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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended 12/31/96 Commission file numbers 33-62791,
33-62953, 33-89676, 33-89678,
33-88360, 333-00941, 333-00995,
333-01021, 33-91400 and 333-02867
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-1241288
(State or other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Corporate Drive, Shelton, Connecticut 06484
(Address of Principal Executive Offices, Zip Code)
Registrant's telephone number, including area code: (203) 926-1888
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 ____
As of March 15, 1997, there were 25,000 shares of outstanding common stock, par
value $80 per share, of the registrant, consisting of 100 shares of voting and
24,900 shares of non-voting all of which were owned by American Skandia
Investment Holding Corporation, a wholly-owned subsidiary of Skandia Insurance
Company Ltd., a Swedish corporation.
PART I
Item 1. Business
American Skandia Life Assurance Corporation ("ASLAC" or "the
Company") is a Connecticut corporation with its principal offices
in Shelton, Connecticut.
American Skandia Investment Holding Corporation (the "Parent")
owns all of the issued and outstanding shares of the Company's
common stock. The Parent is a wholly-owned ultimate subsidiary of
Skandia Insurance Company Ltd., a Swedish corporation.
The Company currently develops and offers annuity products. All
annuity products requiring registration as securities are offered
through its affiliated broker-dealer company, American Skandia
Marketing, Incorporated. ASLAC currently offers single or
flexible premium variable and guaranteed maturity deferred
annuities and immediate annuities. The Company may, in the
future, offer other forms of life and health insurance.
Annuity contracts represent a contractual obligation to make
payments over a given period of time (often measured by the life
of the recipient), undertaken by the insurer in return for the
payment of either a single premium or a series of scheduled or
flexible premiums. The insurer's obligation to pay may commence
immediately or be deferred. The amount to be paid may be either
fixed or variable. The product is sold to pension plans and
individuals, primarily for the management of financial assets and
for retirement. Income earned by or credited to a deferred
annuity contract generally is not taxed until distributed. For
immediate annuities, or annuitized deferred annuities, a portion
of each annuity distribution received is taxed as ordinary income
to the policyholder, based on the ratio of the investment in the
contract to the total distribution expected to be received.
The Company is obligated to carry in its statutory financial
statements, as liabilities, actuarial reserves to meet its
obligations on outstanding annuity or life insurance contracts.
This is required by the life insurance laws and regulations in
the jurisdictions in which ASLAC does business. Such reserves are
based on mortality and/or morbidity tables in general use in the
United States. In general, reserves are computed amounts that,
with additions from premiums to be received, and with interest on
such reserves compounded at certain assumed rates, are expected
to be sufficient to meet our contractual obligations at their
maturities if death occurs in accordance with the mortality
tables employed. In the accompanying financial statements these
reserves for contractual obligations are determined in accordance
with generally accepted accounting principles and are included in
the separate account liabilities, reserve for future
contractowner benefits and annuity policy reserves.
ASLAC is engaged in a business that is highly competitive due to
the large number of insurance companies and other entities
competing in the marketing and sale of insurance products. There
are approximately 2,300 stock, mutual, and other types of
insurance companies in the life insurance business in the United
States.
As of December 31, 1996, the Company had 310 direct salaried
employees.
Item 2. Properties
The Company occupies office space leased from an affiliate,
American Skandia Information Services and Technology Corporation,
and believes that the current facilities are satisfactory for its
near term needs.
Item 3. Legal Proceedings
As of the date of this filing, the Company is not involved in any
litigation outside of the ordinary course of business, and knows
of no such material claims.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
All of ASLAC's outstanding shares are owned by American Skandia
Investment Holding Corporation, a wholly-owned subsidiary of
Skandia Insurance Company Ltd. The Company did not pay any
dividends to its Parent in 1996, 1995 and 1994.
Item 6. Selected Financial Data
The following table summarizes information with respect to the
operation of the Company. The selected financial data should be
read in conjunction with the financial statements and the notes
thereto and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operation.
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------
Income Statement Data:
Revenues:
Annuity charges and fees* $69,779,522 $38,837,358 $24,779,785 $11,752,984 $4,846,134
Fee income 16,419,690 6,205,719 2,111,801 938,336 125,179
Net investment income 1,585,819 1,600,674 1,300,217 692,758 892,053
Annuity premium income 125,000 0 70,000 101,643 1,304,629
Net realized capital
gains/(losses) 134,463 36,774 (1,942) 330,024 195,848
Other income 34,154 64,882 24,550 1,269 15,119
----------- ----------- ----------- ----------- ----------
Total revenues $88,078,648 $46,745,407 $28,284,411 $13,817,014 $7,378,962
=========== =========== =========== =========== ==========
Benefits and Expenses:
Annuity benefits 613,594 555,421 369,652 383,515 276,997
Increase/(decrease) in annuity
policy reserves 634,540 (6,778,756) 5,766,003 1,208,454 1,331,278
Cost of minimum death benefit
reinsurance 2,866,835 2,056,606 0 0 0
Return credited
to contractowners 672,635 10,612,858 (516,730) 252,132 560,243
Underwriting, acquisition and
other insurance expenses 49,915,661 35,970,524 18,942,720 9,547,951 11,338,765
Interest expense 10,790,716 6,499,414 3,615,845 187,156 0
----------- ----------- ----------- ----------- -----------
Total benefits and expenses $65,493,981 $48,916,067 $28,177,490 $11,579,208 $13,507,283
=========== =========== =========== =========== ===========
Income tax (benefit) expense $(4,038,357) $ 397,360 $ 247,429 $ 182,965 $ 0
=========== =========== =========== =========== ===========
Net income (loss) $26,623,024 $(2,568,020) $ (140,508) $ 2,054,841 $(6,128,321)
=========== =========== =========== =========== ===========
Balance Sheet Data:
Total Assets $8,334,662,876 $5,021,012,890 $2,864,416,329 $1,558,548,537 $552,345,206
============== ============== ============== ============== ============
Future fees payable
to parent $ 47,111,936 $ 0 $ 0 $ 0 $ 0
============= ============== ============== ============== ===========
Surplus Notes $ 213,000,000 $ 103,000,000 $ 69,000,000 $ 20,000,000 $ 0
============= ============== ============== ============== ===========
Shareholder's Equity $ 126,345,031 $ 59,713,000 $ 52,205,524 $ 52,387,687 $46,332,846
============= ============== ============== ============== ===========
* On annuity sales of $2,795,114,000, $1,628,486,000,
$1,372,874,000, $890,640,000 and $287,596,000 during the
years ended December 31, 1996, 1995, 1994, 1993, and 1992,
respectively, with contractowner assets under management of
$7,764,891,000, $4,704,044,000, $2,661,161,000,
$1,437,554,000 and $495,176,000 as of December 31, 1996,
1995, 1994, 1993 and 1992, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
American Skandia Life Assurance Corporation (ASLAC) is a stock
insurance company domiciled in Connecticut with licenses in all
50 states. It is a wholly-owned subsidiary of American Skandia
Investment Holding Corporation (ASIHC), whose ultimate parent is
Skandia Insurance Company Ltd., a Swedish company.
The Company is in the business of issuing annuity policies, and
has been so since its business inception in 1988. The Company
currently offers the following annuity products: a) certain
deferred annuities that are registered with the Securities and
Exchange Commission, including variable annuities and fixed
interest rate annuities that include a market value adjustment
feature; b) certain other fixed deferred annuities that are not
registered with the Securities and Exchange Commission; and c)
fixed and adjustable immediate annuities.
The Company markets its products to broker-dealers and financial
planners through an internal field marketing staff. In addition,
the Company markets through and in conjunction with financial
institutions such as banks that are permitted directly, or
through affiliates, to sell annuities.
During 1995, Skandia Vida, S.A. de C.V. was formed by the
ultimate parent Skandia Insurance Company Ltd. The Company owns
99.9% ownership in Skandia Vida, S.A. de C.V. which is a life
insurance company domiciled in Mexico. This Mexican life insurer
is a start up company with expectations of selling long term
savings products within Mexico. The Company's investment in
Skandia Vida, S.A. de C.V. is $1,398,285 at December 31,1996.
RESULTS OF OPERATIONS
The Company's long term business plan was developed reflecting
the current sales and marketing approach. Annuity sales increased
72%, 19% and 54% in 1996, 1995 and 1994, respectively. The
Company continues to show significant growth in sales volume and
increased market share within the variable annuity industry. This
growth is a result of innovative product development activities,
expansion of distribution channels and a focused effort on
customer orientation.
The Company primarily offers and sells a wide range of deferred
annuities through three focused marketing, sales and service
teams, each of which specializes in addressing one of the
Company's primary distribution channels: (a) financial planning
firms; (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 which specialize in marketing to customers of banks. Starting
in 1994, the Company expanded these teams, adding more field
marketing and internal sales support personnel. The Company also
offers a number of specialized products distributed by select,
large distributors. In 1995 and 1996 the Company restructured its
internal support operations to support the specialized marketing,
sales and service needs of the primary distribution channels and
of the select distributors of specialized products. There has
been continued growth and success in expanding the number of
selling agreements in the primary distribution channels. There
has also been increased success in enhancing the relationships
with the registered representative/insurance agents of all the
selling firms.
Total assets grew 66%, 75% and 84% in 1996, 1995 and 1994,
respectively. These increases were a direct result of the
substantial sales volume increasing separate account assets and
deferred acquisition costs. Liabilities grew 65%, 76%, and 87% in
1996, 1995 and 1994, respectively, as a result of the reserves
required for the increased sales activity along with borrowing
during 1996, 1995 and 1994. The borrowing is needed to fund the
acquisition costs of the Company's variable annuity business.
The Company experienced a net gain after tax in 1996 and a net
loss after tax in 1995 and 1994. The 1996 result was related to
the strong sales volume, favorable market climate, expense
savings relative to sales volume and recognition of certain tax
benefits.
The 1995 result was related to higher than anticipated expense
levels and additional reserving requirements on our market value
adjusted annuities. The increase in expenses was primarily
attributable to improving our service infrastructure and
marketing related costs, which was in part responsible for this
strong sales and financial performance in 1996.
The 1994 loss is a result of additional reserving of
approximately $4.6 million to cover the minimum death benefit
exposure in the Company's annuity contracts along with higher
than expected general expenses relative to sales volume. The
additional reserve may be required from time to time, within the
variable annuity market place, and is a result of volatility in
the financial markets as it relates to the underlying separate
account investments.
REVENUES
Increasing volume of annuity sales results in higher assets under
management. The fees realized on assets under management have
resulted in annuity charges and fees increasing 80%, 57% and 111%
in 1996, 1995 and 1994, respectively.
Net investment income decreased 1% in 1996 and increased 23% and
88% in 1995 and 1994 respectively. The level net investment
income in 1996 is a result of the consistent investment holdings
throughout most of the year. The increase in 1995 and 1994 was a
result of a higher average level of Company bonds and short-term
investments.
Fee income has increased 165%, 194% and 125% in 1996, 1995 and
1994, respectively, as a result of income from transfer agency
type activities.
BENEFITS
Annuity benefits represent payments on annuity contracts with
mortality risks, this being the immediate annuity with life
contingencies and supplementary contracts with life
contingencies.
Increase/(decrease) in annuity policy reserves represents change
in reserves for the immediate annuity with life contingencies,
supplementary contracts with life contingencies and minimum death
benefit. During 1995 the Company entered into an agreement to
reinsure the guaranteed minimum death benefit exposure on most of
the variable annuity contracts. The costs associated with
reinsuring the minimum death benefit reserve approximates the
change in the minimum death benefit reserve during 1996 and 1995,
thereby having no significant effect on the statement of
operations. The significant increase in 1994 reflects the
required increase in the minimum death benefit reserve on
variable annuity contracts. This increase covers the escalating
death benefit in one of the Company's products which was further
enhanced as a result of poor market conditions which resulted in
lower returns in performance of the underlying mutual funds
within the variable annuity contract.
Return credited to contractowners represents revenues on the
variable and market value adjusted annuities offset by the
benefit payments and change in reserves required on this
business. Also included are the benefit payments and change in
reserves on immediate annuity contracts without significant
mortality risks. The 1996 return credited to contractowners in
the amount of $0.7 million represents a favorable investment
return on the market value adjusted contracts relating to the
benefits and required reserves, offset by the effect of bond
market fluctuations on December 31, 1996 in the amount of $1.8
million. While the assets relating to the market value adjusted
contracts relfect the market interest rate fluctuations which
occurred on December 31, 1996, the liabilities are based on the
interest rates set for new contracts which are generally based on
the prior day's interest rates. During the first week of January
1997 interest rates were established for new contracts, thereby
bringing the liaiblities relating to the market value adjusted
contracts in line with the related assets.
In 1995, the Company earned a lower than anticipated separate
account investment return on the market value adjusted contracts
in support of the benefits and required reserves. In addition,
the 1995 result includes an increase in the required reserves
associated with this product. The result for 1994 was better than
anticipated due to separate account investment return on the
market value adjusted contracts being in excess of the benefits
and required reserves.
EXPENSES
Underwriting, acquisition and other insurance expenses for 1996
is made up of $133.9 million of commissions and $19.8 million of
general expenses offset by the net capitalization of deferred
acquisition costs totaling $153.9 million. This compares to the
same period last year of $62.8 million of commissions and $42.2
million of general expenses offset by the net capitalization of
deferred acquisition costs totaling $69.2 million.
Underwriting, acquisition and other insurance expenses in 1994
were made up of $46.2 million of commissions and $26.2 million of
general expenses offset by the net capitalization of deferred
acquisition costs totaling $53.7 million.
Interest expense increased $4.3 million, $2.9 million and $3.4
million in 1996, 1995 and 1994, respectively, as a result of
Surplus Notes totaling $213 million, $103 million and $69
million, at December 31, 1996, 1995 and 1994, respectively.
Income tax reflected a benefit of $4,038,357 for the year ended
December 31, 1996, compared with expense of $397,360 and $247,429
for the years ended December 31, 1995 and 1994, respectively. The
1996 benefit is related to management's release of the deferred
tax valuation allowance of $9,324,853 established at December 31,
1995. Management believes that based on the taxable income
produced in the current year and the continued growth in annuity
products, the Company will produce sufficient taxable income in
the future to realize its deferred tax assets. Income tax expense
in 1995 and 1994 relates principally to increases in the deferred
tax valuation allowance of $1,680,339 and $365,288 for the years
ended December 31, 1995 and 1994, respectively, as well as the
Company being in an Alternative Minimum Tax position for both
years.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirement of ASLAC was met by cash from insurance
operations, investment activities and borrowings from its parent.
As previously stated, the Company had significant growth during
1996. The sales volume of $2.795 billion was primarily
(approximately 96%) variable annuities which carry a contingent
deferred sales charge. This type of product causes a temporary
cash strain in that 100% of the proceeds are invested in separate
accounts supporting the product leaving a cash (but not capital)
strain caused by the acquisition cost for the new business. This
cash strain required the Company to look beyond the insurance
operations and investments of the Company. During 1996, the
Company borrowed an additional $110 million from its parent in
the form of Surplus Notes and extended its reinsurance agreements
(which were initiated in 1993, 1994 and 1995). The reinsurance
agreements are modified coinsurance arrangements where the
reinsurer shares in the experience of a specific book of
business. The income and expense items presented above are net of
reinsurance.
In addition, on December 17, 1996 the company sold to its Parent,
effective September 1, 1996, certain rights to receive future
fees and charges expected to be realized on the variable portion
of a designated block of deferred annuity contracts issued during
the period January 1, 1994 through June 30, 1996. In connection
with this transaction the Parent issued collateralized notes
through a trust in a private placement which are secured by the
rights to receive future fees and charges purchased from the
Company.
Under the terms of the Purchase Agreement, the rights sold
provide for the Parent to receive 80% of future mortality and
expense charges and contingent deferred sales charges, after
reinsurance, expected to be realized over the remaining surrender
charge period of the designated contracts (generally, 6.5 years).
The company did not sell the right to receive future fees and
charges after the expiration of the surrender charge period.
The proceeds from the sale have been recorded as a liability and
are being amortized over the remaining surrender charge period of
the designated contracts using the interest method. The present
value at September 1, 1996 (discounted at 7.5%) of future fees
and charges expected to be realized on the designated contracts
was $50,221,438.
The Company expects to use borrowing, reinsurance and the sale of
future fee revenues to fund the cash strain anticipated from the
acquisition costs on the coming years' sales volume.
The tremendous growth of this young organization has depended on
capital support from its parent. On December 19, 1996, the
company received $39 million from its parent to support the
capital needs of its anticipated 1997 growth in business.
As of December 31, 1996 and December 31, 1995, shareholder's
equity was $126,345,031 and $59,713,000 respectively, which
includes the carrying value of state insurance licenses in the
amount of $4,712,500 and $4,862,500, respectively.
ASLAC has long term surplus notes with its parent and a short
term borrowing with an affiliate. No dividends have been paid to
its parent company.
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS
INDEX
Page(s)
Independent Auditors' Report 8
Consolidated Statements of Financial Condition
as of December 31, 1996 and 1995 9
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 10
Consolidated Statements of Shareholder's Equity for the
Years Ended December 31, 1996, 1995 and 1994 11
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 12
Notes to Consolidated Financial Statements 13-26
Schedules are omitted because they are either not applicable or
because the information required therein is included in the Notes
to Consolidated Financial Statements.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Skandia Life Assurance Corporation
Shelton, Connecticut
We have audited the accompanying consolidated statements of financial condition
of American Skandia Life Assurance Corporation and subsidiary (a wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1996 and 1995,
and the related consolidated statements of operations, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of American Skandia Life
Assurance Corporation and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
March 10, 1997
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31,
1996 1995
ASSETS
Investments:
Fixed maturities - at amortized cost $ 10,090,369 $ 10,112,705
Fixed maturities - at market value 87,369,724 0
Investment in mutual funds - at market value 2,637,731 1,728,875
Short-term investments - at amortized cost 18,100,000 15,700,000
Total investments 118,197,824 27,541,580
Cash and cash equivalents 14,199,412 13,146,384
Accrued investment income 1,958,546 194,074
Fixed assets 229,780 82,434
Deferred acquisition costs 438,640,918 270,222,383
Reinsurance receivable 2,167,818 1,988,042
Receivable from affiliates 691,532 860,991
Income tax receivable - current 0 563,850
Income tax receivable - deferred 17,217,582 0
State insurance licenses 4,712,500 4,862,500
Other assets 2,207,171 1,589,006
Separate account assets 7,734,439,793 4,699,961,646
Total Assets $ 8,334,662,876 $ 5,021,012,890
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Reserve for future contractowner benefits $ 36,245,936 $ 30,493,018
Annuity policy reserves 21,238,749 19,386,490
Income tax payable 1,124,151 0
Accounts payable and accrued expenses 65,198,965 32,816,517
Payable to affiliates 685,724 314,699
Future fees payable to parent 47,111,936 0
Payable to reinsurer 79,000,262 64,995,470
Short-term borrowing-affiliate 10,000,000 10,000,000
Surplus notes 213,000,000 103,000,000
Deferred contract charges 272,329 332,050
Separate account liabilities 7,734,439,793 4,699,961,646
Total Liabilities 8,208,317,845 4,961,299,890
SHAREHOLDER'S EQUITY:
Common stock, $80 par, 25,000 shares
authorized, issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 122,250,117 81,874,666
Unrealized investment gains and losses, net (319,631) 111,359
Foreign currency translation, net (263,706) (328,252)
Retained earnings (deficit) 2,678,251 (23,944,773)
Total Shareholder's Equity 126,345,031 59,713,000
Total Liabilities and Shareholder's Equity $ 8,334,662,876 $ 5,021,012,890
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
REVENUES:
Annuity charges and fees $ 69,779,522 $ 38,837,358 $ 24,779,785
Fee income 16,419,690 6,205,719 2,111,801
Net investment income 1,585,819 1,600,674 1,300,217
Annuity premium income 125,000 0 70,000
Net realized capital gains/(losses) 134,463 36,774 (1,942)
Other 34,154 64,882 24,550
------------ ------------ ------------
Total Revenues 88,078,648 46,745,407 28,284,411
------------ ------------ ------------
BENEFITS AND EXPENSES:
Benefits:
Annuity benefits 613,594 555,421 369,652
Increase/(decrease) in annuity policy reserves 634,540 (6,778,756) 5,766,003
Cost of minimum death benefit reinsurance 2,866,835 2,056,606 0
Return credited to contractowners 672,635 10,612,858 (516,730)
------------ ------------ ------------
4,787,604 6,446,129 5,618,925
------------ ------------ ------------
Expenses:
Underwriting, acquisition and other insurance expenses 49,765,661 35,820,524 18,792,720
Amortization of state insurance licenses 150,000 150,000 150,000
Interest expense 10,790,716 6,499,414 3,615,845
------------ ------------ ------------
60,706,377 42,469,938 22,558,565
------------ ------------ ------------
Total Benefits and Expenses 65,493,981 48,916,067 28,177,490
------------ ------------ ------------
Income (loss) from operations before federal income taxes 22,584,667 (2,170,660) 106,921
Income tax (benefit) expense (4,038,357) 397,360 247,429
------------ ------------ ------------
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
============ =========== ===========
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
Common stock, balance at beginning and end of year $ 2,000,000 $ 2,000,000 $ 2,000,000
----------- ----------- -----------
Additional paid-in capital:
Balance at beginning of year 81,874,666 71,623,932 71,623,932
Additional contributions 40,375,451 10,250,734 0
----------- ----------- -----------
Balance at end of year 122,250,117 81,874,666 71,623,932
----------- ----------- -----------
Unrealized investment gains and losses:
Balance at beginning of year 111,359 (41,655) 0
Change in unrealized investment gains and losses, net (430,990) 153,014 (41,655)
----------- ----------- -----------
Balance at end of year (319,631) 111,359 (41,655)
Foreign currency translation:
Balance at beginning of year (328,252) 0 0
Change in foreign currency translation, net 64,546 (328,252) 0
----------- ----------- -----------
Balance at end of year (263,706) (328,252) 0
----------- ----------- -----------
Retained earnings (deficit):
Balance at beginning of year (23,944,773) (21,376,753) (21,236,245)
Net income (loss) 26,623,024 (2,568,020) (140,508)
----------- ----------- -----------
Balance at end of year 2,678,251 (23,944,773) (21,376,753)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY $ 126,345,031 $ 59,713,000 $ 52,205,524
============ ============ ============
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of Skandia Insurance Company Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994
--------------- --------------- ---------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 26,623,024 $ (2,568,020) $ (140,508)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Increase/decrease) in annuity policy reserves 1,852,259 (4,667,765) 6,004,603
Increase/(decrease) in policy contract claims
Amortization of bond discount 27,340 23,449 21,964
Amortization of state insurance licenses 150,000 150,000 150,000
Change in due to/from affiliates 540,484 (347,884) 256,779
Change in income tax payable/receivable 1,688,001 (600,849) 36,999
Increase in other assets (765,511) (409,927) (742,041)
Increase in accrued investment income (1,764,472) (20,420) (44,847)
Increase in reinsurance receivable (179,776) (1,988,042) 0
Increase in accounts payables and accrued expenses 32,382,448 1,063,137 13,396,502
Increase in deferred acquisition costs (168,418,535) (96,212,774) (83,986,073)
Decrease in deferred contract charges (59,721) (117,654) (71,117)
Increase in foreign currency translation, net (77,450) (328,252) 0
Deferred income taxes (16,903,477) 0 0
Realized (gain)/loss on sale of investments (134,463) (36,774) 1,942
------------- -------------- -------------
Net cash used in operating activities (125,039,849) (106,061,775) (65,115,797)
------------- ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of fixed maturities (96,812,903) (614,289) (1,989,120)
Proceeds from sales and maturities of available-for-sale fixed maturities 8,732,390 0 0
Proceeds from maturities of held-to-maturity fixed maturities 215,000 100,000 2,010,000
Purchase of shares in mutual funds (2,160,347) (1,566,194) (922,822)
Proceeds from sale of shares in mutual funds 1,273,640 867,744 38,588
Net sale (purchase) of short-term investments (2,400,000) 8,300,000 (4,600,000)
Investments in separate accounts (2,789,361,685) (1,609,415,439) (1,365,775,177)
------------- ------------- -------------
Net cash used in investing activities (2,880,513,905) (1,602,328,178) (1,371,238,531)
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions from parent 40,375,451 10,250,734 0
Surplus notes 110,000,000 34,000,000 49,000,000
Increase in future fees payable to parent 47,111,936 0 0
Short-term borrowing
Increase in payable to reinsurer 14,004,792 24,890,064 28,555,190
Proceeds from annuity sales 2,795,114,603 1,628,486,076 1,372,873,747
------------- ------------- -------------
Net cash provided by financing activities 3,006,606,782 1,697,626,874 1,450,428,937
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 1,053,028 (10,763,079) 14,074,609
Cash and cash equivalents at beginning of year 13,146,384 23,909,463 9,834,854
------------- ------------- -------------
Cash and cash equivalents at end of year $ 14,199,412 $ 13,146,384 $ 23,909,463
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $ 11,177,120 $ 995,496 $ 161,398
============= ============= =============
Interest paid $ 7,094,767 $ 540,319 $ 557,639
============= ============= =============
See notes to consolidated financial statements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements
1. BUSINESS OPERATIONS
American Skandia Life Assurance Corporation (the "Company") is a
wholly-owned subsidiary of American Skandia Investment Holding
Corporation (the "Parent"), which in turn is a wholly-owned subsidiary
of Skandia Insurance Company Ltd., a Swedish corporation.
The Company develops annuity products and issues its products through
its affiliated broker/dealer company, American Skandia Marketing,
Incorporated. The Company currently issues variable, fixed, market
value adjusted and immediate annuities.
The Company's consolidated financial statements include the accounts of
Skandia Vida, S.A. de C.V. ("Skandia Vida"), a life insurance company
domiciled in Mexico, which was formed in 1995 by the ultimate parent
Skandia Insurance Company Ltd. The Company has a 99.9% ownership
interest in Skandia Vida, which is a start up company with expectations
of selling long term savings products within Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Reporting
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles. Intercompany transactions and balances have been
eliminated in consolidation.
B. Investments
The Company has classified its fixed maturity investments as
either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are investments that the
Company has the ability and intent to hold to maturity. Such
investments are carried at amortized cost. Those investments
which are classified as available-for-sale are carried at
market value and changes in unrealized gains and losses are
reported as a component of shareholder's equity.
The Company has classified its mutual fund investments as
available-for-sale. Such investments are carried at market
value and changes in unrealized gains and losses are reported
as a component of shareholder's equity.
Short-term investments are reported at cost which approximates
market value.
Realized gains and losses on disposal of investments are
determined by the specific identification method and are
included in revenues.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
C. Cash Equivalents
The Company considers all highly liquid time deposits
purchased with a maturity of three months or less to be cash
equivalents.
D. State Insurance Licenses
Licenses to do business in all states have been capitalized
and reflected at the purchase price of $6 million less
accumulated amortization. The cost of the licenses is being
amortized over 40 years.
E. Fixed Assets
Fixed Assets consisting of furniture, equipment and leasehold
improvements are carried at cost and depreciated on a straight
line basis over a period of three to five years. Accumulated
depreciation amounted to $32,641 and $3,749 at December 31,
1996 and 1995, respectively. Depreciation expense for the
years ended December 31, 1996 and 1995 was $28,892 and $3,749
respectively.
F. Recognition of Revenue and Contract Benefits
Annuity contracts without significant mortality risk, as
defined by Financial Accounting Standard No. 97, are
classified as investment contracts (variable, market value
adjusted and certain immediate annuities) and those with
mortality risk (immediate annuities) as insurance products.
The policy of revenue and contract benefit recognition is
described below.
Revenues for variable annuity contracts consist of charges
against contractowner account values for mortality and expense
risks and administration fees and an annual maintenance fee
per contract. Benefit reserves for variable annuity contracts
represent the account value of the contracts and are included
in the separate account liabilities.
Revenues for market value adjusted annuity contracts consist
of separate account investment income reduced by benefit
payments and change in reserves in support of contractowner
obligations, all of which is included in return credited to
contractowners. Benefit reserves for these contracts represent
the account value of the contracts, and are included in the
general account liability for future contractowner benefits to
the extent in excess of the separate account liabilities.
Revenues for immediate annuity contracts without life
contingencies consist of net investment income. Revenues for
immediate annuity contracts with life contingencies consist of
single premium payments recognized as annuity considerations
when received. Benefit reserves for these contracts are based
on the Society of Actuaries 1983 Table-a with assumed interest
rates that vary by issue year. Assumed interest rates ranged
from 6.5% to 8.25% at both December 31, 1996 and 1995.
Annuity sales were $2,795,114,000, $1,628,486,000 and
$1,372,874,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Annuity contract assets under management
were $7,764,891,000, $4,704,044,000 and $2,661,161,000 at
December 31, 1996, 1995 and 1994, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
G. Deferred Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, are being
deferred and amortized in relation to the present value of
estimated gross profits. These costs include commissions, cost
of contract issuance, and certain selling expenses that vary
with production. Details of the deferred acquisition costs for
the years ended December 31 follow:
1996 1995 1994
---- ---- ----
Balance at beginning of year $270,222,383 $174,009,609 $ 90,023,536
Acquisition costs deferred
during the year 190,995,588 106,063,698 85,801,180
Acquisition costs amortized
during the year 22,577,053 9,850,924 1,815,107
------------ ------------ ------------
Balance at end of year $438,640,918 $270,222,383 $174,009,609
============ ============ ============
H. Deferred Contract Charges
Certain contracts are assessed a front-end fee at the time of
issue. These fees are deferred and recognized in income in
relation to the present value of estimated gross profits of
the related contracts. Details of the deferred contract
charges for the years ended December 31 follow:
1996 1995 1994
---- ---- ----
Balance at beginning of year $332,050 $449,704 $520,821
Contract charges deferred
during the year 42,740 21,513 87,114
Contract charges amortized
during the year 102,461 139,167 158,231
-------- -------- --------
Balance at end of year $272,329 $332,050 $449,704
======== ======== ========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
I. Separate Accounts
Assets and liabilities in Separate Account are shown as
separate captions in the consolidated statement of financial
condition. Separate Account assets consist of long-term bonds,
investments in mutual funds and short-term securities, all of
which are carried at market value.
Included in Separate Account liabilities is $644,233,883 and
$586,233,752 at December 31, 1996 and 1995, respectively,
relating to annuity contracts for which the contractholder is
guaranteed a fixed rate of return. Separate Account assets of
$644,233,883 and $588,835,051 at December 31, 1996 and 1995,
respectively, consisting of long term bonds, short term
securities, transfers due from general account and cash are in
support of these annuity contracts, as pursuant to state
regulation.
J. Income taxes
The Company is included in the consolidated federal income tax
return with all Skandia Insurance Company Ltd. subsidiaries in
the U.S. The federal and state income tax provision is
computed on a separate return basis as adjusted for
consolidated items such as net operating losses which are
utilized in the consolidated federal income tax return in
accordance with the provisions of the Internal Revenue Code,
as amended. Prior to 1995, the Company filed a separate income
tax return.
K. Translation of Foreign Currency
The financial position and results of operations of the
Company's foreign operations are measured using local currency
as the functional currency. Assets and liabilities of the
operations are translated at the exchange rate in effect at
each year-end. Statements of operations and shareholder's
equity accounts are translated at the average rate prevailing
during the year. Translation adjustments arising from the use
of differing exchange rates from period to period are included
in shareholder's equity.
L. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires that
management make estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates and assumptions are related to deferred acquisition
costs and involve policy lapses, investment return and
maintenance expenses. Actual results could differ from those
estimates.
M. Reinsurance
The Company cedes reinsurance under modified co-insurance
arrangements. The reinsurance arrangements provides additional
capacity for growth in supporting the cash flow strain from
the Company's variable annuity business. The reinsurance is
effected under quota share contracts.
The Company reinsures certain mortality risks. These risks
result from the guaranteed minimum death benefit feature in
the variable annuity products.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS
The amortized cost, gross unrealized gains (losses) and estimated
market value of available-for-sale and held-to-maturity fixed
maturities and equity securities by category as of December 31, 1996
and 1995 are shown below. All securities held at December 31, 1996 are
publicly traded.
Investments in fixed maturities as of December 31, 1996 consist of the
following:
Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,299,803 $88,268 $22,937 $ 4,365,134
Obligations of
State and Political
Subdivisions 250,119 229 0 250,348
Corporate
Securities 5,540,447 0 62,660 5,477,787
----------- ------- ------- -----------
Totals $10,090,369 $88,497 $85,597 $10,093,269
=========== ======= ======= ===========
Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $14,508,780 0 $ 79,745 $14,429,035
Obligations of
State and Political
Subdivisions 202,516 26 0 202,542
Other Government
Obligations 5,047,790 0 7,440 5,040,350
Corporate
Securities 68,101,413 83,312 486,928 67,697,797
----------- ------- -------- -----------
Totals $87,860,499 $83,338 $574,113 $87,369,724
=========== ======= ======== ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The amortized cost and market value of fixed maturities, by contractual
maturity, at December 31, 1996 are shown below.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Due in one year or less $ 697,626 $ 699,861 $ 5,047,790 $ 5,040,350
Due after one through five years 9,138,036 9,143,290 29,864,609 29,756,002
Due after five through ten years 254,707 250,118 52,948,100 52,573,372
----------- ----------- ----------- -----------
Total $10,090,369 $10,093,269 $87,857,499 $87,369,724
=========== =========== =========== ===========
Investments in fixed maturities as of December 31, 1995 consist of the
following:
Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government
Obligations $ 4,304,731 $183,201 $1,778 $ 4,486,154
Obligations of
State and Political
Subdivisions 256,095 0 3,165 252,930
Corporate
Securities 5,551,879 13,252 346 5,564,785
----------- -------- ------ -----------
Totals $10,112,705 $196,453 $5,289 $10,303,869
=========== ======== ====== ===========
Proceeds from sales and maturities of fixed maturity investments during
1996, 1995 and 1994, were $8,947,390, $100,000 and $2,010,000,
respectively.
There were no gross gains and losses realized during the years ended
December 31, 1996, 1995 and 1994.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The cost, gross unrealized gains (losses) and market value of
investments in mutual funds at December 31, 1996 and 1995 are shown
below:
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
1996 $2,638,695 $ 59,278 $60,242 $2,637,731
========== ======== ======= ==========
1995 $1,617,516 $111,686 $ 327 $1,728,875
========== ======== ======= ==========
Proceeds from sales of investments in mutual funds during 1996, 1995
and 1994 were $1,273,640, $867,744 and $38,588, respectively.
Mutual fund gross realized gains and losses were as follows:
Gross Gross
Gains Losses
1996 $139,814 $ 5,351
======== =======
1995 $ 65,236 $28,462
======== =======
1994 $ 510 $ 2,452
======== =======
4. NET INVESTMENT INCOME
Additional information with respect to net investment income for the
years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994
---- ---- ----
Fixed maturities $ 836,591 $ 629,743 $ 616,987
Mutual funds 143,737 59,895 12,049
Short-term investments 92,987 256,351 142,421
Cash and cash equivalents 591,666 730,581 633,298
Interest on policy loans 5,274 4,025 1,275
---------- ---------- ----------
Total investment income 1,670,255 1,680,595 1,406,030
Investment expenses 84,436 79,921 105,813
---------- ---------- ----------
Net investment income $1,585,819 $1,600,674 $1,300,217
========== ========== ==========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The significant components of income tax expense are as follows:
1996 1995 1994
---- ---- ----
Current tax expense $12,865,120 $397,360 $247,429
Deferred tax (benefit) expense (16,903,477) 0 0
------------- -------- --------
Total income tax (benefit) expense ($ 4,038,357) $397,360 $247,429
============= ======== ========
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's deferred tax
balance as of December 31, 1996 and 1995, are as follows:
1996 1995
---- ----
Deferred Tax (Liabilities):
Deferred acquisition costs ($103,072,477) ($57,399,960)
Payable to reinsurer (23,025,326) (19,802,861)
Policy Fees (491,640) (308,304)
Unrealized investment gains 0 (38,976)
------------ -----------
Total (126,589,443) (77,550,101)
------------ -----------
Deferred Tax Assets:
Net separate account liabilities 121,092,798 72,024,094
Reserve for future contractowner benefits 12,686,078 10,672,556
Other reserve differences 4,527,886 1,492,044
Deferred compensation 4,392,526 2,169,060
Surplus notes blocked interest 548,730 0
Unrealized investment losses 172,109 0
Foreign exchange translation 141,996 114,888
Deferred contract charge 95,315 116,218
AMT credit carryforward 0 286,094
Other 149,587 0
------------ -----------
Total 143,807,025 86,874,954
------------ -----------
Net before valuation allowance 17,217,582 9,324,853
Valuation allowance 0 (9,324,853)
------------ -----------
Net deferred tax balance $ 17,217,582 $ 0
============ ===========
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
Management believes that based on the taxable income produced in the
current year and the continued growth in annuity products, the Company
will produce sufficient taxable income in the furture to realize its
deferred tax assets. As such, the Company released the deferred tax
valuation allowance of $9,324,853 established as of December 31, 1995.
The income tax expense was different from the amount computed by
applying the federal statutory tax rate of 35% to pre-tax income from
continuing operations as follows:
1996 1995 1994
---- ---- ----
Income (loss) before taxes $22,584,667 ($2,170,660) $106,921
Income tax rate 35% 35% 35%
----------- ----------- ---------
Tax expense at federal
statutory income tax rate 7,904,633 (759,731) 37,422
Tax effect of:
Change in valuation allowance (9,324,853) 1,680,339 365,288
Dividend received deduction (2,266,051) (477,139) 0
Other (352,086) (46,109) (155,281)
----------- ---------- --------
Income tax (benefit) expense ($ 4,038,357) $ 397,360 $247,429
============ ========== ========
6. RELATED PARTY TRANSACTIONS
Certain operating costs (including personnel, rental of office space,
furniture, and equipment) have been charged to the Company at cost by
American Skandia Information Services and Technology Corporation, an
affiliated company; and likewise, the Company has charged operating
costs to American Skandia Investment Services, Incorporated, an
affiliated company. Operating costs for these items was $11,581,114,
$12,687,337 and $8,524,840 for the years ended December 31, 1996, 1995
and 1994, respectively. Income received for these items was $1,148,364,
$396,573 and $248,799 for the years ended December 31, 1996, 1995 and
1994, respectively. Amounts receivable from affiliates under this
arrangement were $548,792 and $857,156 as of December 31, 1996 and
1995, respectively. Amounts payable to affiliates under this
arrangement were $619,089 and $304,525 as of December 31, 1996 and
1995, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
7. FUTURE FEES PAYABLE TO PARENT
On December 17, 1996 the Company sold to its Parent, effective
September 1, 1996, certain rights to receive future fees and charges
expected to be realized on the variable portion of a designated block
of deferred annuity contracts issued during the period January 1, 1994
through June 30, 1996. In connection with this transaction, the Parent
issued collateralized notes in a private placement which are secured by
the rights to receive future fees and charges purchased from the
Company.
Under the terms of the Purchase Agreement, the rights sold provide for
the Parent to receive 80% of future mortality and expense charges and
contingent deferred sales charges, after reinsurance, expected to be
realized over the remaining surrender charge period of the designated
contracts (generally, 6.5 years). The Company did not sell the right to
receive future fees and charges after the expiration of the surrender
charge period.
The proceeds from the sale have been recorded as a liability and are
being amortized over the remaining surrender charge period of the
designated contracts using the interest method. The present value at
September 1, 1996 (discounted at 7.5%), of future fees and charges
expected to be realized on the designated contracts was $50,221,438.
Payments representing fees and charges realized during the period
September 1, 1996 through December 31, 1996 in the aggregate amount of
$3,109,502, were made by the Company to the Parent. Interest expense of
$42,260 has been included in the statement of operations.
Expected payments of future fees payable to Parent are as follows:
Year Ending
December 31, Amount
1997 $ 9,308,527
1998 9,782,558
1999 10,002,274
2000 10,061,058
2001 6,412,114
2002 1,392,003
2003 153,402
-----------
Total $47,111,936
The Commissioner of the State of Connecticut has approved the sale of
future fees and charges; however, in the event that the Company becomes
subject to an order of liquidation or rehabilitation, the Commissioner
has the ability to stop the payments due to the Parent under the
Purchase Agreement, subject to certain terms and conditions.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
8. LEASES
The Company leases office space under a lease agreement established in
1989 with American Skandia Information Services and Technology
Corporation. The lease expense for 1996, 1995 and 1994 was $1,583,391,
$1,218,806 and $961,080, respectively. Future minimum lease payments
per year and in aggregate as of December 31, 1996 are as follows:
1997 1,413,180
1998 1,571,400
1999 1,571,400
2000 1,740,750
2001 and thereafter 6,527,813
-----------
Total $12,824,543
9. RESTRICTED ASSETS
In order to comply with certain state insurance departments'
requirements, the Company maintains cash, bonds and notes on deposit
with various states. The carrying value of these deposits amounted to
$3,766,564 and $3,267,357 as of December 31, 1996, and 1995,
respectively. These deposits are required to be maintained for the
protection of contractowners within the individual states.
10. RETAINED EARNINGS AND DIVIDEND RESTRICTIONS
Statutory basis shareholder's equity was $275,835,076, $132,493,899 and
$95,001,971 at December 31, 1996, 1995 and 1994, respectively.
The statutory basis net loss was $5,405,179, $7,183,003 and $9,789,297
for the years ended December 31, 1996, 1995 and 1994, respectively.
Under state insurance laws, the maximum amount of dividends that can be
paid shareholders without prior approval of the state insurance
departments is subject to restrictions relating to statutory surplus
and net gain from operations. At December 31, 1996, no amounts may be
distributed without prior approval.
11. EMPLOYEE BENEFITS
In 1989, the Company established a 401(k) plan for which substantially
all employees are eligible. Company contributions to this plan on
behalf of the participants were $850,111, $627,161 and $431,559 for the
years ended December 31, 1996, 1995 and 1994, respectively.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
The Company and it's affiliate cooperatively have a long-term incentive
plan where units are awarded to executive officers and other personnel.
The program consists of multiple plans. A new plan is instituted each
year. Generally, participants must remain employed by the Company or
its affiliates at the time such units are payable in order to receive
any payments under the plan. The accrued liability representing the
value of these units is $9,212,369 and $4,600,831 as of December 31,
1996 and 1995, respectively. Payments under this plan were $601,603 for
the year ended December 31, 1996.
In 1994, the Company established a deferred compensation plan which is
available to the internal field marketing staff and certain officers.
Company contributions to this plan on behalf of the participants were
$244,601 in 1996 and $139,209 in 1995.
12. REINSURANCE
The effect of the reinsurance agreements on the Company's operations
was to reduce annuity charges and fee income, death benefit expense and
policy reserves. The effect of reinsurance for the years ended December
31, 1996, 1995 and 1994 are as follows:
1996
------------------------------------------------------------------
Annuity Change in Annuity Return Credited
Charges and Fees Policy Reserves to Contractowners
Gross $87,369,693 $814,306 $779,070
Ceded 17,590,171 179,766 106,435
----------- -------- --------
Net $69,779,522 $634,540 $672,635
=========== ======== ========
1995 1994
------------------------------------------------------------------ ----------------
Annuity Change in Annuity Return Credited Annuity
Charges and Fees Policy Reserves to Contractowners Charges and Fees
Gross $50,334,280 ($4,790,714) $10,945,831 $30,116,166
Ceded 11,496,922 1,988,042 332,973 5,336,381
----------- ---------- ----------- -----------
Net $38,837,358 ($6,778,756) $10,612,858 $24,779,785
=========== =========== =========== ===========
Such ceded reinsurance does not relieve the Company from its
obligations to policyholders. The Company remains liable to its
policyholders for the portion reinsured to the extent that any
reinsurer does not meet the obligations assumed under the reinsurance
agreements.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
13. SURPLUS NOTES
The Company has issued surplus notes to its Parent in exchange for
cash. Surplus notes outstanding as of December 31, 1996 were as
follows:
Issue Interest
Date Amount Rate
December 29, 1993 $ 20,000,000 6.84%
February 18, 1994 10,000,000 7.28%
March 28, 1994 10,000,000 7.90%
September 30, 1994 15,000,000 9.13%
December 28, 1994 14,000,000 9.78%
December 19, 1995 10,000,000 7.52%
December 20, 1995 15,000,000 7.49%
December 22, 1995 9,000,000 7.47%
June 28, 1996 40,000,000 8.41%
December 30, 1996 70,000,000 8.03%
------------
Total $213,000,000
Payment of interest and repayment of principal for these notes is
subject to certain conditions and requires approval by the Insurance
Commissioner of the State of Connecticut.
Interest expense on surplus notes was $10,087,347, $5,789,893 and
$3,016,905 for the years ended December 31, 1996, 1995 and 1994,
respectively. Interest approved and paid during 1996 was $6,438,867.
Interest accrued at December 31, 1996 amounted to $3,648,480, of which
$2,080,680 has been approved and paid in 1997. The remaining $1,567,800
was not approved for payment. The 1995 and 1994 amounts were approved
at December 31, 1995 with stipulation that they be funded through a
capital contribution from the parent.
14. SHORT-TERM BORROWING
During 1993, the Company received a $10 million loan from Skandia AB, a
Swedish affiliate. Upon renewal during 1995 the loan became payable to
the Parent rather than Skandia AB. The loan matures on March 10, 1997
and bears interest at 6.46%. The total interest expense to the Company
was $642,886, $709,521 and $569,618 and for the years ended December
31, 1996, 1995 and 1994, respectively, of which $206,361 and $219,375
was payable as of December 31, 1996 and 1995, respectively.
15. CONTRACT WITHDRAWAL PROVISIONS
Approximately 98% of the Company's separate account liabilities
are subject to discretionary withdrawal with market value
adjustment by contractholders. Separate account assets which are
carried at market value are adequate to pay such withdrawals
which are generally subject to surrender charges ranging from
8.5% to 1% for contracts held less than 8 years.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
(a wholly-owned subsidiary of
Skandia Insurance Company Ltd.)
Notes to Consolidated Financial Statements (continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes information with respect to the
operations of the Company on a quarterly basis:
Three Months Ended
1996 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $16,605,765 $20,452,733 $22,366,166 $26,933,702
Net investment income 455,022 282,926 270,092 577,779
Net realized capital gains 92,072 13,106 5,606 23,679
----------- ----------- ----------- -----------
Total revenues $17,152,859 $20,748,765 $22,641,864 $27,535,160
=========== =========== =========== ===========
Benefits and expenses $12,725,411 $ 9,429,735 $17,007,137 $25,191,857
=========== =========== =========== ===========
Net income $ 2,658,941 $ 7,695,490 $ 2,538,513 $14,470,976
=========== =========== ============ ===========
Three Months Ended
1995 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $ 8,891,903 $10,066,478 $11,960,530 $14,189,048
Net investment income 551,690 434,273 293,335 321,376
Net realized capital gains (losses) (16,082) (370) 44,644 8,582
----------- ----------- ----------- -----------
Total revenues $ 9,427,511 $10,500,381 $12,298,509 $14,519,006
=========== =========== =========== ===========
Benefits and expenses $11,438,798 $ 9,968,595 $11,600,587 $15,908,087
=========== =========== =========== ===========
Net income (loss) ($ 2,026,688) $ 531,486 $ 678,312 ($ 1,751,130)
=========== =========== =========== ===========
Three Months Ended
1994 March 31 June 30 September 30 December 31
---- ----------- ----------- ------------ -----------
Premiums and other insurance
revenues $ 5,594,065 $ 6,348,777 $ 7,411,686 $ 7,631,608
Net investment income 252,914 336,149 264,605 446,549
Net realized capital gains (losses) 0 (30,829) 25,914 2,973
----------- ----------- ----------- -----------
Total revenues $ 5,846,979 $ 6,654,097 $ 7,702,205 $ 8,081,130
=========== =========== =========== ===========
Benefits and expenses $ 5,701,460 $ 7,883,829 $ 8,157,535 $ 6,434,666
=========== =========== =========== ===========
Net income (loss) $ 104,636 ($ 1,257,768) ($ 503,793) $ 1,516,417
=========== =========== =========== ===========
As described in Note 5, the valuation allowance relating to deferred
income taxes was released during the three months ended December 31,
1996.
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 10. Directors and Executive Officers of the Registrant
Information contained in "Executive Officers and Directors" of
the prospectus of the Company's registration statement on Form
S-1, (Reg. #333-00941) is incorporated herein by reference.
Item 11. Executive Compensation
Summary Compensation Table: The summary table below summarizes
the compensation payable to the Chief Executive Officer and to
the most highly compensated of our executive officers whose
compensation exceeded $100,000 in 1996.
Name and Principal Annual Other Annual LTIP
Position Year Salary Compensation Payouts
Jan R. Carendi 1996 $505,694 $114,993
Chief Executive Officer 1995 200,315
1994 170,569
Gordon C. Boronow 1996 $179,426 $ 54,000
President & Chief 1995 157,620
Operating Officer 1994 129,121
Nancy Brunetti 1996 $155,123 $ 2,547
Senior Vice President, 1995 110,725
Customer Service 1994 89,267
Lincoln R. Collins 1996 $208,346 $ 19,099
Senior Vice President 1995 156,550
Product Management 1994 92,700
Jeffrey Ulness 1996 $174,333
Vice President 1995 136,372
Product Management 1994 60,453
Long-Term Incentive Plans (LTIP) - Awards in the last fiscal
year: The following table provides information regarding our
long-term incentive plan. Units are awarded to executive officers
and other personnel. The table shows units awarded to our Chief
Executive Officer and the most highly compensated of our
executive officers whose compensation exceeded $100,000 in the
fiscal year immediately preceding the date of this submission.
This program is designed to induce participants to remain with
the Company over long periods of time and to tie a portion of
their compensation to the fortunes of the Company.
Currently, the program consists of multiple plans. A new plan
may be instituted each year. Participants are awarded units
at the beginning of a plan. Generally, participants must remain
employed by the Company or its affiliates at the time such units
are payable in order to receive any payments under the plan.
There are certain exceptions, such as in cases of retirement or
death.
Changes in the value of units reflect changes in the "embedded
value" of the Company. "Embedded value" is the net asset value of
the Company (valued at market value and not including the present
value of future profits), plus the present value of the
anticipated future profits (valued pursuant to state insurance
law) on its existing contracts. Units will not have any value for
participants if the embedded value does not increase by certain
target percentages during the first four years of a plan. The
target percentages may differ between each plan. Any amounts
available under a plan are paid out in the fifth through eighth
years of a plan. Payments will be postponed if the payment would
exceed 20% of any profit (as determined under state insurance
law) earned by the company in the prior fiscal year before tax or
30% of the individual's current year salary. The amount to be
received by a participant at the time any payment is due will be
the then current number of units payable multiplied by the then
current value of such units.
Number Period until Estimated Future Payouts
Name of Units Payout Threshold Target Maximum
Jan R. Carendi 135,000 Various $1,203,604
Gordon C. Boronow 135,000 Various $1,176,838
Nancy F. Brunetti 40,000 Various $ 227,290
Lincoln R. Collins 49,250 Various $ 424,182
Jeffrey M. Ulness 25,000 Various $ 113,088
The following directors compensation is shown below in 1996:
Jan R. Carendi 0
Gordon C. Boronow 0
*Nancy F. Brunetti 0
Malcolm M. Campbell 0
*Lincoln R. Collins 0
C. Henrik G. Danckwardt 0
Wade A. Dokken 0
Thomas M. Mazzaferro 0
Gunnar J. Moberg 0
Anders O. Soderstrom 0
Amanda C. Sutyak 0
C. Ake Svensson 0
Bayard F. Tracy 0
Item 12. Security Ownership of Certain Beneficial Owners and Management
None
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(1) Financial Statements See Index to Financial
Statements of Page 6
(2) Financial Statement Schedules None
(3) Exhibits
(3) Articles of Incorporation and By-Laws Incorporated by reference to
the Company's Form N-4
(Reg. #33-19363)
(4) Instruments defining the right of Incorporated by reference to
security holders including indentures the Company's Forms N-4
(Reg. #33-19363, #33-44436,
#33-56770, #33-47753,
#33-71118 and #33-47976)
(9) Voting Trust Agreement None
(10) Material Contracts Incorporated by reference to
the Company's Forms S-1
(Reg. #33-26122 and
#33-86918)
(11) Statement of Computation of per share
earnings Not required to be filed
(12) Statements of Computation of Ratios Not required to be filed
(13) Annual Report to security holders None
(18) Letter re change in accounting principles None
(19) Previously unfiled documents None
(22) Subsidiaries of the registrant None
(23) Published report regarding matters
submitted to vote of security holders None
(25) Powers of Attorney Incorporated by reference to
the Company's Forms N-4
(Reg. #33-19363), S-1
(Reg. #33-86918) and S-1
(Reg. #33-88360)
(28) Additional exhibits None
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
(29) Information from reports furnished
to state insurance regulatory authorities None
(b) Reports on Form 8-K None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 15, 1997.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: /s/Thomas M. Mazzaferro
-----------------------
Thomas M. Mazzaferro
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 25, 1997.
*Jan R. Carendi
Jan R. Carendi
Chief Executive Officer,
Chairman of the Board and Director
Board of Directors
*Gordon C. Boronow *Nancy F. Brunetti *Jan R. Carendi
*Malcolm M. Campbell *Lincoln R. Collins *C. Henrik G. Danckwardt
*Wade A. Dokken *Thomas M. Mazzaferro *Gunnar J. Moberg
*Anders O. Soderstrom *Amanda C. Sutyak *C. Ake Svensson
*Bayard F. Tracy
By: /s/M. Patricia Paez
-------------------
M. Patricia Paez
Corporate Secretary
*Pursuant to Powers of Attorney filed with the Registration Statement.