<Page>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
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Commission file number 33-81010
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AETNA INSURANCE COMPANY OF AMERICA
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 06-1286272
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5100 West Lemon Street, Suite 213, Tampa, Florida 33609
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (860) 273-0123
-----------------------------
None
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED SINCE LAST
REPORT)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Title of Class at November 9, 2001
- -------------- -------------------
Common Capital Stock, par value $100 25,500
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life
Insurance and Annuity Company)
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Statements of Income 3
Balance Sheets 4
Statements of Changes in Shareholder's Equity 5
Statements of Cash Flows 6
Condensed Notes to Financial Statements 7
Independent Accountants' Review Report 12
Item 2. Management's Analysis of the Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
</Table>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
STATEMENTS OF INCOME
(Unaudited)
(millions)
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- -----------------------------------
2001 2000 2001 2000
---------------- ---------------- ---------------- ----------------
Revenues:
Charges assessed against policyholders $ 3.1 $ 4.7 $ 10.1 $ 13.6
Net investment income 2.4 3.0 7.6 8.3
Net realized capital (losses) gains (0.4) 0.1 0.3 (0.8)
Other income 0.4 0.3 1.0 1.1
---------------- ---------------- ---------------- ----------------
Total revenue 5.5 8.1 19.0 22.2
---------------- ---------------- ---------------- ----------------
Benefits and expenses:
Current and future benefits 2.1 1.8 5.6 5.7
Operating expenses:
Salaries and related benefits 0.2 0.3 0.5 0.8
Other 0.4 0.9 1.8 3.0
Amortization of deferred policy acquisition costs
and value of business acquired 1.4 1.5 4.8 4.3
Amortization of goodwill 0.7 - 1.9 -
---------------- ---------------- ---------------- ----------------
Total benefits and expenses 4.8 4.5 14.6 13.8
---------------- ---------------- ---------------- ----------------
Income before income taxes 0.7 3.6 4.4 8.4
Income taxes 0.1 0.8 1.8 2.4
---------------- ---------------- ---------------- ----------------
Net income $ 0.6 $ 2.8 $ 2.6 $ 6.0
================ ================ ================ ================
</Table>
See Condensed Notes to Financial Statements.
3
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
BALANCE SHEETS
(millions, except share data)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------------ -----------------
ASSETS (UNAUDITED)
- ------
Investments:
Debt securities, available for sale, at fair value
(amortized cost: $118.4 and $125.8) $ 123.8 $ 126.5
Equity securities, at fair value
Nonredeemable preferred stock (amortized cost: $1.1) - 1.0
Short-term investments - 0.4
Securities pledged to creditors (amortized cost: $10.0 and $8.0) 10.5 8.1
Cash and cash equivalents 2.2 9.1
Short-term investments under securities loan agreement 10.5 8.4
Deferred policy acquisition costs 0.2 -
Value of business acquired 54.4 58.7
Accrued investment income 1.7 1.7
Premiums due and other receivables 10.6 4.7
Goodwill 97.5 98.9
Other assets 1.1 1.1
Separate Accounts assets 777.3 1,007.8
------------------ -----------------
Total assets $ 1,089.8 $ 1,326.4
================== =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Policyholders' funds left with the Company 98.8 110.3
Payables under securities loan agreement 10.5 8.4
Other liabilities 0.4 3.7
Due to parent and affiliates 2.6 3.8
Income taxes:
Current 0.6 -
Deferred 10.5 7.8
Separate Accounts liabilities 777.3 1,007.8
------------------ -----------------
Total liabilities 900.7 1,141.8
------------------ -----------------
Shareholder's equity:
Common capital stock, par value $100 (35,000 shares
authorized, 25,500 issued and outstanding) 2.5 2.5
Paid-in capital 181.3 181.3
Accumulated other comprehensive income 2.1 0.2
Retained earnings 3.2 0.6
------------------ -----------------
Total shareholder's equity 189.1 184.6
------------------ -----------------
Total liabilities and shareholder's equity $ 1,089.8 $ 1,326.4
================== =================
</Table>
See Condensed Notes to Financial Statements.
4
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Unaudited)
(millions)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2001 2000
--------------- ---------------
Shareholder's equity, beginning of period $ 184.6 $ 73.4
Comprehensive income
Net income 2.6 6.0
Other comprehensive income, net of tax:
Unrealized gains on securities
($2.9 million, $1.6 million, pretax) 1.9 1.0
--------------- ---------------
Total comprehensive income 4.5 7.0
--------------- ---------------
Common stock issued - 2.4
Dividends paid to parent - (2.4)
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Shareholder's equity, end of period $ 189.1 $ 80.4
=============== ===============
</Table>
See Condensed Notes to Financial Statements.
5
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
(millions)
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2001 2000
--------------- ---------------
Cash Flows from Operating Activities:
Net income $ 2.6 $ 6.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized capital (gains) losses (0.3) 0.8
Changes in assets and liabilities:
Net accretion of discount on debt securities (0.2) -
Increase in accrued investment income - (0.1)
Decrease in deferred policy acquisition costs
and value of business acquired 4.1 2.6
Goodwill amortization, net of adjustments 1.4 -
Net change in amounts due to/from parent and affiliates (1.2) 4.0
Net decrease in other assets and liabilities 2.6 1.6
Increase in income taxes 2.2 2.1
--------------- ---------------
Net cash provided by operating activities 11.2 17.0
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 65.6 101.5
Short-term investments 2.8 0.1
Investment maturities and repayments of:
Debt securites available for sale 9.2 5.9
Cost of investment purchases in:
Debt securities available for sale (69.0) (105.7)
Short-term investments - (2.8)
--------------- ---------------
Net cash provided by (used for) investing activities 8.6 (1.0)
--------------- ---------------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 4.8 6.2
Withdrawal of investment contracts (26.3) (30.2)
Other, net (5.2) 4.4
--------------- ---------------
Net cash used for financing activities (26.7) (19.6)
--------------- ---------------
Net decrease in cash and cash equivalents (6.9) (3.6)
Cash and cash equivalents, beginning of period 9.1 22.9
--------------- ---------------
Cash and cash equivalents, end of period $ 2.2 $ 19.3
=============== ===============
Supplemental cash flow information:
Income taxes (received) paid, net $ (0.2) $ 0.2
=============== ===============
</Table>
See Condensed Notes to Financial Statements.
6
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CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of the state of
Connecticut. Effective January 5, 2000, the Company changed its state of
domicile from Connecticut to Florida. The Company is a wholly owned
subsidiary of Aetna Life Insurance and Annuity Company ("ALIAC"). ALIAC is a
wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO").
HOLDCO is a wholly owned subsidiary of Aetna Retirement Services, Inc.
("ARSI"), whose ultimate parent is ING Groep N.V. ("ING"). The Company has
one operating segment and all revenue reported by the Company comes from
external customers.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and are
unaudited. Certain reclassifications have been made to the 2000 financial
information to conform to the 2001 presentation. These interim statements
necessarily rely heavily on estimates, including assumptions as to
annualized tax rates. In the opinion of management, all adjustments
necessary for a fair statement of results for the interim periods have been
made. All such adjustments are of a normal, recurring nature. The
accompanying financial statements should be read in conjunction with the
financial statements and related notes as presented in the Company's 2000
Annual Report on Form 10-K. Certain financial information that is normally
included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America,
but that is not required for interim reporting purposes, has been condensed
or omitted.
Operating results for the three and nine months ended September 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.
2. NEW ACCOUNTING STANDARD
As of January 1, 2001, the Company adopted FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended and interpreted by
FAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, FAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities
- an Amendment of FASB Statement No. 133. and certain FAS No. 133
implementation issues. This standard, as amended, requires companies to
record all derivatives on the balance sheet as either assets or liabilities
and measure those instruments at fair value. The manner in which companies
are to record gains or losses resulting from changes in the fair values of
those derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting.
Adoption of FAS No. 133 did not have a material effect on the Company's
financial position or results of operations due to the Company's limited
derivative and embedded derivative holdings.
7
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The Company may utilize futures contracts, options, interest rate swap
agreements and warrants in order to manage interest rate and price risk
(collectively, market risk). These financial exposures are monitored and
managed by the Company as an integral part of its overall risk management
program. Derivatives are recognized on the balance sheet at fair value. The
Company does not designate its derivative instruments as part of hedge
transactions. Therefore changes in the fair value of the Company's
derivative instruments are recorded immediately in the consolidated
statements of income as part of realized capital gains and losses.
Warrants are instruments that give the holder the right, but not the
obligation, to buy or sell a fixed amount of an underlying asset at a fixed
price in the future. Warrants are carried at fair value and are recorded as
either derivative instruments or FAS No. 115 available for sale securities.
Warrants that are considered derivatives are carried at fair value if they
are readily convertible to cash. The values of these warrants can fluctuate
given that the companies which underlie the warrants are non public
companies. Warrants, considered to be derivatives, will be revalued each
quarter and the change in the value of the warrants will be included in the
consolidated statements of income. As of September 30, 2001, the Company had
no warrants.
The Company, at times, may own warrants on common stock which are not
readily convertible to cash as they contain certain conditions which
preclude their convertibility and therefore, will not be included in assets
or liabilities as derivatives. If conditions are satisfied and the
underlying stocks become marketable, the warrants would be reclassified as
derivatives and recorded at fair value as an adjustment through current
period results of operations.
The Company occasionally purchases a financial instrument that contains a
derivative that is "embedded" in the instrument. In addition, the Company's
insurance products are reviewed to determine whether they contain an
embedded derivative. To the extent a financial instrument or insurance
product (host instrument) contains an embedded derivative, the Company
assesses whether the economic characteristics of the embedded derivative are
clearly and closely related to the economic characteristics of the host
contract and whether a separate instrument with the same terms as the
embedded instrument would meet the definition of a derivative instrument.
When it is determined that the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract and that a separate instrument with the
same terms would qualify as a derivative instrument, the embedded derivative
is separated from the host contract and carried at fair value. However, in
cases where the host contract is measured at fair value, with changes in
fair value reported in current period earnings or the Company is unable to
reliably identify and measure the embedded derivative for separation from
its host contract, the entire contract is carried on the balance sheet at
fair value and is not designated as a hedging instrument. The Company had no
material amounts of embedded derivatives at September 30, 2001.
8
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3. FUTURE ACCOUNTING STANDARD
ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 142, Accounting for Goodwill and
Intangible Assets. Under the new standard, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the new standard.
Other intangible assets will continue to be amortized over their useful
lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the new standard is expected to result in an
increase in net income; however, the Company is still assessing the impact
of the new standard. During 2002, the Company will perform the required
impairment tests of goodwill as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and
financial position of the Company.
4. SALE OF AETNA FINANCIAL SERVICES AND AETNA INTERNATIONAL
On December 13, 2000, ING America Insurance Holdings, Inc., an indirect
wholly owned subsidiary of ING, acquired Aetna Inc., comprised of the Aetna
Financial Services business, of which the Company is a part, and the Aetna
International business, for approximately $7.7 billion. The purchase price
was comprised of approximately $5.0 billion in cash and the assumption of
$2.7 billion of outstanding debt and other net liabilities. In connection
with the acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc.
("Lion"). At the time of the sale, Lion entered into certain transition
services agreements with a former related party, Aetna U.S. Healthcare,
which was renamed Aetna Inc. ("former Aetna").
For accounting purposes, the acquisition was accounted for as of November
30, 2000 using the purchase method. The application of the purchase method,
including the recognition of goodwill, was pushed down and reflected on the
financial statements of certain ARSI subsidiaries, including the Company.
The purchase price was allocated to assets and liabilities based on their
respective fair values. This revaluation resulted in a net increase to
assets, excluding the effects of goodwill, of $3.2 million and a net
increase to liabilities of $1.1 million. Additionally, the Company
established goodwill of $98.9 million. Goodwill is being amortized over a
period of 40 years. The allocation of the purchase price to assets and
liabilities is subject to further refinement.
Unaudited pro forma consolidated net income of the Company for the nine
months ended September 30, 2000, assuming that the acquisition of the
Company occurred at the beginning of 2000, would each have been
approximately $1.9 million. The pro forma adjustments, which do not affect
revenues, reflect primarily goodwill amortization.
9
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5. REVISION OF PRELIMINARY ALLOCATION OF PURCHASE PRICE
ING America Insurance Holdings, Inc., an indirect wholly owned subsidiary of
ING, acquired Aetna Inc., comprised of the Aetna Financial Services
business, of which the Company is a part, and the Aetna International
business, on December 13, 2000.
The preliminary allocation of the purchase price did not reflect any market
value adjustments related to the Company's investment portfolios. The
Company, after giving consideration to certain exposures in the general
market place which, while existing prior to the acquisition, subsequently
took on more significance, determined that a reduction in carrying value was
warranted.
The amount of the reductions in the carrying values of the investment
portfolios were accounted for as components of the purchase price and the
amounts assigned to the Company's assets and liabilities in the allocation
of the purchase price were adjusted appropriately. That adjustment was
generally reflected as an adjustment to goodwill.
6. ADDITIONAL INFORMATION - ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in accumulated other comprehensive income related to changes in
unrealized gains on securities (excluding those related to experience-rated
contractholders) were as follows:
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
(MILLIONS) 2001 2000
------------------------------------------------------------------------------------------------------------
Unrealized holding gains arising during the period (1) $ 2.1 $ 0.5
Less: reclassification adjustments for gains (losses) and other items
included in net income (2) 0.2 (0.5)
------------------------------------------------------------------------------------------------------------
Net unrealized gains on securities $ 1.9 $ 1.0
============================================================================================================
</Table>
(1) Pretax unrealized holding gains arising during the period were $3.2
million and $0.8 million for 2001 and 2000, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $0.3 million and $(0.8) million for 2001 and
2000, respectively.
10
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7. VALUE OF BUSINESS ACQUIRED
Value of business acquired ("VOBA") is an asset and represents the present
value of estimated net cash flows embedded in the Company's contracts
indirectly acquired by ING. VOBA is amortized in proportion to estimated
gross profits and is adjusted to reflect actual gross profits over the life
of the contracts (up to 30 years for annuity contracts and pension
contracts).
Activity for the nine months ended September 30, 2001 within VOBA was as
follows:
<Table>
<Caption>
(MILLIONS)
-------------------------------------------------------
Balance at December 31, 2000 $58.7
Additions 0.4
Interest accrued at 7.0 % 2.9
Amortization (7.6)
-------------------------------------------------------
Balance at September 30, 2001 $54.4
=======================================================
</Table>
8. LITIGATION
The Company is not currently involved in any material litigation.
11
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Aetna Insurance Company of America
We have reviewed the accompanying condensed balance sheet of Aetna Insurance
Company of America (the "Company") as of September 30, 2001, and the related
condensed statements of income, changes in stockholder's equity and cash flows
for the three-month and nine-month periods then ended. These financial
statements are the responsibility of the Company's management. The financial
statements of the Company for the three and nine-month periods ended September
30, 2000 were reviewed by other accountants whose report (dated October 31,
2000) stated that they were not aware of any material modifications that should
be made to those statements for them to be in conformity with accounting
principles generally accepted in the United States.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements at September 30,
2001, and for the three-month and nine-month periods then ended for them to be
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Hartford, Connecticut
November 8, 2001
12
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ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
The following analysis presents a review of the Company for the three months and
nine months ended September 30, 2001 and 2000. This review should be read in
conjunction with the financial statements and other data presented herein as
well as in the "Management's Analysis of the Results of Operations" section of
the Company's 2000 Annual Report on Form 10-K.
OVERVIEW
Sale of Aetna Financial Services and Aetna International
On December 13, 2000, ING America Insurance Holdings, Inc., an indirect wholly
owned subsidiary of ING Groep N.V. ("ING"), acquired Aetna Inc., comprised of
the Aetna Financial Services business, of which the Company is a part, and the
Aetna International business, for approximately $7.7 billion. The purchase price
was comprised of approximately $5.0 billion in cash and the assumption of $2.7
billion of outstanding debt and other net liabilities. In connection with the
acquisition, Aetna Inc. was renamed Lion Connecticut Holdings Inc. ("Lion"). At
the time of the sale, Lion entered into certain transition services agreements
with a former related party, Aetna U.S. Healthcare, which was renamed Aetna Inc.
("former Aetna"). Refer to Note 4 of Condensed Notes to Financial Statements for
more information on the acquisition.
13
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RESULTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2001 2000 2001 2000
(MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------
Charges assessed against policyholders $ 3.1 $ 4.7 $ 10.1 $ 13.6
Net investment income 2.4 3.0 7.6 8.3
Net realized capital (losses) gains (0.4) 0.1 0.3 (0.8)
Other income 0.4 0.3 1.0 1.1
- -------------------------------------------------------------------------------------------------------------------------
Total revenue 5.5 8.1 19.0 22.2
- -------------------------------------------------------------------------------------------------------------------------
Current and future benefits 2.1 1.8 5.6 5.7
Operating expenses:
Salaries and related benefits 0.2 0.3 0.5 0.8
Other 0.4 0.9 1.8 3.0
Amortization of deferred policy acquisition costs
and value of business acquired 1.4 1.5 4.8 4.3
Amortization of goodwill 0.7 - 1.9 -
- -------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 4.8 4.5 14.6 13.8
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 0.7 3.6 4.4 8.4
Income taxes 0.1 0.8 1.8 2.4
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 0.6 $ 2.8 $ 2.6 $ 6.0
=========================================================================================================================
Net realized capital (losses) gains, net of tax
(included above) $ (0.3) $ 0.1 $ 0.2 $ (0.5)
=========================================================================================================================
Deposits not included above:
Annuities - fixed options $ 1.0 $ 0.7 $ 5.6 $ 2.3
Annuities - variable options 4.5 2.1 24.3 7.9
- -------------------------------------------------------------------------------------------------------------------------
Total $ 5.5 $ 2.8 $ 29.9 $ 10.2
=========================================================================================================================
Assets under management:
Annuities - fixed options (1)(2) $ 161.4 $ 193.9
Annuities - variable options (3) 697.4 1,041.5
- -------------------------------------------------------------------------------------------------------------------------
Total (4) $ 858.8 $ 1,235.4
=========================================================================================================================
</Table>
(1) Excludes net unrealized capital gains of $5.9 million at September 30, 2001
and net unrealized capital losses of $2.3 million at September 30, 2000.
(2) Includes $66.7 million and $72.7 million at September 30, 2001 and
September 30, 2000, respectively, related to the assets supporting a
guaranteed interest option.
(3) Includes $533.9 million and $802.9 million at September 30, 2001 and
September 30, 2000, respectively, of assets invested through the Company's
products in unaffiliated mutual funds.
(4) Includes $267.3 million and $310.2 million at September 30, 2001 and
September 30, 2000, respectively, of assets managed by an affiliate of the
Company, and includes $57.6 million and $122.3 million at September 30,
2001 and September 30, 2000, respectively, of assets managed by the
Company's parent, ALIAC.
Net income for the three months ended September 30, 2001 decreased $2.2 million
compared to the same period in 2000. Excluding goodwill amortization and net
realized capital gains and losses, results for the three months ended September
30, 2001 decreased $1.1 million, or 41%, compared to the same period in 2000.
Net income for the nine months ended September 30, 2001 decreased by $3.4
million compared to the same period in 2000. Excluding goodwill amortization and
net realized capital gains and losses, results for the nine months ended
September 30, 2001 decreased $2.2 million, or 34%, compared to the same period
in 2000.
14
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The decreases in earnings for the three months and nine months ended September
30, 2001 are due primarily to a decrease in charges assessed against
policyholders partially offset by a decrease in operating expenses.
Substantially all of the charges assessed against policyholders reported by the
Company are derived from assets under management. For the quarter ended
September 30, 2001, assets under management decreased $376.6 million, or 30%,
compared to the same period in 2000 primarily due to a decline in the stock
market.
Annuity deposits relate to annuity contracts not containing life contingencies.
Deposits increased by $2.7 million and $19.7 million for the three months and
nine months ended September 30, 2001, respectively, compared to the same periods
in 2000 primarily due to an increase in employer sponsored annuity sales
partially offset by a decrease in individual annuity sales. The increase in
employer sponsored sales and decrease in individual annuity sales is primarily
the result of the Company's decision to focus its marketing efforts on expanding
its employer sponsored business and to not actively market its annuity products
to individuals. Refer to the "Outlook" section of Management's Analysis of the
Results of Operations in the Company's 2000 Annual Report on Form 10-K.
Lower operating expenses for the three months and nine months ended September
30, 2001 are primarily the result of the Company's decision to not actively
market its annuity products to individuals.
The effective tax rate decreased for the three months ended September 30, 2001
and increased for the nine months ended September 30, 2001 when compared to the
same periods a year ago. Relative to the amount of pretax income in all periods,
a decrease in the deduction for dividends received and the disallowance of
goodwill amortization as a deduction principally contributed to the decrease and
increase in the effective tax rate.
GENERAL ACCOUNT INVESTMENTS
Effective April 1, 2001, ING Investment Management, LLC, an affiliate of the
Company, became the advisor of the Company's general account investments
replacing Aeltus Investment Management, Inc, another affiliate of the Company.
The Company's invested assets were comprised of the following:
<Table>
<Caption>
(MILLIONS) SEPTEMBER 30, 2001 DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------------------------------
Debt securities, available for sale, at fair value (1) $ 134.3 $ 132.3
Nonredeemable preferred stock - 1.0
Short-term investments (2) - 2.7
- -------------------------------------------------------------------------------------------------------------------
Total investments $ 134.3 $ 136.0
===================================================================================================================
</Table>
(1) Includes $10.5 million and $5.8 million of debt securities pledged to
creditors at September 30, 2001 and December 31, 2000, respectively.
(2) Includes $2.3 million of short-term investments pledged to creditors at
December 31, 2000.
15
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Debt Securities
At September 30, 2001 and December 31, 2000, the Company's carrying value of
available for sale debt securities including debt securities pledged to
creditors (herein after referred to as "total debt securities") represented 100%
and 97%, respectively, of the total general account invested assets. For the
same periods, debt securities equal to $125.0 million (93% of the total debt
securities) and $119.1 million (90% of the total debt securities), respectively,
supported experience-rated contracts. Total debt securities reflected net
unrealized capital gains of $5.9 million and $0.8 million at September 30, 2001
and December 31, 2000, respectively.
It is management's objective that the portfolio of debt securities be of high
quality and be well diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies, and, if not
externally rated, are rated by the Company on a basis believed to be similar to
that used by the rating agencies. The average quality rating of the Company's
debt security portfolio was AA- at September 30, 2001 and December 31, 2000.
The percentage of total debt securities by quality rating category is as
follows:
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
- ------------------------------------------------------------------------------
AAA 37.1% 46.8%
AA 4.4 5.8
A 38.1 31.2
BBB 19.6 16.2
BB and below 0.8 -
- ------------------------------------------------------------------------------
Total 100.0% 100.0%
==============================================================================
</Table>
The percentage of total debt securities by market sector is as follows:
<Table>
<Caption>
SEPTEMBER 30, 2001 DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------
U.S. Corporate 59.6% 56.2%
Residential Mortgage-backed 12.8 16.9
Foreign Securities (1) 8.1 0.8
U.S. Treasuries/Agencies 7.4 11.2
Commercial/Multi-family Mortgage-backed 7.0 6.8
Asset-Backed 5.1 8.1
- -------------------------------------------------------------------------------------------
Total 100.0% 100.0%
===========================================================================================
</Table>
(1) Primarily U.S. dollar denominated.
FORWARD-LOOKING INFORMATION/RISK FACTORS
The "Forward-Looking Information/Risk Factors" section of AICA's 2000 Annual
Report on Form 10-K contains discussions of important risk factors related to
the Company's businesses.
16
<Page>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation.
ITEM 5. OTHER INFORMATION
RATINGS
The Company's financial strength ratings at November 9, 2001 and August 9, 2001
are as follows:
<Table>
<Caption>
RATING AGENCIES
--------------------------------------------------------------------
MOODY'S INVESTORS STANDARD &
A.M. BEST FITCH SERVICE POOR'S
- --------------------------------------------------------------------------------------------------
November 9, 2001 A+ AA+ Aa2 AA+
August 9, 2001 A+ AA+ Aa2 AA+
- --------------------------------------------------------------------------------------------------
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
17
<Page>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA INSURANCE COMPANY OF AMERICA
----------------------------------
(Registrant)
November 13, 2001 By /s/ Deborah Koltenuk
----------------- -----------------------------------------
(Date) Deborah Koltenuk
Vice President and Corporate Controller
(Chief Accounting Officer)
18