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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 MARCH 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-44202
__________________
American Skandia Life Assurance
Corporation
(Exact Name of Registrant as Specified in its Charter)
Connecticut 06-1241288
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
One Corporate Drive
Shelton, Connecticut 06484
(203) 926-1888
(Address and Telephone Number of Registrant's Principal Executive Offices)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No|X|
State the aggregate market value of the voting stock held by non-affiliates of the registrant: NONE
As of May 16, 2005, 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 (I) (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
PART I - Financial Information
Financial Statements Page No.
Item 1.Financial Statements (unaudited):
Statements of Financial Position
As of March 31, 2005 and December 31, 2004 3
Statements of Operations and Comprehensive Income
Three months ended March 31, 2005 and 2004 4
Statements of Stockholder's Equity
Periods ended March 31, 2005 and December 31,2004 5
Statements of Cash Flows
Three months ended March 2005 and 2004 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 4. Controls and Procedures 11
PART II - Other Information
Item 6. Exhibits 12
Signatures 14
Forward-Looking Statements
Some of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management's Discussion
and Analysis of Financial Condition and Results of Operations, may 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," "should," "will," "shall" 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. There can be no assurance that
future developments affecting American Skandia Life Assurance Corporation 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, among others: (1) general economic, market and political conditions, including the performance
of financial markets and interest rate fluctuations; (2) domestic or international military or terrorist activities or conflicts; (3)
volatility in the securities markets; (4) fluctuations in foreign currency exchange rates and foreign securities markets; (5)
regulatory or legislative changes, including changes in tax law; (6) changes in statutory or U.S. GAAP accounting principles,
practices or policies; (7) differences between actual experience regarding mortality, morbidity, persistency, surrender experience,
interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for
other purposes; (8) re-estimates of our reserves for future policy benefits and claims; (9) changes in our assumptions related to
deferred policy acquisition costs; (10) events resulting in catastrophic loss of life; (11) investment losses and defaults; (12)
changes in our claims-paying or credit ratings; (13) competition in our product lines and for personnel; (14) adverse determinations
in litigation or regulatory matters and our exposure to contingent liabilities; and (15) the effects of acquisitions, divestitures
and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions. American
Skandia Life Assurance Corporation does not intend, and is under no obligation, to update any particular forward-looking statement
included in this document.
American Skandia Life Assurance Corporation
Statements of Financial Position (unaudited)
As of March 31, 2005 and December 31, 2004 (in thousands)
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March 31, December 31,
2005 2004
------------------ -----------------
ASSETS
Fixed maturities available for sale,
at fair value (amortized cost, 2005 $1,819,103; 2004: $1,737,949) $ 1,818,603 $ 1,771,976
Trading account assets, at fair value 44,094 47,316
Equity securities available for sale, at fair value (cost of $11,238) 11,202 11,567
Policy loans 10,907 10,323
Short-term investments 382,092 423,971
------------------ -----------------
Total investments 2,266,898 2,265,153
Cash and cash equivalents 7,527 72,854
Deferred policy acquisition costs 344,179 300,901
Accrued investment income 22,102 22,321
Receivables from Parent and affiliates - 5,098
Income taxes receivable 243,889 244,932
Valuation of business acquired 226,584 234,167
Deferred purchase credits 160,537 144,395
Other assets 136,925 53,332
Separate account assets 26,308,529 26,984,413
------------------ -----------------
TOTAL ASSETS $ 29,717,170 $ 30,327,566
================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Policyholders' account balances $ 1,503,193 $ 1,411,483
Future policy benefits and other policyholder liabilities 65,088 50,980
Payables to Parent and affiliates 21,014 24,182
Cash collateral for loaned securities 228,616 291,299
Securities sold under agreements to repurchase 25,148 33,373
Short-term borrowing 182,158 140,363
Long-term borrowing 135,000 135,000
Future fees payable to American Skandia, Inc. ("ASI") 176,775 200,597
Other liabilities 378,326 368,406
Separate account liabilities 26,308,529 26,984,413
------------------ -----------------
Total liabilities 29,023,847 29,640,096
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Contingencies (See Note 3)
Stockholder's Equity
Common stock, $100 par value; 25,000 shares, authorized, issued and
outstanding 2,500 2,500
Additional paid-in capital 484,264 484,425
Retained earnings 210,878 180,759
Deferred compensation (1,756) (904)
Accumulated other comprehensive income (loss) (2,563) 20,690
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Total stockholder's equity 693,323 687,470
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 29,717,170 $ 30,327,566
================== =================
See Notes to Financial Statements
American Skandia Life Assurance Corporation
Statements of Operations and Comprehensive Income (unaudited)
Three Months ended March 31, 2005 and 2004 (in thousands)
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2005 2004
------------------ ------------------
REVENUES
Premiums $ 9,666 $ 2,712
Policy charges and fee income 115,953 98,056
Net investment income 21,791 19,311
Realized investment (losses) gains, net (1,802) (257)
Asset management fees 29,781 27,342
Other income (1,245) 1,295
------------------ ------------------
Total revenues 174,144 148,459
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BENEFITS AND EXPENSES
Policyholders' benefits 38,962 27,731
Interest credited to policyholders' account balances 18,247 20,553
General, administrative and other expenses 74,797 61,156
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Total benefits and expenses 132,006 109,440
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INCOME FROM OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE
42,138 39,019
------------------ ------------------
Income tax expense 12,019 12,133
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INCOME FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 30,119 26,886
------------------ ------------------
Cumulative effect of accounting change, net of taxes - (17,079)
------------------ ------------------
NET INCOME 30,119 9,807
------------------ ------------------
Other comprehensive (loss) income, net of taxes (23,253) 22,933
------------------ ------------------
COMPREHENSIVE INCOME $ 6,866 $ 32,740
================== ==================
See Notes to Financial Statements
American Skandia Life Assurance Corporation
Statements of Stockholder's Equity (unaudited)
Periods ended March 31, 2005 and December 31, 2004 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional other Total
paid-in - Retained Deferred comprehensive stockholder's
Common capital earnings compensation income equity
Stock
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Balance, December 31, 2003 2,500 485,100 90,856 (360) (1,599) 576,497
Net income 89,903 89,903
Purchase of fixed maturities from an - (948) - - 948 -
affiliate, net of taxes
Stock-based compensation 273 273
Deferred compensation program (544) (544)
Change in net unrealized investment
gains 21,341 21,341
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Balance, December 31, 2004 $ 2,500 $ 484,425 $ 180,759 $ (904) $ 20,690 $ 687,470
Net income 30,119 30,119
Stock-based compensation (161) (161)
Deferred compensation program (852) (852)
Change in net unrealized investment
gains (23,253) (23,253)
-----------------------------------------------------------------------------------------------
Balance, March 31, 2005 $ 2,500 $ 484,264 $ 210,878 (1,756) (2,563) 693,323
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See Notes to Financial Statements
American Skandia Life Assurance Corporation
Statements of Cash Flows (unaudited)
Three Months March 31, 2005 and 2004 (in thousands)
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2005 2004
------------------- ---------------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 30,119 $ 9,807
Adjustments to reconcile net income (loss) to net cash from (used in) operating
activities:
Realized investment losses (gains), net 1,802 257
Amortization and depreciation 10,274 15,922
Cumulative effect of accounting change, net of taxes - 17,079
Change in:
Policy reserves 14,108 11,233
Accrued investment income 219 337
Net receivable/payable to Parent and affiliates 1,930 5,469
Policy loans (584) (901)
Deferred policy acquisition costs (43,278) (53,712)
Income taxes (receivable) payable 13,758 (29,499)
Other, net (4,199) 17,131
------ ------
Cash Flows From (Used in) Operating Activities 24,149 (6,877)
------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from the sale/maturity of fixed maturities available for sale 395,629 225,987
Payments for the purchase of fixed maturities available for sale (482,523) (147,864)
Proceeds from the sale of shares in equity securities 12,962 15,276
Payments for the purchase of shares in equity securities and dividend (11,079) (13,848)
reinvestments
Other short-term investments, net 41,897 (164,692)
------ --------
Cash Flows Used in Investing Activities (43,114) (85,141)
------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Decrease in future fees payable to ASI, net (23,822) (28,490)
Cash collateral for loaned securities (62,683) 143,423
Securities sold under agreement to repurchase (8,225) 23,542
Net increase in long-term borrowing - 135,000
Net increase (decrease) in short-term borrowing 41,795 (70,000)
Drafts outstanding (84,124) 13,227
Stock-based compensation (161) 95
Deferred compensation program (852) (1,040)
Deposits to contract owner accounts 155,172 8,155
Withdrawals from contract owner accounts (74,980) (111,378)
Change in contract owner accounts, net of investment earnings 11,518 (15,764)
------------------- ---------------------
Cash Flows From (Used in) Financing Activities (46,362) 96,770
------------------- ---------------------
Net (decrease) increase in cash and cash equivalents (65,327) 4,752
Cash and cash equivalents, beginning of period 72,854 6,300
------------------- ---------------------
------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,527 $ 11,052
=================== =====================
=================== =====================
Income taxes paid (received) $ (1,739) $ 41,632
=================== =====================
=================== =====================
Interest paid $ 1,266 $ 5,095
=================== =====================
See Notes to Financial Statements
18
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American Skandia Life Assurance Corporation
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Notes to Financial Statements (unaudited)
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1. BUSINESS
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.
The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance
companies and other entities engaged in marketing insurance products, and individual and group annuities.
2. BASIS OF PRESENTATION
The unaudited interim 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 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 financial statements have been reclassified to conform with the current year presentation. These
financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004.
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 and Regulatory Matters
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 payments 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's litigation and regulatory matters are subject to many uncertainties, and given their 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.
American Skandia Life Assurance Corporation
Notes to Financial Statements
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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. As of March 31, 2005, $0 was outstanding under this credit facility.
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. Effective December 1,
2004, the credit facility agreement was increased to $750 million. As of March 31, 2005, $272.2 million was outstanding under this
credit facility.
5. NEW ACCOUNTING POLICIES AND ACCOUNTING PRONOUNCEMENTS
In March 2004, the EITF of the FASB reached a final consensus on Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." This Issue establishes impairment models for determining whether to record impairment losses
associated with investments in certain equity and debt securities. It also requires income to be accrued on a level-yield basis
following an impairment of debt securities, where reasonable estimates of the timing and amount of future cash flows can be made. The
Company's policy is generally to record income only as cash is received following an impairment of a debt security. In September
2004, the FASB issued FASB Staff Position ("FSP") EITF 03-1-1, which defers the effective date of a substantial portion of EITF 03-1,
from the third quarter of 2004, as originally required by the EITF, until such time as FASB issues further implementation guidance,
which is expected sometime in 2005. The Company will continue to monitor developments concerning this Issue and is currently unable
to estimate the potential effects of implementing EITF 03-1 on the Company's financial position or results of operations.
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 03-1 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 three months ended March 31, 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.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (R),
"Share-Based Payment," which replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 (R) requires
all entities to apply the fair value base measurement method in accounting for share-based payment transactions with employees,
except for equity instruments held by employee share ownership plans. Under this method, compensation costs of awards to employees,
such as stock options, are measured at fair value and expensed over the period during which an employee is required to provide
service in exchange for the award (the vesting period). The Company had previously adopted the fair value recognition provision of
the original SFAS No. 123, prospectively for all interim and annual periods beginning after June 15, 2005. However, the SEC has
recently deferred the effective date and as a result the Company will adopt SFAS No. 123 (R) on January 1, 2006. By that date, there
will be no unvested stock options issued prior to January 1, 2003.
6. RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform to the current year presentation.
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 financial condition of
American Skandia Life Assurance Corporation (the "Company") as of March 31, 2005 compared with December 31, 2004 and its results of
operations for the three month periods ended March 31, 2005 and March 31, 2004. You should read the following analysis of our
financial condition and results of operations in conjunction with the Company's MD&A and audited Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2004.
General
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"). 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, a New Jersey corporation,
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 was established in 1988 and is a significant provider of variable annuity contracts for the individual market in the
United States. 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 registered investment companies supporting the variable annuity contracts, which is principally correlated to
equity market performance, can significantly impact the market for the Company's products.
Products
The Company offers a wide array of annuities, including (1) 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; (2) certain other fixed deferred annuities that are not registered with the Securities and Exchange
Commission; and (3) fixed, adjustable and variable immediate annuities.
Annuity contracts represent the insurer's contractual obligation to make payments over a given period of time, often measured by the
life of the recipient, in return for a single deposit or a series of scheduled or flexible deposits. The insurer's obligation to pay
may commence immediately or be deferred. If the insurer's payments are deferred, the insurer generally incurs an obligation to make
a surrender value available during the deferral period based on an account value, and guarantees as applicable. The account value
consists of the deposits and may earn interest, or may vary with the performance of investments in the funds selected by the insurer
and made available for election by contract holders. Gains on deposits made by the contract holder, before distribution, generally
are tax deferred for the contract holder. Distributions are taxed as ordinary income to the contract holder. During the deferral
period, distributions are assumed to come first from any gains in the contract and may be subject to a tax penalty. For immediate
annuities and annuitized deferred annuities, a portion of each distribution may be treated as a return of the taxpayer's investment
in the contract.
Marketing and Distribution
The Company sells its wide array of annuity products through multiple distribution channels, including (1) independent financial
planners; (2) broker-dealers that generally are members of the New York Stock Exchange, including "wirehouse" and regional
broker-dealer firms; and (3) 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.
Although many of the Company's competitors have acquired or are seeking to acquire their distribution channels as a means of securing
sales, the Company has not done so. Instead, the Company believes that 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.
Changes in Financial Position
From December 31, 2004 to March 31, 2005 assets decreased by $610 million, from $30.3 billion to $29.7 billion. Separate account
assets decreased by $676 million due to less favorable market conditions in the first quarter of 2005. Partially offsetting this
decrease was an increase in deferred policy acquisition costs ("DAC") and deferred purchase credits of $43.3 million and $16.1
million, respectively.
During this three-month period, total liabilities decreased by $616 million, from $29.6 billion to $29.0 billion. Separate account
liabilities decreased by $676 million due to less favorable market conditions in the first quarter of 2005. Future fees payable to
ASI decreased $23.8 million during the three-month period due to amortization. Cash collateral for loaned securities decreased
during the three-month period by $62.7 million due to lower corporate securities out on loan. During the three-month period,
short-term borrowings increased $41.8 million. The proceeds from these borrowings were used to support working capital needs.
Policyholders' account balances increased by $91.7 million primarily due to significant transfers of customer account values from the
mutual fund options to the market value adjustment options.
Results of Operations
March 2004 to March 2003 Three Month Comparison
Net Income
Net income of $30.1 million for the first quarter of 2005 was an improvement of $20.3 million, from $9.8 million in the first
quarter of 2004. The first quarter of 2004 had a cumulative effect of accounting change charge of $17.1 million, net of taxes,
related to the January 1, 2004 adoption of SOP 03-1. Excluding the cumulative effect charge, net income increased by $3.2 million,
from $26.9 for the three-months ended March 31, 2004 to $30.1 million in the same period in 2005. Policy charges and fee income
increased by $17.9 million, and asset management fees increased by $2.4 million, in the first quarter of 2005 over the same period in
2004, due to favorable market conditions in 2004 partially offset by higher general, administrative and other expenses of $13.6
million. Further details regarding the components of revenues and expenses are described in the following paragraphs.
Revenues
Revenues increased by $25.6 million, from $148.5 million for the three-months ended March 31, 2004 to $174.1 million in the same
period in 2005. Premiums of $9.7 million increased by $7.0 million, from $2.7 million in the three-months ended March 31, 2004,
reflecting an increase in funds from customers electing to enter into the payout phase of their contracts.
Policy charges and fee income increased by $17.9 million, from $98.1 million for the three-months ended March 31, 2004 to $116.0
million in the same period in 2005. Mortality and expense charges ("M&E") increased by $7.7 million as a result of the increase in
the in force business. Annuity fees are mainly asset-based fees, which are dependent on fund balances. Average annuity separate
account fund balances have increased as a result of favorable valuation changes in the securities market in the prior year and
positive net flows, resulting in an increase in policy charges and fee income. Additionally, there was a $7.5 million change in
realized market value adjustments on the Company's fixed, market value adjusted investment option.
Asset management fees increased by $2.4 million, from $27.3 million for the three-months ended March 31, 2004 to $29.7 million in the
same period in 2005, as a result of higher average assets under management compared to the same period last year. Asset management
fees are asset-based fees, which are dependent on the amount of assets under management.
Benefits and Expenses
Policyholders' benefits increased by $11.3 million, from $27.7 million for the three-months ended March 31, 2004 to $39.0 million for
the three-months ended March 31, 2005 primarily due to an increase in reserves for payout annuity contracts with life contingency as
a result of increased premiums.
General, administrative, and other expenses increased by $13.6 million, from $61.2 million for the three-months ended March 31, 2005
to $74.8 million for the three-months ended March 31, 2005. The increase is primarily due to an increase in the amortization of DAC
of $7.2 million resulting from increased profits from business sold subsequent to the acquisition. In addition, VOBA amortization
increased by $2.3 million primarily due to the change in realized market value adjustments and interest expense increased by $1.0
million resulting from higher borrowing levels.
Significant Accounting Policies
For information on the Company's significant accounting policies, see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4. Controls and Procedures
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 March 31, 2005. Based on such evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of March 31, 2005, 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. Other than as discussed in the following
paragraph, no change in our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f),
occurred during the quarter ended March 31, 2005, that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Effective January 1, 2005, we implemented a new general ledger and financial reporting platform. The new platform is intended to
improve efficiencies through the use of more current technology. Although the implementation of the new platform resulted in changes
in certain of our internal controls over financial reporting, we do not believe that the implementation or the related changes in
internal controls materially affect the effectiveness of our internal control over financial reporting.
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 payments 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's litigation and regulatory matters are subject to many uncertainties, and given their 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 or 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.
See our Annual Report on Form 10-K for the year ended December 31, 2004, for a discussion of our litigation and regulatory matters.
Item 6. Exhibits
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.
Schedules are omitted because they are either inapplicable or the information required therein is included in the notes to Financial
Statements included herein.
Exhibit Index
Exhibit Number and Description
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.
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 A. Bohm
Michael A. Bohm
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
May 16, 2005
Exhibit 31.1
SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
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 annual 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 we 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: May 16, 2005
/s/ David R. Odenath, Jr.
David R. Odenath, Jr.
Chief Executive Officer and President
Exhibit 31.2
SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, Michael 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 annual 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 we 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: May 16, 2005
/s/ Michael A. Bohm
Michael A. Bohm
Executive Vice President and Chief Financial Officer
Exhibit 32.1
SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
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 March
31, 2005 (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: May 16, 2005
/s/ David R. Odenath, Jr.
- -----------------------------------------------------------------------------------------------------------
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
SECTION 906 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
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 March
31, 2005 (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: May 16, 2005
/s/ Michael A. Bohm
- -----------------------------------------------------------------------------------------------------------
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.