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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT-OF 1934
For the quarterly period ended September 30, 2004
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-44202
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of Registrant as specified in its charter)
Connecticut 06-1241288
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(State or other jurisdiction, (IRS Employer Identification No.)
incorporation or organization)
One Corporate Drive, Shelton, Connecticut 06484
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(Address of principal executive offices) (Zip Code)
(203) 926-1888
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(Registrant's Telephone Number, including area code)
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 (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 ___
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Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO
X
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As of November 10, 2004, 25,000 shares of the registrant's Common Stock (par value $100), consisting of 100 voting
shares and 24,900 non-voting shares, were outstanding. As of such date, American Skandia, Inc., an indirect
wholly-owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the registrant's Common
Stock.
American Skandia Life Assurance Corporation meets the conditions set
forth in General Instruction (H) (1) (a) and (b) on Form 10-Q and
is therefore filing this Form with the reduced disclosure format.
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AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
INDEX TO FINANCIAL STATEMENTS
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Page No.
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Cover Page 1
Index 2
PART I - Financial Information
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Item 1. Financial Statements
Consolidated Statements of Financial Position
As of September 30, 2004 (unaudited) and December 31, 2003 3
Consolidated Statements of Operations and Comprehensive Income (unaudited)
Three months ended September 30, 2004 and September 30, 2003 4
Consolidated Statements of Operations and Comprehensive Income (unaudited)
Nine months ended June 30, 2004, five months ended September 30, 2003 and four months
ended April 30, 2003 5
Consolidated Statements of Stockholder's Equity
Periods ended September 30, 2004 (unaudited), December 31, 2003,
April 30, 2003 (unaudited) and December 31, 2002 6
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2004, five months ended September 30, 2003 and four months
ended April 30, 2003 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 4. Controls and Procedures 14
PART II - Other Information
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Item 1. Legal Proceedings 16
Item 6. Exhibits 17
Signatures 18
Forward-Looking Statement Disclosure
Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in the Management's
Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. Words such as "expects," "believes," "anticipates," "includes," "plans,"
"assumes," "estimates," "projects," "intends" or variations of such words are generally part of forward-looking statements.
Forward-looking statements are made based on management's current expectations and beliefs concerning future developments and their
potential effects upon American Skandia Life Assurance Corporation ("the Company"). There can be no assurance that future
developments affecting the Company will be those anticipated by management. These forward-looking statements are not a guarantee of
future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to
differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without
limitation: general economic, market and political conditions, including the performance of financial markets, and interest rate
fluctuations; various domestic or international military or terrorist activities or conflicts; volatility in the securities markets;
reestimates of our reserves for future policy benefits and claims; changes in our assumptions related to deferred policy acquisition
costs; our exposure to contingent liabilities; catastrophe losses; investment losses and defaults; changes in our claims-paying or
credit ratings; competition in our product lines and for personnel; fluctuations in foreign currency exchange rates and foreign
securities markets; the impact of changing regulation or accounting practices; adverse litigation results; and changes in tax law.
The Company is under no obligation to update any particular forward-looking statement included in this Quarterly Report on Form 10Q.
American Skandia Life Assurance Corporation
Consolidated Statements of Financial Position
As of September 30, 2004 (unaudited) and December 31, 2003 (in thousands)
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Successor Successor
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September 30, December 31,
2004 2003
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ASSETS
Fixed maturities available for sale,
At fair value (amortized cost, 2004: $2,225,155; 2003: $427,705) $ 2,263,297 $ 425,231
Equity securities available for sale, at fair value (cost of $11,238) 11,254 -
Trading account assets, at fair value 46,905 59,485
Policy loans 10,272 8,371
Short-term investments 320,555 39,587
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Total investments 2,652,283 532,674
Cash and cash equivalents - -
Deferred policy acquisition costs 262,944 122,572
Accrued investment income 28,281 3,969
Reinsurance recoverable - 3,819
Receivables from Parent and affiliates 1,232 3,200
Income taxes receivable 247,379 222,422
Valuation of business acquired 239,131 402,169
Deferred purchase credits 129,788 70,188
Other assets 57,545 24,380
Separate account assets 24,566,532 25,817,612
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TOTAL ASSETS $ 28,185,115 $ 27,203,005
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LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 1,813,815 $ 132,234
Future policy benefits and other policyholder liabilities 42,003 13,681
Payables to Parent and affiliates 21,826 16,396
Cash collateral for loaned securities 203,379 -
Securities sold under agreement to repurchase 54,240 20,850
Short-term borrowing 220,444 116,000
Long-term borrowing 135,000 -
Future fees payable to American Skandia, Inc. ("ASI") 225,607 307,879
Other liabilities 239,653 201,856
Separate account liabilities 24,566,532 25,817,612
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Total liabilities 27,522,499 26,626,508
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Contingencies (See Footnote 3)
Stockholder's Equity
Common stock, $100 par value;
25,000 shares, authorized,
issued and outstanding 2,500 2,500
Paid-in-capital 484,414 485,100
Retained earnings 155,974 90,856
Deferred compensation (1,009) (360)
Accumulated other comprehensive income (loss) 20,737 (1,599)
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Total stockholder's equity 662,616 576,497
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 28,185,115 $ 27,203,005
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See Notes to Consolidated Financial Statements
The purchase method of accounting was used to record the fair values of assets acquired and liabilities assumed by Prudential
Financial, Inc. and "pushed-down" to the Company. This accounting will most notably result in decreased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial statements of the Company, when indirectly
wholly-owned by Skandia Insurance Company Ltd., and the Company, currently indirectly wholly-owned by Prudential Financial, Inc., are
not comparable in many material respects.
American Skandia Life Assurance Corporation
Consolidated Statements of Operations and Comprehensive Income (unaudited)
Three Months Ended September 30, 2004 and September 30, 2003 (in thousands)
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Successor Successor
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Three months ended Three months ended
September 30, September 30,
2004 2003
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REVENUES
Premiums $ 4,351 $ 4,572
Policy charges and fee income 84,416 90,515
Net investment income (losses) 24,760 5,301
Realized investment losses, net (2,561) (235)
Asset management fees 27,223 24,429
Other income (70) 1,738
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Total revenues 138,119 126,320
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BENEFITS AND EXPENSES
Policyholders' benefits 19,605 19,307
Interest credited to policyholders' account balances 20,758 1,211
General, administrative and other expenses 60,866 51,532
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Total benefits and expenses 101,229 72,050
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
36,890 54,270
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Income tax expense (benefit) 7,382 17,087
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NET INCOME 29,508 37,183
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Change in net unrealized investment gains, net of
reclassification adjustment and taxes 31,209 (3,051)
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TOTAL COMPREHENSIVE INCOME $ 60,717 $ 34,132
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See Notes to Consolidated Financial Statements
The purchase method of accounting was used to record the fair values of assets acquired and liabilities assumed by Prudential
Financial, Inc. and "pushed-down" to the Company. This accounting will most notably result in decreased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial statements of the Company, when indirectly
wholly-owned by Skandia Insurance Company Ltd., and the Company, currently indirectly wholly-owned by Prudential Financial, Inc., are
not comparable in many material respects.
American Skandia Life Assurance Corporation
Consolidated Statements of Operations and Comprehensive Income (unaudited)
Nine Months Ended September 30, 2004, Five Months Ended September 30, 2003
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And Four Months Ended April 30, 2003 (in thousands)
Successor Successor Predecessor
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Nine months ended Five months ended Four months ended
September 30, September 30, April 30,
2004 2003 2003
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REVENUES
Premiums $ 11,657 $ 6,579 $ 2,496
Policy charges and fee income 270,099 148,363 109,213
Net investment income (losses) 66,310 17,032 (1,339)
Realized investment losses, net (11,209) (308) (4,601)
Asset management fees 82,338 39,894 28,092
Other income 1,920 4,396 618
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Total revenues 421,115 215,956 134,479
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BENEFITS AND EXPENSES
Policyholders' benefits 61,730 29,754 23,811
Interest credited to policyholders' account balances 61,959 2,071 13,693
General, administrative and other expenses 185,243 92,890 97,725
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Total benefits and expenses 308,932 124,715 135,229
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INCOME (LOSSES) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 112,183 91,241 (750)
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Income tax expense (benefit) 29,986 28,873 (8,544)
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INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 82,197 62,368 7,794
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Cumulative effect of accounting change, net of
taxes (17,079) - -
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NET INCOME (LOSS) 65,118 62,368 7,794
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Change in net unrealized investment gains, net
of reclassification adjustment and taxes 18,915 585 (269)
Cumulative effect of accounting change, net of
taxes 3,421 - -
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Other comprehensive income (loss), net of tax 22,336 585 (269)
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TOTAL COMPREHENSIVE INCOME $ 87,454 $ 62,953 $ 7,525
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See Notes to Consolidated Financial Statements
The purchase method of accounting was used to record the fair values of assets acquired and liabilities assumed by Prudential
Financial, Inc. and "pushed-down" to the Company. This accounting will most notably result in decreased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial statements of the Company, when indirectly
wholly-owned by Skandia Insurance Company Ltd., and the Company, currently indirectly wholly-owned by Prudential Financial, Inc., are
not comparable in many material respects.
American Skandia Life Assurance Corporation
Consolidated Statements of Stockholder's Equity
Periods Ended September 30, 2004 (unaudited), December 31, 2003, April 30, 2003 (unaudited) and December 31, 2002 (in thousands)
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Accumulated
other Total
Common Paid-in- Retained Deferred comprehensive stockholder's
Stock capital earnings compensation income equity
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Balance, January 1, 2002
(Predecessor) $ 2,500 $ 335,329 $ 239,078 $ - $ 761 $ 577,668
Net loss - - (165,257) - - (165,257)
Capital contributions - 259,720 - - - 259,720
Change in foreign currency
translation adjustments, net of taxes - - - - (630) (630)
Change in net unrealized investment
gains, net of reclassification
adjustment and taxes - - - - 11,560 11,560
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Balance, December 31, 2002
(Predecessor) 2,500 595,049 73,821 - 11,691 683,061
Net income - - 7,794 - - 7,794
Capital contributions - 2,183 - - - 2,183
Change in foreign currency
translation adjustments, net of taxes - - - - 615 615
Change in net unrealized investment
gains, net of reclassification
adjustment and taxes - - (884) (884)
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Balance, April 30, 2003 (Predecessor) 2,500 597,232 81,615 - 11,422 692,769
Acquisition purchase accounting
adjustments - (112,187) (81,615) - (11,422) (205,224)
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Balance, May 1, 2003 opening balance
sheet (Successor) 2,500 485,045 - - - 487,545
Net income - - 90,856 - - 90,856
Stock-based compensation - 55 - - - 55
Deferred compensation program - - - (360) - (360)
Change in net unrealized investment
gains, net of reclassification
adjustment and taxes - - - - - (1,599) (1,599)
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Balance, December 31, 2003 (Successor) 2,500 485,100 90,856 (360) (1,599) 576,497
Net income - - 65,118 - - 65,118
Capital contributions - (948) - - - (948)
Stock-based compensation - 262 - - - 262
Deferred compensation program - - - (649) - (649)
Change in net unrealized investment
gains, net of reclassification
adjustment and taxes - - - - 18,915 18,915
Cumulative effect of accounting
change, net of taxes - - - - 3,421 3,421
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Balance, September 30, 2004 $ 2,500 $ 484,414 $ 155,974 $ (1,009) $ 20,737 $ 662,616
(Successor)
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See Notes to Consolidated Financial Statements
The purchase method of accounting was used to record the fair values of assets acquired and liabilities assumed by Prudential
Financial, Inc. and "pushed-down" to the Company. This accounting will most notably result in decreased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial statements of the Company, when indirectly
wholly-owned by Skandia Insurance Company Ltd., and the Company, currently indirectly wholly-owned by Prudential Financial, Inc., are
not comparable in many material respects.
American Skandia Life Assurance Corporation
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 2004, Five Months Ended September 30, 2003
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And Four Months Ended April 30, 2003 (in thousands)
Successor Successor Predecessor
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Nine months Five months ended Four months
ended September September 30, 2003 ended April 30,
30, 2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 65,118 $ 62,368 $ 7,794
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Realized investment losses, net 11,209 308 4,601
Amortization and depreciation 35,788 36,623 5,288
Cumulative effect of accounting change, net of taxes 17,079 - -
Change in:
Policy reserves 27,144 7,739 4,288
Accrued investment income 75 124 (288)
Net receivable/payable to Parent and affiliates 7,398 9,075 124
Policy loans (1,901) (480) (38)
Deferred policy acquisition costs (139,978) (73,490) (12,601)
Income taxes receivable (27,803) (1,070) (464)
Other, net 3,634 (10,059) (3,588)
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Cash Flows (Used in) From Operating Activities (2,237) 31,138 5,116
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----------------- -------------------- ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from the sale/maturity of
Fixed maturities available for sale 1,865,255 53,358 131,628
Payments for the purchase of fixed maturities available
for sale (1,967,378) (77,607) (135,885)
Proceeds from the sale of shares in equity securities 78,059 23,809 10,955
Payments for the purchase of shares in equity
securities and dividend reinvestments (64,747) (11,172) (24,809)
Cash collateral for loaned securities 203,379 - -
Securities sold under agreement to repurchase 33,390 - -
Other short-term investments, net (274,472) - 1,019
----------------- -------------------- ------------------
Cash Flows Used in Investing Activities (126,514) (11,612) (17,092)
----------------- -------------------- ------------------
----------------- -------------------- ------------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Capital contribution (948) - 2,183
Decrease in future fees payable to ASI, net (82,272) (51,153) (63,343)
Net increase in short-term borrowing 104,444 21,000 35,000
Net increase in long-term borrowing 135,000 - -
Stock-based compensation 262 19 -
Deferred compensation program (649) - -
Deposits to contract owner accounts 37,437 31,337 155,034
Withdrawals from contract owner accounts (220,784) (93,884) (63,357)
Change in contract owner accounts, net of 156,261 45,137 (77,809)
investment earnings
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Cash Flows From (Used in) Financing Activities 128,751 (47,544) (12,292)
----------------- -------------------- ------------------
----------------- -------------------- ------------------
Net decrease in cash and cash equivalents - (28,018) (24,268)
Change in foreign currency translation, net - - 947
Cash and cash equivalents, beginning of period - 28,018 51,339
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ - $ 28,018
================= ==================== ==================
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Income taxes paid (received) $ 41,715 $ 877 $ 13
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================= ==================== ==================
Interest paid (received) $ 9,484 $ 9,202 $ (7,788)
================= ==================== ==================
See Notes to Consolidated Financial Statements
The purchase method of accounting was used to record the fair values of assets acquired and liabilities assumed by Prudential
Financial, Inc. and "pushed-down" to the Company. This accounting will most notably result in decreased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial statements of the Company, when indirectly
wholly-owned by Skandia Insurance Company Ltd. and the Company, currently indirectly wholly-owned by Prudential Financial, Inc. are
not comparable in many material respects.
American Skandia Life Assurance Corporation
Notes to Consolidated Financial Statements (unaudited)
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1. ORGANIZATION AND OPERATION
American Skandia Life Assurance Corporation (the "Company"), with its principal offices in Shelton, Connecticut, is an indirect
wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation. The Company is a
wholly-owned subsidiary of American Skandia, Inc. ("ASI"), which in turn is an indirect wholly-owned subsidiary of Prudential
Financial. 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 prior to May 1, 2003, entered into a definitive purchase
agreement with Prudential Financial whereby Prudential Financial would acquire the Company and certain of its affiliates (the
"Acquisition"). On May 1, 2003, the initial phase of the Acquisition was consummated. This included Prudential Financial acquiring
90% of the outstanding common stock of Skandia U.S. Inc. ("SUSI"), an indirect parent of the Company. On September 9, 2003,
Prudential Financial acquired the remaining 10% of SUSI's outstanding common stock.
The Company develops long-term savings and retirement products, which are distributed through its affiliated broker/dealer company,
American Skandia Marketing, Incorporated. The Company currently issues variable deferred and immediate annuities for individuals and
groups in the United States of America and its territories.
2. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America on a basis consistent with reporting interim financial information in accordance with
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. These interim financial
statements are unaudited but reflect all adjustments, that in the opinion of management, are necessary to provide a fair presentation
of the consolidated results of operations and financial condition of the Company for the interim periods presented. All such
adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of
results for a full year. Certain amounts in the Company's prior year consolidated financial statements have been reclassified to
conform with the current year presentation. These financial statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
3. CONTINGENCIES AND LITIGATION
Contingencies
On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing, annuity
administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements.
From time to time this review process results in the discovery of product administration, servicing or other errors, including errors
relating to the timing or amount of payments due to customers. In these cases, we offer customers appropriate remediation and may
incur charges, including the costs of such remediation, administrative costs and regulatory fines.
It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be
materially affected as a result of payments in connection with the matters discussed above depending, in part, upon the results of
operations or cash flow for such period. Management believes, however, that the ultimate payments in connection with these matters,
after consideration of applicable reserves and indemnification, should not have a material adverse effect on the Company's financial
position.
Litigation
The Company is subject to legal and regulatory actions in the ordinary course of its businesses, including class actions and
individual lawsuits. Pending legal and regulatory actions include proceedings relating to aspects of the businesses and operations
that are specific to the Company and that are typical of the businesses in which the Company operates. Class action and individual
lawsuits involve a variety of issues and/or allegations, which include sales practices, underwriting practices, claims payment and
procedures, premium charges, policy servicing and breach of fiduciary duties to customers. We are also subject to litigation arising
out of our general business activities, such as our investments and third party contracts. In certain of these matters, the
plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages.
American Skandia Life Assurance Corporation
Notes to Consolidated Financial Statements (unaudited)
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3. CONTINGENCIES AND LITIGATION (continued)
The Company has received formal requests for information from regulators including, among others, the New York Attorney General's
Office and the Securities and Exchange Commission in connection with its variable annuity businesses. The Company is engaged in
ongoing discussions with the above organizations and is fully cooperating with them. The Company believes these matters are likely
to lead to proceedings and/or settlements. The Company has expanded the disclosure in its variable annuity prospectuses concerning
its policies and procedures regarding market timing, and the discussions with the above organizations have focused on the Company's
previous disclosures relating to these policies and procedures.
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 lawsuit, a
purported nationwide class action complaint, filed in the United States District Court for the Southern District of New York in
December 2002, Donovan v. American Skandia Life Ass. Corp. et al. The complaint alleges that the Company and certain of its
affiliates violated federal securities laws in marketing variable annuities and seeks injunctive relief and compensatory damages in
unspecified amounts. In July 2003, the court granted the Company's motion to dismiss the complaint with prejudice. As previously
reported, the United States Court of Appeals for the Second Circuit, upheld the dismissal in May 2004. The United States Court of
Appeals for the Second Circuit denied plaintiffs petition for the appeal to be reheard en banc and plaintiffs are seeking review by
the United States Supreme Court.
The Company's parent and sole shareholder, ASI, initially was a named defendant in six purported nationwide class action lawsuits.
Each of these lawsuits alleged that ASI and others violated federal securities laws in connection with late trading and market timing
activities and seeks remedies, including compensatory and punitive damages in unspecified amounts. The cases are as follows:
Lowinger v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the Southern District of
New York in December, 2003 and served on ASI in February, 2004; Russo, et al. v. Invesco Advantage Health Sciences Fund, et al.,
filed in the United States District Court for the Southern District of New York in December, 2003, this suit has not been served on
ASI; Lori Weinrib v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the Southern
District of New York in January, 2004, this suit has not been served on ASI; Erhlich v. Invesco Advantage Health Sciences Fund et
al., filed in the United States District Court for the District of Colorado in December, 2003, this suit was served on ASI in
February, 2004; Fattah v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the District
of Colorado in December, 2003, this suit has not been served on ASI. These cases have been consolidated in multi-district litigation
located in the Baltimore Division of the United States District Court for the District of Maryland. Consolidated amended complaints
were filed in the multi-district litigation in September, 2004, and ASI was not named as a defendant.
The Company is also aware that ASI may be a defendant designated as one of "Does 1-500" in a suit filed in October, 2003 in the
United States District Court for the Central District of California entitled Mike Sayegh v. Janus Capital Corporation, et al. This
suit alleges that various defendants engaged in improper late trading and market timing activities in various funds also named as
defendants. The complaint further alleges that such activities were in violation of California Business and Professional Code
Section 17200. This suit has not been served on ASI. This suit has been included in the multi-district action discussed above.
The Company's litigation is subject to many uncertainties, and given its complexity and scope, the outcomes cannot be predicted. It
is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be
materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and
indemnification, should not have a material adverse effect on the Company's financial position.
It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory
matters, and contingencies, including the complaints described above, may, in whole or in part, after satisfaction of certain
retention requirements, fall within SICL's indemnification obligations to Prudential Financial and its subsidiaries under the terms
of the Acquisition. Those obligations of SICL provide for indemnification of certain judgments, settlements, and costs and expenses
associated with lawsuits and other claims against the Company ("matters"), and apply only to matters, or groups of related matters,
for which the costs and expenses exceed $25,000 individually. Those obligations only apply to such costs and expenses that exceed
$10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any tax benefit applicable to such
amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion.
American Skandia Life Assurance Corporation
Notes to Consolidated Financial Statements (unaudited)
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4. RELATED PARTY TRANSACTIONS
Debt Agreements
On January 3, 2002, the Company entered into a $150 million 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% per annum for the relevant
interest period. During the first quarter of 2004, the Company borrowed an additional $20 million under this credit facility. The
proceeds were used to support working capital needs.
On March 12, 2004, the Company entered into a $45 million loan with Prudential Funding LLC, a wholly owned subsidiary of Prudential
Insurance. This loan matures on March 12, 2007 and has an interest rate of 1.43%. The proceeds were used to support working capital
needs.
On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding LLC. As of September 30,
2004, the Company borrowed $174.4 under this credit facility. The proceeds were used to support working capital needs.
Inter-affiliate Asset Purchase
During the second quarter of 2004, the company purchased bonds from an affiliate company, The Prudential Insurance Company of
America. The Company purchased fixed maturity investments for $30.7 million, the acquisition-date fair value, but reflected the cost
of the investments at the historic amortized cost to the affiliate. The difference between the historic amortized cost and the fair
value, net of taxes, was reflected as additional paid-in-capital of $(0.9) million. The fixed maturity investments are categorized in
the Company's consolidated balance sheet as fixed maturities available-for-sale, and are therefore carried at fair value, with the
difference between amortized cost and fair value reflected in accumulated other comprehensive income.
5. NEW ACCOUNTING POLICIES AND ACCOUNTING PRONOUNCEMENTS
In July 2003, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts". AcSEC issued the SOP to address the need for interpretive guidance to be
developed in three areas: separate account presentation and valuation; the accounting recognition given sales inducements (bonus
interest, bonus credits, persistency bonuses); and the classification and valuation of certain long-duration contract liabilities.
The Company adopted the SOP effective January 1, 2004. The effect of initially adopting SOP 03-1 was a charge of $17.1 million, net
of $9.4 million of taxes, which was reported as a "cumulative effect of accounting change, net of taxes" in the results of operations
for the nine months ended September 30, 2004. This charge reflects the net impact of converting certain individual market value
adjusted annuity contracts from separate account accounting treatment to general account accounting treatment and the effect of
establishing reserves for guaranteed minimum death benefit provisions of the Company's annuity contracts. The Company also
recognized a cumulative effect of accounting change related to unrealized investment gains within "Other comprehensive income, net of
taxes" of $3.4 million, net of $1.9 million of taxes. Upon adoption of the SOP $1.8 billion in "separate account assets" were
reclassified resulting in a $1.7 billion increase in "fixed maturities, available for sale," as well as changes in other non-separate
account assets. Similarly, upon adoption, $1.8 billion in "separate account liabilities" were reclassified resulting in increases in
"policyholders' account balances," as well as changes in other non-separate account liabilities.
As of September 30, 2004, the death benefit coverage in force (representing the amount that we would have to pay if all annuitants
had died on that date) was approximately $3.6 billion. The death benefit coverage in force represents the excess of the guaranteed
benefit amount over the account value. The GMDB feature provides annuity contract holders with a guarantee that the benefit received
at death will be no less than a prescribed minimum amount. This minimum amount is generally based on the net deposits paid into the
contract and, for greater than 80% of the business in force as of September 30, 2004, this minimum guarantee is applicable only for
the first ten contract years or until a specified attained age. To the extent that the GMDB is higher than the current account value
at the time of death, the Company incurs a cost. This results in increased annuity policy benefits in periods of declining financial
markets and in periods of stable financial markets following a decline. Effective January 1, 2004, the Company adopted SOP 03-1,
which requires us to record such a liability based on application of an expected benefit ratio to "cumulative assessments" through
the balance sheet date, and then subtracting "cumulative excess payments" from that date. The GMDB reserve as of September 30, 2004
amounted to $19.7 million.
American Skandia Life Assurance Corporation
Notes to Consolidated Financial Statements (unaudited)
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5. NEW ACCOUNTING POLICIES AND ACCOUNTING PRONOUNCEMENTS (continued)
In addition to establishing a liability associated with the GMDB feature, SOP 03-1 required a change in valuation and presentation of
our liability associated with the market value adjustment ("MVA") feature contained in certain annuity contracts. The MVA feature
requires the Company to pay to the contract holder upon surrender the accreted value of the fund as well as a MVA based on the
crediting rates on the contract surrendered compared to crediting rates on newly issued contracts. At December 31, 2003, this
liability was recorded at market value, which considered the effects of unrealized gains and losses in contract value resulting from
changes in crediting rates. Upon adoption of SOP 03-1, the Company reclassified this liability from "Separate account liabilities"
to "Policyholders' account balances" and reduced it by $117.1 million to reflect accreted value, which excludes the effect of
unrealized gains and losses in contract value resulting from changes in crediting rates. However, in valuing the valuation of
business acquired ("VOBA") established at the date of acquisition, we considered the effect of unrealized gains and losses in
contract value associated with annuities containing the MVA feature on future cash flows. As a result, the reduction in the
liability for the MVA feature resulted in a net decrease in VOBA of $128.9 million, and lower future amortization.
6. INCOME TAXES
Income taxes for interim periods have been computed using an estimated annual effective tax rate. This rate is revised, if
necessary, at the end of each successive interim period to reflect the current estimate of the annual effective tax rate.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
- ----------------------------------------------------------------------------------------------
American Skandia Life Assurance Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) on Form 10-Q and is
filing this form with reduced disclosure.
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") addresses the consolidated financial
condition of American Skandia Life Assurance Corporation (the "Company") as of September 30, 2004, compared with December 31, 2003,
and its consolidated results of operations for the three and nine month periods ended September 30, 2004 and September 30, 2003. You
should read the following analysis of our consolidated financial condition and results of operations in conjunction with the
Company's MD&A and audited Consolidated Financial statements included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, and Consolidated Financial Statements (unaudited) included elsewhere in this Quarterly Report on Form 10-Q..
General
The Company, with principal offices in Shelton, Connecticut, is an indirect wholly-owned subsidiary of Prudential Financial, Inc.
("Prudential Financial"). The Company is a wholly-owned subsidiary of American Skandia, Inc. ("ASI"), which is an indirect
wholly-owned subsidiary of Prudential Financial. 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 is strongly correlated to 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
U.S. 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 1,200 broker/dealer firms and financial institutions.
Although many of the Company's competitors have acquired or seeking 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.
The Company's Changes in Financial Position and Results of Operations are described below.
1. Analysis of Financial Condition
From December 31, 2003 to September 30, 2004 there was an increase of $977.8 million in total assets from $27.2 billion to $28.2
billion. Sales activity during the nine-month period ended September 30, 2004 resulted in an increase in deferred policy acquisition
costs ("DAC") and deferred purchase credits of $140.4 million and $59.6 million, respectively. In addition, fixed maturities
increased by $1.8 billion primarily due to the January 1, 2004 adoption of Statement of Position ("SOP") 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" issued by the
Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA"). SOP 03-1
requires the conversion of certain individual MVA annuity contracts from separate account accounting treatment to general account
accounting treatment and has the effect of establishing reserves for guaranteed minimum death benefit ("GMDB") provisions of the
Company's annuity contracts. Separate account assets decreased by $1.3 billion, which includes a $1.8 billion decrease due to the
SOP 03-1 reclassification of the assets supporting the fixed, MVA liability to general account accounting treatment and a $562
million increase primarily from positive net flows and market value appreciation. Short-term investments increased by $281.0 million
primarily due to the adoption of SOP 03-1 in addition to the initiation of a securities lending program and the expansion of
repurchase agreements. Valuation of business acquired ("VOBA") decreased by $163.0 million, primarily related to the adoption of SOP
03-1.
During this nine-month period, liabilities increased by $896.0 million from $26.6 billion to $27.5 billion. Policyholders' account
balances increased by $1.7 billion primarily due to the SOP 03-1 reclassification of the fixed, MVA liability to general account
accounting treatment for $1.8 billion partially offset by a $117.1 million decrease in this liability because of the SOP 03-01
requirement to record this liability at accreted value instead of market value and a $160.4 million increase mainly due to positive
net flows activity. Separate account liabilities decreased by $1.3 billion, as described above. SOP 03-1 also required the Company
to record a GMDB liability for $8.6 million on January 1, 2004 which grew to $19.7 million as of September 30, 2004. During the
first nine months of 2004, short-term and long-term borrowings increased $104.4 million and $135.0 respectively. The proceeds from
these borrowings were used to support working capital needs. During 2004, the Company initiated a securities lending program and
expanded its repurchase agreements to enhance yield performance, which resulted in an increase in cash collateral for loan securities
and securitizations sold under agreement to repurchase of $203.4 million and $33.4 million, respectively. Future fees payable to ASI
decreased $82.3 million during the nine-month period due to amortization.
During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration
system. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment
upon the surrender of transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an aggregate
underpayment to policyholders of $24.3 million, a reserve for which is included in Other liabilities at September 30, 2004.
Current quarter net income was reduced by $4 million for the effect of the error in respect of transactions that occurred in prior
periods, net of related amortization and taxes.
2. Results of Operations
September 2004 to September 2003 Three Month Comparison
Net Income
Net income of $29.5 million for the third quarter of 2004 decreased $7.7 million from $37.2 million in the third quarter of 2003.
This decrease was primarily due to decreased results in the third quarter of 2004 on the Company's
MVA investment option compared to the third quarter of 2003. In addition, there was an increase of $6.5 million in DAC amortization
during the third quarter of 2004 compared to the third quarter of 2003 due to the asset being assigned a fair value of zero in the
third quarter of 2003, consistent with purchase accounting guidance as of the date of the Acquisition. Income tax expense declined
by $9.7 million from $17.1 million in 2003 to $7.4 million in 2004 as a result of the decline in pre-tax book income as well as a
decline in the effective tax rate resulting from an increase in the dividend received deduction. Further details regarding the
components of revenues and expenses are described in the following paragraphs.
Revenues
Consolidated revenues increased by $11.8 million, from $126.3 million to $138.1 million. Net investment income increased by $19.5
million primarily due to the adoption of SOP 03-1 as a result of classifying interest credited to account balances of our MVA annuity
contracts as interest credited in the current year as opposed to net investment income in the prior year period.
Policy charges and fee income decreased by $6.1 million. This decrease was primarily due to $18.5 million realized market value
adjustment expense on the Company's fixed, market value adjusted investment option reported as part of policy charges and fee income
upon the adoption of SOP 03-1 not present in the prior year. This was partially offset by an increase in mortality and expense
("M&E") charges increased by $9.6 million as a result of the increase in the in-force business. Annuity fees are mainly asset-based
fees, which are dependent on the fund balances. Average annuity separate account fund balances have increased as a result of
favorable valuation changes in the securities market over the past year and positive net flows, resulting in an increase in policy
charges and fee income.
Asset management fees increased by $2.8 million as a result of higher average assets under management compared to the prior year
period. Asset management fees are asset-based fees, which are dependent on the amount of assets under management.
Benefits and Expenses
Interest credited to policyholder account balances increased by $19.5 million primarily due to the adoption of SOP 03-1 amounting to
an increase of $18.5 million. As discussed above, previously interest credited was recorded within net investment income.
General, administrative, and other expenses increased by $9.3 million from the prior year quarter. The increase is partially due to
the implementation of corporate allocations to the Company from Prudential Financial in 2004. In addition, DAC amortization increased
by $6.5 million due to the Company's DAC asset being assigned a fair value of zero, consistent with purchase accounting guidance as
of the date of the acquisition. Partially offsetting the increase was a decrease in the VOBA amortization of $10.5 million due to
the adjustment of VOBA upon the adoption of SOP 03-1, as explained previously.
September 2004 to September 2003 Nine Month Comparison
Net Income
Net income of $65.1 million for the nine months of 2004 decreased $5.1 million from $70.2 million for the nine months of 2003. Net
income in 2004 includes a cumulative effect of accounting change charge of $17.1 million, net of tax, related to the January 1, 2004
adoption of SOP 03-1. Excluding the cumulative effect charge, net income increased by $12.0 million. DAC amortization decreased by
$29.1 million during the nine months of 2004 compared to the prior year period due to purchase accounting. Policy charges and fee
income increased $12.5 million due to favorable market conditions. Income tax expense increased by $9.7 million from $20.3 million
in 2003 to $30.0 million in 2004 primarily as a result of the increase in pre-tax book income. Further details regarding the
components of revenues and expenses are described in the following paragraphs.
Revenues
Consolidated revenues increased by $70.7 million, from $350.4 million to $421.1 million. Net investment income increased by $50.6
million primarily due to the adoption of SOP 03-1 as a result of classifying interest credited on account balances of our MVA annuity
contracts as interest credited in the current year as opposed to net investment income in the prior year period.
Policy charges and fee income increased by $12.5 million. Mortality and expense ("M&E") charges increased by $45.4 million as a
result of the increase in the in-force business. Annuity fees are mainly asset-based fees, which are dependent on the fund
balances. Average annuity separate account fund balances have increased as a result of favorable valuation changes in the securities
market over the past year and positive net flows, resulting in an increase in policy charges and fee income. The increase in M&E
fees was partially offset by a $33.0 million realized market value adjustment expense on the Company's fixed, market value adjusted
investment option related to the adoption of SOP 03-1.
Asset management fees increased by $14.4 million as a result of higher average assets under management than in the prior year
period. Asset management fees are asset-based fees, which are dependent on the amount of assets under management.
Benefits and Expenses
Policyholders' benefits increased by $8.2 million primarily due to an increase in the supplementary contracts with life reserves as a
result of increased premium as well as an increase in costs incurred relating to reinsurance transactions.
Interest credited to policyholder account balances increased by $46.2 million primarily due to the adoption of SOP 03-1, which
accounted for $53.4 million of the increase. As discussed above, prior to January 1, 2004, interest credited was recorded within net
investment income. This increase was partially offset by decreased amortization of deferred purchase credits of $4.6 million
consistent with decreased amortization of DAC, primarily as a result of purchase accounting.
General, administrative, and other expenses decreased by $5.4 million from the prior year. The primary reason was a decrease in DAC
amortization of $29.1 million due to the Company's DAC asset being assigned a fair value of zero, consistent with purchase accounting
guidance as of the date of the acquisition. Additionally, VOBA amortization decreased by $9.3 million due to the adjustment of VOBA
recorded upon adoption of SOP 03-1, as explained above. Partially offsetting this was a $13.8 million increase in expense related to
future fees payable to ASI. Expenses result when the actual cash flow payable to ASI under the sale purchase agreements exceed the
amoritization of the fees payable liability. Due to purchase accounting and increasing asset values of those annuity contracts,
driven by the improving equity markets, the cash flows, and therefore expenses have increased from prior year levels. Also
offsetting this was an increase of expense allocations from Prudential Financial to the Company in the nine months of 2004.
4. Significant Accounting Policies
For information on the Company's significant accounting policies, see MD&A in the Company's audited consolidated financial statements
on Form 10-K for the year ended December 31, 2003.
Item 4. Controls and Procedures
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In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded,
processed, summarized, and reported on a timely basis, the Company's management, including our Chief Executive Officer and Chief
Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e), as of September 30, 2004. Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of September 30, 2004, our disclosure controls and procedures were effective in timely
alerting them to material information relating to us required to be included in our periodic SEC filings. There has been no change
in our internal control over financial reporting during the quarter ended September 30, 2004, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting. These conclusions are not affected by the
matters discussed in the following paragraph.
During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration
system. This error related to the calculation of amounts due to customers for certain transactions subject to a market value
adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. Although the error
affected both the current and prior periods, the net effect of the error on prior periods was not material. The error resulted in an
aggregate underpayment to policyholders of $24.3 million, a reserve for which is included in Other liabilities at September 30, 2004.
Current quarter net income was reduced by $4 million for the effect of the error in respect of transactions that occurred in prior
periods, net of related amortization and taxes. The Company has completed systems changes that provide reasonable assurance that
systems errors of this nature will not recur.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The Company is subject to legal and regulatory actions in the ordinary course of its businesses, including class actions and
individual lawsuits. Pending legal and regulatory actions include proceedings relating to aspects of the businesses and operations
that are specific to the Company and that are typical of the businesses in which the Company operates. Class action and individual
lawsuits involve a variety of issues and/or allegations, which include sales practices, underwriting practices, claims payment and
procedures, premium charges, policy servicing and breach of fiduciary duties to customers. We are also subject to litigation arising
out of our general business activities, such as our investments and third party contracts. In certain of these matters, the
plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages.
The Company has received formal requests for information from regulators including, among others, the New York Attorney General's
Office and the Securities and Exchange Commission in connection with its variable annuity businesses. The Company is engaged in
ongoing discussions with the above organizations and is fully cooperating with them. The Company believes these matters are likely
to lead to proceedings and/or settlements. The Company has expanded the disclosure in its variable annuity prospectuses concerning
its policies and procedures regarding market timing, and the discussions with the above organizations have focused on the Company's
previous disclosures relating to these policies and procedures.
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 lawsuit, a
purported nationwide class action complaint, filed in the United States District Court for the Southern District of New York in
December 2002, Donovan v. American Skandia Life Ass. Corp. et al. The complaint alleges that the Company and certain of its
affiliates violated federal securities laws in marketing variable annuities and seeks injunctive relief and compensatory damages in
unspecified amounts. In July 2003, the court granted the Company's motion to dismiss the complaint with prejudice. As previously
reported, the United States Court of Appeals for the Second Circuit, upheld the dismissal in May 2004. The United States Court of
Appeals for the Second Circuit denied plaintiffs petition for the appeal to be reheard en banc and plaintiffs are seeking review by
the United States Supreme Court.
The Company's parent and sole shareholder, ASI, initially was a named defendant in six purported nationwide class action lawsuits.
Each of these lawsuits alleged that ASI and others violated federal securities laws in connection with late trading and market timing
activities and seeks remedies, including compensatory and punitive damages in unspecified amounts. The cases are as follows:
Lowinger v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the Southern District of
New York in December, 2003 and served on ASI in February, 2004; Russo, et al. v. Invesco Advantage Health Sciences Fund, et al.,
filed in the United States District Court for the Southern District of New York in December, 2003, this suit has not been served on
ASI; Lori Weinrib v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the Southern
District of New York in January, 2004, this suit has not been served on ASI; Erhlich v. Invesco Advantage Health Sciences Fund et
al., filed in the United States District Court for the District of Colorado in December, 2003, this suit was served on ASI in
February, 2004; Fattah v. Invesco Advantage Health Sciences Fund, et al., filed in the United States District Court for the District
of Colorado in December, 2003, this suit has not been served on ASI. These cases have been consolidated in multi-district litigation
located in the Baltimore Division of the United States District Court for the District of Maryland. Consolidated amended complaints
were filed in the multi-district litigation in September, 2004, and ASI was not named as a defendant.
The Company is also aware that ASI may be a defendant designated as one of "Does 1-500" in a suit filed in October, 2003 in the
United States District Court for the Central District of California entitled Mike Sayegh v. Janus Capital Corporation, et al. This
suit alleges that various defendants engaged in improper late trading and market timing activities in various funds also named as
defendants. The complaint further alleges that such activities were in violation of California Business and Professional Code
Section 17200. This suit has not been served on ASI. This suit has been included in the multi-district action discussed above.
The Company's litigation is subject to many uncertainties, and given its complexity and scope, the outcomes cannot be predicted. It
is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be
materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters. Management believes,
however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and
indemnification, should not have a material adverse effect on the Company's financial position.
It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory
matters, including the complaints described above, may, in whole or in part, after satisfaction of certain retention requirements,
fall within SICL's indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition.
Those obligations of SICL provide for indemnification of certain judgments, settlements, and costs and expenses associated with
lawsuits and other claims against the Company ("matters"), and apply only to matters, or groups of related matters, for which the
costs and expenses exceed $25,000 individually. Those obligations only apply to such costs and expenses that exceed $10 million in
the aggregate, subject to reduction for insurance proceeds, certain accruals and any tax benefit applicable to such amounts, and
those obligations do not apply to the extent that such aggregate exceeds $1 billion.
Item 6. Exhibits
- ------------------
(a) Exhibits
--------
3(i)(a) Articles of Incorporation of the registrant (incorporated by reference to Exhibit 3(i)(a) to the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 33-44202 ))*.
3(ii) By-Laws of the registrant (incorporated by reference to Exhibit 3(ii) to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 (File No. 33-44202 ))*.
4.1 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-117052))*.
4.2 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 33-88360))*.
4.3 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 33-89676))*.
4.4 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 33-91400))*.
4.5 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-00995))*.
4.6 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-02867))*.
4.7 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-24989))*.
4.8 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-25761))*.
4.9 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-97939))*.
4.10 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-26695))*.
4.11 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-97943))*.
4.12 Instruments defining the right of security holders, including indentures, of the registrant (incorporated by reference to
Exhibit 4 to the registrant's Registration Statements on Form S-3 (File No. 333-114615))*.
10.1 Investment Management Agreement between the registrant and Alliance Capital Management L.P. (incorporated by reference to
Exhibit 10(a) to the registrant's Post-Effective Amendment No. 3 to its Registration Statement on Form S-2 (File No.
333-53596))*.
10.2 Investment Management Agreement between the registrant and Blackrock Financial Management, Inc. (incorporated by reference
to Exhibit 10(b) to the registrant's Post-Effective Amendment No. 3 to its Registration Statement on Form S-2 (File
No. 333-53596))*.
31.1 Section 302 Certification of the Chief Executive Officer.
31.2 Section 302 Certification of the Chief Financial Officer.
32.1 Section 906 Certification of the Chief Executive Officer.
32.2 Section 906 Certification of the Chief Financial Officer.
* Filed previously.
Schedules are omitted because they are either inapplicable or the information required therein is included in the Notes to
Consolidated Financial Statements included herein.
SIGNATURES
----------
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/ Michael Bohm
-------------------------------
Michael A. Bohm
Executive Vice President and Chief Financial Officer
Date: November 10, 2004
Exhibit 31.1
CERTIFICATION
I, David R. Odenath, Jr., 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 10, 2004
/s/ David R. Odenath, Jr.
--------------------------
David R. Odenath, Jr.
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATION
I, Michael A. Bohm, 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 10, 2004
/s/ Michael Bohm
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Michael A. Bohm
Executive Vice President and Chief Financial Officer
Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, I, David R. Odenath, Jr., Chief Executive Officer and President of American Skandia Life
Assurance Corporation (the "Company"), hereby certify that the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Dated: November 10, 2004
/s/ David R. Odenath, Jr.
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Name: David R. Odenath , Jr.
Title: Chief Executive Officer and President
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of
the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, I, Michael Bohm, Executive Vice President and Chief Financial Officer of American
Skandia Life Assurance Corporation (the "Company"), hereby certify that the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: November 10, 2004
/s/ Michael A. Bohm
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Name: Michael A. Bohm
Title: Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of
the Report or as a separate disclosure document.