6,547
Other liabilities 144,707 133,543
Payables to Parent and affiliates 2,446 2,223
Short-term borrowing 25,000 10,000
Future fees payable to American Skandia, Inc. ("ASI") 660,002 708,249
Surplus notes 110,000 110,000
Separate account liabilities 21,411,003 21,905,613
Total liabilities 22,531,893 23,025,524
Commitments and contingent liabilities (Note 7)
Shareholder's equity:
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding 2,500 2,500
Paid-in-capital 596,333 595,049
Retained earnings 61,263 73,821
Accumulated other comprehensive income 8,066 11,691
Total shareholder's equity 668,162 683,061
Total liabilities and shareholder's equity $ 23,200,055 $ 23,708,585
See notes to unaudited consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Income
(in thousands)
Three Months Ended March 31,
2003 2002
(unaudited)
REVENUES
Premiums $ 1,038 $ 209
Policy charges and fee income 82,050 84,645
Net investment income 1,053 8,832
Realized investment losses, net (2,775) (6,108)
Asset management fees 21,052 26,168
Other income 466 411
Total revenues 102,884 114,157
BENEFITS AND EXPENSES
Policyholders' benefits 17,921 4,984
Interest credited to policyholders' account balances 12,171 9,368
General, administrative and other expenses 94,120 90,642
Total benefits and expenses 124,212 104,994
(Loss) income from operations before income taxes (21,328) 9,163
Income taxes:
Current 4 -
Deferred (8,774) 1,703
Total income tax (benefit) expense (8,770) 1,703
Net (loss) income $ (12,558) $ 7,460
See notes to unaudited consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Shareholder's Equity
(in thousands)
Accumulated Other
Comprehensive Income
----------------------------
-------------- -------------
Additional Foreign Unrealized
Common Paid in Retained Currency Gains
Stock Capital Earnings Translation (Losses) Total
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 2001 $2,500 $335,329 $239,078 $15 $746 $577,668
Net loss (165,257) (165,257)
Other comprehensive income:
Unrealized capital gains 10,434 10,434
Reclassification adjustment for
realized losses included in
realized investment losses, net 1,126 1,126
Foreign currency translation (630) (630)
------------
------------
Other comprehensive income 10,930
------------
------------
Comprehensive loss (154,327)
Capital contributions 259,720 259,720
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of December 31, 2002 2,500 595,049 73,821 (615) 12,306 683,061
Net loss (12,558) (12,558)
Other comprehensive loss:
Unrealized capital gains 126 126
Reclassification adjustment for
realized gains included in
realized investment losses, net (3,849) (3,849)
Foreign currency translation 98 98
------------
------------
Other comprehensive loss (3,625)
------------
------------
Comprehensive loss (16,183)
Capital contributions 1,284 1,284
----------- ------------ ----------- -------------- ------------- ------------
----------- ------------ ----------- -------------- ------------- ------------
As of March 31, 2003 $2,500 $596,333 $61,263 ($517) $8,583 $668,162
=========== ============ =========== ============== ============= ============
Unrealized capital gains is shown net of tax expense of $68 and $5,618 for March 31, 2003 and December 31, 2002, respectively.
Reclassification adjustment for realized (gains) losses included in realized investment losses, net is shown net of tax (benefit)
expense of ($2,073) and $606 for March 31, 2003 and December 31, 2002, respectively. Foreign currency translation is shown net of
tax expense (benefit) of $53 and ($339) for March 31, 2003 and December 31, 2002, respectively.
See notes to unaudited consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended March 31,
2003 2002
(unaudited)
Cash flow from operating activities:
Net (loss) income $ (12,558) $ 7,460
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Realized investment losses, net 2,775 6,108
Amortization and depreciation 4,663 3,881
Policy reserves 3,826 1,381
Change in:
Accrued investment income (430) (16)
Net receivable/payable to Parent and affiliates (1,032) (103,584)
Policy loans (25) (329)
Deferred policy acquisition costs 16,799 (4,099)
Income taxes payable 14 (1,700)
Reinsurance receivable 415 497
Other, net 1,535 (28,025)
Net cash provided by (used in) operating activities 15,982 (118,426)
Cash flow from investing activities:
Purchase of fixed maturity investments (91,955) (128,982)
Proceeds from sale and maturity of fixed maturity investments 68,455 134,195
Purchase of shares in equity securities and dividend
reinvestments (23,568) (6,203)
Proceeds from sale of shares in equity securities 9,507 5,170
Net purchase of other short-term investments (9,442) (13,410)
Net proceeds from other short-term investments 10,461 1,926
Net cash used in investing activities (36,542) (7,304)
Cash flow from financing activities:
Capital contribution 1,284 1,340
Decrease in future fees payable to ASI, net (48,247) (42,396)
Net increase in short-term borrowing 15,000 164,984
Deposits to contract owner accounts 401,135 28,446
Withdrawals from contract owner accounts (45,519) (74,632)
Change in contract owner accounts, net of investment earnings (336,618) 48,113
Net cash (used in) provided by financing activities (12,965) 125,855
Net (decrease) increase in cash and cash equivalents (33,525) 125
Change in foreign currency translation, net 151 (125)
Cash and cash equivalents at beginning of period 51,339 -
Cash and cash equivalents at end of period $ 17,965 $ -
Income taxes (received) paid $ (10) $ 1,700
See notes to unaudited consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Notes to Unaudited Consolidated Financial Statements
March 31, 2003
(dollars in thousands)
1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company"), with its principal offices in Shelton, Connecticut, is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI"). On December 19, 2002, Skandia Insurance Company Ltd. (publ) ("SICL"
or "Parent"), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the
Company, entered into a definitive purchase agreement with Prudential Financial, Inc., a New Jersey corporation ("Prudential
Financial"), whereby Prudential Financial will acquire the Company and certain of its affiliates (the "Acquisition").
Consummation of the transaction is subject to various closing conditions, including regulatory approvals. The transaction is
expected to close during the second quarter of 2003.
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 term and variable universal life
insurance and variable deferred and immediate annuities for individuals and groups in the United States of America and its
territories.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and
footnotes thereto in the Company's audited consolidated financial statements on Form 10-K for the year ended December 31,
2002.
Certain reclassifications have been made to prior period amounts to conform to the current period presentation.
3. SHORT-TERM BORROWING
As of March 31, 2003 and December 31, 2002, the Company had a $10,000 short-term loan payable to its parent company,
American Skandia, Inc. ("ASI") as part of a revolving loan agreement. This loan has an interest rate of 1.71% and matures
on April 30, 2003.
On January 3, 2002, the Company entered into a $150,000 credit facility agreement with ASI. This credit facility terminates
on December 31, 2005 and bears interest at the offered rate in the London interbank market (LIBOR) plus 0.35 percent per
annum for the
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd. )
Notes to Unaudited Consolidated Financial Statements (continued)
3. SHORT-TERM BORROWING (continued)
relevant interest period. Interest expense related to these borrowings was $17 for the three months ended March 31, 2003.
As of March 31, 2003, $15,000 was outstanding under this credit facility.
4. FOREIGN ENTITY
The Company has a 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 shareholders' equity of $4,625 as of March 31, 2003 and $5,023 as of December 31, 2002
and has generated losses of $1,833 and $694 for the three months ended March 31, 2003 and 2002, respectively. As part of
the Acquisition, it is expected that the Company will sell its ownership interest in Skandia Vida to SICL. The Company has
filed for and received required regulatory approvals from the State of Connecticut and Mexico related to the sale of Skandia
Vida.
5. INCOME TAXES
The Company recorded an income tax (benefit) expense of ($8,770) and $1,703 for the three months ended March 31, 2003 and
2002, respectively. The effective income tax rate for the three months ended March 31, 2003 and 2002 varied from the
corporate rate of 35% due primarily to the deduction for dividends received.
6. DEFERRED ACQUISITION COSTS
Details of deferred acquisition costs and related amortization for the three months ended March 31, 2003 and 2002 are as
follows:
2003 2002
Balance, December 31, $ 1,117,544 $ 1,383,281
Commissions and expenses deferred 33,800 37,488
Purchase credits deferred 16,152 13,537
Amortization of commissions and expenses deferred
(56,599) (40,313)
Amortization of purchase credits deferred (10,152) (6,613)
Balance, March 31, $ 1,100,745 $ 1,387,380
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd. )
Notes to Unaudited Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENT LIABILITIES
In recent years, a number of annuity companies have been named as defendants in class action lawsuits relating to the use of
variable annuities as funding vehicles for tax- qualified retirement accounts. The Company is currently a defendant in one
such lawsuit. A purported class action complaint was filed in the United States District Court for the Southern District of
New York on December 12, 2002, by Diane C. Donovan against the Company and certain of its affiliates (the "Donovan
Complaint"). The Donovan Complaint seeks unspecified compensatory damages and injunctive relief from the Company and
certain of its affiliates. The Donovan Complaint claims that the Company and certain of its affiliates violated federal
securities laws in marketing variable annuities. This litigation is in the preliminary stages. The Company believes this
action is without merit, and intends to vigorously defend against this action.
The Company is also involved in other lawsuits arising, for the most part, in the ordinary course of its business
operations. While the outcome of these other lawsuits cannot be determined at this time, after consideration of the
defenses available to the Company, applicable insurance coverage and any related reserves established, these other lawsuits
are not expected to result in liability for amounts material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
As discussed previously, on December 19, 2002, SICL entered into a definitive purchase agreement (the "Purchase Agreement")
to sell its ownership interest in the Company and certain affiliates to Prudential Financial for approximately $1.265
billion. The closing of this transaction, which is conditioned upon certain customary regulatory and other approvals and
conditions, is expected in the second quarter of 2003.
The purchase price that was agreed to between SICL and Prudential Financial was based on a September 30, 2002 valuation of
the Company and certain affiliates. As a result, assuming the transaction closes, the economics of the Company's business
from September 30, 2002 forward will inure to the benefit or detriment of Prudential Financial. Included in the Purchase
Agreement, SICL has agreed to indemnify Prudential Financial for certain liabilities that may arise relating to periods
prior to September 30, 2002. These liabilities generally include market conduct activities, as well as contract and
regulatory compliance (referred to as "Covered Liabilities").
Related to the indemnification provisions contained in the Purchase Agreement, SICL has signed, for the benefit of the
Company, an indemnity letter, effective December 19, 2002, to make the Company whole for certain Covered Liabilities that
come to fruition during the period beginning December 19, 2002 and ending with the close of the transaction. This
indemnification effectively transfers the risk associated with those Covered Liabilities from the Company to SICL concurrent
with the signing of the definitive purchase agreement rather than waiting until the transaction closes.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd. )
Notes to Unaudited Consolidated Financial Statements (continued)
8. SEGMENT REPORTING
Assets under management and sales for products other than variable annuities have not been significant enough to warrant
full segment disclosures as required by Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information", and the Company does not anticipate that they will be so in the future.
******************************************************************************************************
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months ended March 31, 2003
(dollars in thousands)
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the March
31, 2003 unaudited financial statements and the notes included herein, as well as Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in American Skandia Life Assurance Corporation's (the "Company") 2002 Annual Report on
Form 10-K.
General
The Company, with its principal offices in Shelton, Connecticut, is a wholly-owned subsidiary of American Skandia, Inc. ("ASI"). On
December 19, 2002, Skandia Insurance Company Ltd. (publ) ("SICL"), an insurance company organized under the laws of the Kingdom of
Sweden, and the ultimate parent company of the Company, entered into a definitive purchase agreement with Prudential Financial, Inc.,
a New Jersey corporation ("Prudential Financial"), whereby Prudential Financial will acquire the Company and certain of its
affiliates (the "Acquisition"). Consummation of the transaction is subject to various closing conditions, including regulatory
approvals. The transaction is expected to close during the second quarter of 2003.
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. As part of the Acquisition, it is expected that the Company will sell its ownership interest in Skandia Vida to SICL. The
Company has filed for and received required regulatory approvals from the State of Connecticut and Mexico related to the sale of
Skandia Vida.
The Company was established in 1988 and is a significant provider of variable annuity contracts for the individual market in the
United States. Affiliates of the Company sponsor and distribute shares of registered investment companies ("mutual funds"). Because
these mutual funds are not sponsored or distributed by the Company, such products are not discussed herein and are not reflected in
the Company's financial statements.
The Company's products are sold primarily to individuals to provide for long-term savings and retirement and to address the economic
impact of premature death, estate planning concerns and supplemental retirement needs. The investment performance of the mutual
funds supporting the variable annuity contracts, which in turn correlates, principally, with equity market performance, can
significantly impact the market for the Company's products.
Products and Distribution
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 with fixed interest rate investment options that include a market
value adjustment feature; b) certain other fixed deferred annuities that are not registered with the Securities and Exchange
Commission; and c) fixed, adjustable and variable immediate annuities.
The Company sells its wide array of annuity 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. Although
the Company is active in each of those distribution channels, the majority of the Company's sales have come from independent
financial planners. The Company has selling agreements with approximately twelve hundred broker/dealer firms and financial
institutions.
Although many of the Company's competitors have acquired or are looking to acquire their distribution channels as a means of securing
sales, the Company has not done so. Instead, the Company believes its success is dependent on its ability to enhance its
relationships with both the selling firms and their registered representatives. In cooperation with its affiliated broker-dealer,
American Skandia Marketing, Incorporated, the Company uses marketing teams to provide support to its primary distribution channels.
In addition, the Company also offers a number of private label and proprietary products distributed by select large distributors.
Results of Operations
Annuity and life insurance sales for the three months ended March 31, 2003 totaled $703,895, compared to sales of $811,887 for the
first three months of 2002. The decrease in sales was primarily the result of the general decline in sales in the industry,
attributed in large part to the continued uncertainty in the equity markets. In addition, the Company believes that sales in the
first quarter of 2003 have been negatively impacted by the Company's distribution channels awaiting the closing of the Company's
acquisition by Prudential Financial.
Average assets under management were $21,356,686 in the first quarter of 2003 and $25,509,596 in the first quarter of 2002,
representing a decrease of 17%. This decline primarily related to poor fund performance associated with the continued under
performing equity markets as well as increased lapses. Lapses have increased, the Company believes, due to concerns by contract
holders, rating agencies and the Company's distribution channels, surrounding the uncertainty in the equity markets and its impact on
variable annuity companies. Policy charges and fee income and asset management fees decreased for the three months ended March 31,
2003, compared to the same period in 2002. These declines were primarily a result of the decline in assets under management offset
by an increase in surrender charge income of $4,316 for the three months ended March 31, 2003, compared to the same period in 2002.
The increase in surrender charge income is caused by higher lapses when compared to the applicable prior year period.
Net investment income decreased for the three months ended March 31, 2003 as compared to the same period in 2002 principally driven
by decreased net investment results of $7,181 on the Company's separate account supporting its fixed, market value adjusted
investment option.
Net realized investment losses for the first three months of 2003 decreased compared to the same period in 2002. This decline
resulted primarily from an increase in realized gains of $2,932 on sales of fixed maturities.
Policyholders' benefits increased for the first quarter of 2003 compared to the same period in 2002 principally driven by a $9,156
increase of guaranteed minimum death benefit claims due to the depressed equity markets.
Interest credited to policyholders' account balances increased for the first three months of 2003 compared to the same period in 2002
primarily due to increased amortization of deferred purchase credits consistent with the increased amortization of deferred
acquisition costs.
Underwriting, acquisition and other insurance expenses for the three months ended March 31, 2003 and 2002 were as follows:
For the three months ended March 31, 2003 2002
Commissions $ 39,100 $46,854
General operating expenses 32,221 40,963
Acquisition costs deferred (33,800) (37,488)
Amortization of deferred acquisition costs 56,599 40,313
General, administrative and other expenses $ 94,120 $ 90,642
Commissions for the first quarter of 2003 declined in comparison to the first quarter of 2002 primarily due to a decline in asset
based commissions consistent with the decline in assets under management and a decline in initial commissions consistent with the
decline in sales over the same periods. General operating expenses decreased during the first quarter of 2003 as compared to the
same period in the prior year principally as a result of an $8,553 decrease in interest expense related to the future fees payable to
ASI liability. Interest expense on these obligations is driven by the cash flows from the underlying annuity contracts acting as
collateral. Due to the depressed asset values of those annuity contracts, driven by the weak equity markets, the cash flows, and
therefore the interest expense, has decreased from prior year levels. The decline in acquisition costs deferred was consistent with
the decline in initial commissions described above. Amortization of deferred acquisition costs increased for the three months ended
March 31, 2003, as compared to the same period in 2002. In general, the increased amortization is due to the depressed equity
markets during the three months ended March 31, 2003 as compared to 2002, thereby decreasing long-term expectations of future gross
profits from asset based fees and increased claim costs associated with minimum death benefit guarantees.
The Company's income tax (benefit) expense varies with increases or decreases in (loss) income from operations. The effective income
tax rate varied from the corporate rate of 35% due primarily to the deduction for dividends received.
Total assets and liabilities as of March 31, 2003 decreased $508,530 and $493,631, respectively, from December 31, 2002. This change
resulted primarily from the declining equity markets over the first quarter of 2003.
Significant Accounting Policies
For information on the Company's significant accounting policies, see Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's audited consolidated financial statements on Form 10-K for the year ended December 31, 2002.
Liquidity and Capital Resources
The Company's liquidity requirements have generally been met by cash from insurance operations, investment activities, borrowings
from ASI, reinsurance, capital contributions and securitization transactions with ASI.
The Company's cash from insurance operations is primarily comprised of fees generated off of assets under management, less commission
expense on sales, sales and marketing expenses and other operating expenses. Fund performance driven by the equity markets directly
impacts assets under management and therefore, the fees the Company can generate off of those assets. During the first quarter of
2003, assets under management declined consistent with the equity market declines resulting in reductions in fee revenues.
In order to fund the cash strain generated from acquisition costs on historical and on-going sales, the Company has relied on cash
generated from its direct insurance operations as well as reinsurance and securitization transactions. The Company has used modified
coinsurance reinsurance arrangements whereby the reinsurer shares in the experience of a specified book of business. These
reinsurance transactions result in the Company receiving from the reinsurer an upfront ceding commission on the book of business
ceded in exchange for the reinsurer receiving the future fees generated from that book of business. These reinsurance agreements
also mitigate the recoverability risk associated with the payment of up-front commissions and other acquisition costs. Similarly,
the Company has entered into securitization transactions whereby the Company issues to ASI, in exchange for cash, the right to
receive future fees generated off of a specific book of business.
As of March 31, 2003 and December 31, 2002, the Company had short-term borrowings of $25,000 and $10,000, respectively, and had
long-term surplus notes liabilities of $110,000 at both March 31, 2003 and December 31, 2002.
As of March 31, 2003 and December 31, 2002, shareholder's equity totaled $668,162 and $683,061, respectively. The Company received
capital contributions of $1,284 from ASI during 2003 to support its investment in Skandia Vida. Net loss of $12,558 for the three months
ended March 31, 2003, contributed to the change in shareholder's equity in 2003.
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.
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 (the "1995 Act") provides a "safe harbor" for forward-looking statements, so
long as those statements are identified as forward-looking, and the statements are accompanied by meaningful cautionary statements
that identify important factors that could cause actual results to differ materially from those discussed in the statement. We want
to take advantage of these safe harbor provisions.
Certain information contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations is
forward-looking within the meaning of the 1995 Act or Securities and Exchange Commission rules.
These forward-looking statements rely on a number of assumptions concerning future events, and are subject to a number of significant
uncertainties and results may differ materially from these statements. You should not put undue reliance on these forward-looking
statements. We disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new
information, future events or otherwise.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(an indirect wholly-owned subsidiary of Skandia Insurance Company Ltd.)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk during the three months ended March 31, 2003. The Company has
provided a discussion of its market risks in Item 7A of Part II of the December 31, 2002 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer have conducted an evaluation of the effectiveness of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, within the past 90 days, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that
all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have
been no significant changes in internal control, or in factors that could significantly affect internal control, subsequent to the
date the Chief Executive Officer and Chief Financial Officer completed their evaluation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibits
(2) Plans of acquisition, reorganization, None
arrangement, liquidation or succession
(3) Articles of Incorporation and By-Laws Incorporated by reference to the Company's
Form N-4 (Reg. 33-87010)
(4) Instruments defining the right of security Incorporated by reference to the Company's
holders including indentures Reg. 333-103889, 33-88360, 33-89676,
33-91400, 333-00995, 333-02867, 333-24989,
333-25761, 333-97939, 333-26695,
333-97943 and 333-97941
(10) Material Contracts Incorporated by reference to the Company's
Forms S-2 (Reg. 33-53596)
(11) Statement of Computation of per share Not required to be filed
earnings
(15) Letter re unaudited interim financial None
information
(18) Letter re change in accounting principles None
(19) Report furnished to security holders None
(22) Published report regarding matters submitted None
to vote of security holders
(23) Consents of experts and counsel Not required to be filed
(24) Powers of Attorney Incorporated by reference to the Company's
Form S-2 (Reg. 333-53596)
(99) Additional exhibits Page 20
(b) Reports on Form 8-K None
* Schedules are omitted because they are either not applicable or because the information required therein is included in the Notes
to Consolidated Financial Statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
American Skandia Life
Assurance Corporation
(Registrant)
by: /s/Thomas M. Mazzaferro
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
April 29, 2003
CERTIFICATIONS
I, Wade A. Dokken, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Skandia Life Assurance Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: April 29, 2003 /s/ Wade A. Dokken
President and Chief Executive Officer
CERTIFICATIONS
I, Thomas M. Mazzaferro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Skandia Life Assurance Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made,
not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: April 29, 2003 /s/ Thomas M. Mazzaferro
Executive Vice President, Chief Financial Officer and Director
Exhibit 99
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), each of the undersigned officers of American Skandia Life Assurance Corporation, a Connecticut corporation (the
"Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the "Form 10-Q") of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly
presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 29, 2003 /s/ Wade A. Dokken
President and Chief Executive Officer
Dated: April 29, 2003 /s/ Thomas M. Mazzaferro
Executive Vice President, Chief Financial Officer and Director
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.