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 March 31, 1997 Commission file number 33-81010
Aetna Insurance Company of America
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(Exact name of registrant as specified in its charter)
Connecticut 06-1286272
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
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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 APRIL 30, 1997
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Common Capital Stock,
par value $2,000 1,275
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.
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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 Auditors' Review Report............................. 9
Item 2. Management's Analysis of the Results of Operations........ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 13
Item 5. Other Information......................................... 13
Item 6. Exhibits and Reports on Form 8-K.......................... 13
Signatures......................................................... 14
2
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
(thousands)
3 MONTHS ENDED MARCH 31,
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1997 1996
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Revenue:
Charges assessed against policyholders................................... $ 857.8 $ 160.9
Net investment income.................................................... 1,282.7 174.5
Net realized capital gains............................................... 2.1 --
Other income............................................................. 42.8 --
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Total revenue.......................................................... 2,185.4 335.4
Benefits and expenses:
Current and future benefits.............................................. 1,176.5 --
Operating expenses....................................................... 963.0 652.2
Amortization of deferred policy acquisition costs........................ 316.0 --
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Total expenses......................................................... 2,455.5 652.2
Loss before income tax benefits............................................ (270.1) (316.8)
Income tax benefits...................................................... (135.4) (152.0)
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Net loss................................................................. $ (134.7) $(164.8)
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See Condensed Notes to Financial Statements.
3
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands, except share data )
MARCH 31, DECEMBER 31,
Assets 1997 1996
- ------ ------------ ------------
Investments:
Debt securities available for sale, at fair value
(amortized cost $63,915.9 and $24,736.8)..................... $ 62,497.7 $ 24,770.3
Short-term investments......................................... 1,000.0 --
Cash and cash equivalents........................................ 26,910.8 51,842.3
Deferred policy acquisition costs................................ 26,187.0 21,057.0
Accrued investment income........................................ 1,054.9 325.8
Deferred tax asset............................................... 2,220.4 1,289.7
Income taxes receivable.......................................... -- 1,133.2
Other assets..................................................... 956.9 447.6
Separate Accounts assets......................................... 369,116.7 303,518.6
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Total assets................................................. $489,944.4 $404,384.5
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Liabilities and Shareholder's Equity
Liabilities:
Policyholders' funds left with the Company..................... $ 83,106.0 $ 64,445.4
Other liabilities.............................................. 5,863.1 4,753.2
Due to parent and affiliates................................... 387.3 347.2
Income taxes payable........................................... 698.5 --
Separate Accounts liabilities.................................. 369,116.7 303,518.6
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Total liabilities............................................ 459,171.6 373,064.4
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Shareholder's equity:
Common capital stock, par value $2,000 (1,275 shares
authorized, issued and outstanding)............................ 2,550.0 2,550.0
Paid-in capital.................................................. 27,550.0 27,550.0
Net unrealized capital gains..................................... 6.0 90.3
Retained earnings................................................ 666.8 1,129.8
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Total shareholder's equity..................................... 30,772.8 31,320.1
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Total liabilities and shareholder's equity..................... $489,944.4 $404,384.5
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See Condensed Notes to Financial Statements.
4
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(thousands)
3 Months Ended March 31,
------------------------
1997 1996
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Shareholder's equity, beginning of year..................$31,320.1 $12,133.0
Net change in unrealized capital gains................... (84.3) (80.6)
Net loss................................................. (134.7) (164.8)
Other changes............................................ (328.3) --
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Shareholder's equity, end of period......................$30,772.8 $11,887.6
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See Condensed Notes to Financial Statements.
5
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(thousands)
3 Months Ended March 31,
------------------------
1997 1996
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Cash Flows from Operating Activities:
Net loss...................................................... $ (134.7) $ (164.8)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Increase in accrued investment income......................... (729.1) (122.6)
Increase in deferred policy acquisition costs................. (5,130.0) (1,323.5)
Net change in amounts due to/from parent and affiliates....... 40.1 295.0
Net increase in other assets and liabilities.................. 2,339.8 2,756.5
Net increase (decrease) in income taxes....................... 1,130.0 (732.0)
Net (accretion) amortization of (discount) premium on
debt securities............................................. (87.4) 2.2
Net realized capital gains.................................... (2.1) --
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Net cash (used for) provided by operating activities...... (2,573.4) 710.8
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Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale.......................... 7,937.2 --
Investment maturities and repayments of:
Debt securities available for sale.......................... 296.7 --
Cost of investment purchases in:
Debt securities available for sale.......................... (49,574.7) (34.9)
Short-term investments...................................... (1,000.0) --
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Net cash used for investing activities.................... (42,340.8) (34.9)
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Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts....... 20,516.2 558.5
Withdrawal of investment contracts............................ (533.5) --
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Net cash provided by financing activities................. 19,982.7 558.5
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Net (decrease) increase in cash and cash equivalents.............. (24,931.5) 1,233.9
Cash and cash equivalents, beginning of period.................... 51,842.3 4,044.2
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Cash and cash equivalents, end of period.......................... $26,910.8 $5,278.1
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Supplemental cash flow information:
Income taxes (benefit) paid (received), net................... $(1,051.0) $ 639.0
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See Condensed Notes to Financial Statements.
6
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
CONDENSED NOTES TO FINANCIAL STATEMENTS
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 Connecticut and 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., whose ultimate parent is Aetna Inc. ("Aetna").
The financial statements have been prepared in accordance with generally
accepted accounting principles and are unaudited. Certain reclassifications
have been made to 1996 financial information to conform to the 1997
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 condensed financial statements should be
read in conjunction with the financial statements and related notes as
presented in the Company's 1996 Annual Report on Form 10-K. Certain financial
information that is normally included in annual financial statements prepared
in accordance with generally accepted accounting principles, but that is not
required for interim reporting purposes, has been condensed or omitted.
2. FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued
in June 1996 and provides accounting and reporting standards for transfers of
financial assets and extinguishments of liabilities.
FAS No. 125 is effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending are not effective until January 1, 1998. Provisions effective in 1997
did not have a material effect on the Company's financial position or results
of operations. The Company does not expect adoption of this statement for
provisions effective in 1998 to have a material effect on its financial
position or results of operations.
3. INVESTMENTS
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
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AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
CONDENSED NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
4. BENEFIT PLANS
As of March 31, 1997, ALIAC transferred to the Company, approximately $505.0
thousand of accrued liabilities, primarily related to the allocation of
pension and postretirement benefit expenses that had been previously
allocated by ALIAC. The after-tax amount of this transfer (approximately
$328.3 thousand) is reported as a reduction of retained earnings.
5. LITIGATION
The Company is not currently involved in litigation.
8
Independent Auditors' 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 as of March 31, 1997, and the related condensed statements
of income, changes in shareholder's equity and cash flows for the three-month
periods ended March 31, 1997 and 1996. These condensed financial statements
are the responsibility of the Company's management.
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 generally accepted auditing standards, the
objective of which is the expression of 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 for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Aetna Insurance Company of America as of
December 31, 1996, and the related statements of income, changes in
shareholder's equity, and cash flows for the year then ended (not presented
herein); and in our report dated March 20, 1997, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1996, is
fairly presented, in all material respects, in relation to the balance sheet
from which it has been derived.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
May 5, 1997
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ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
3 MONTHS ENDED
MARCH 31,
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(THOUSANDS) 1997 1996
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Charges assessed against policyholders............................. $ 857.8 $ 160.9
Net investment income.............................................. 1,282.7 174.5
Net realized capital gains......................................... 2.1 --
Other income....................................................... 42.8 --
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Total revenue.................................................. 2,185.4 335.4
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Current and future benefits........................................ 1,176.5 --
Operating expenses................................................. 963.0 652.2
Amortization of deferred policy aquisition costs................... 316.0 --
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Total benefits and expenses.................................... 2,455.5 652.2
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Loss before income tax benefits................................ (270.1) (316.8)
Income tax benefits................................................ (135.4) (152.0)
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Net loss....................................................... $ (134.7) $ (164.8)
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Net realized capital gains, net of tax (included above)........ $ 1.4 $ --
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Deposits not included in premiums above:
Annuities--Fixed Options........................................... $ 30,150.7 $ 3,307.5
Annuities--Variable Options........................................ 59,314.0 14,049.3
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Total.............................................................. $ 89,464.7 $17,356.8
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Assets under management: (1) (2)
Annuities--Fixed Options........................................... $170,963.3 $11,921.3
Annuities--Variable Options ....................................... 283,542.8 51,224.1
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Total.............................................................. $454,506.1 $63,145.4
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(1) Excludes net unrealized capital losses of $1,418.2 thousand and net
unrealized capital gains of $110.6 thousand at March 31, 1997 and 1996,
respectively.
(2) Includes $262,437.6 thousand and $49,965.4 thousand at March 31, 1997 and
1996, respectively, of assets held and managed by unaffiliated mutual funds.
The Company had net losses of $134.7 thousand for the three months ended
March 31, 1997 compared to net losses of $164.8 thousand for the same period
a year ago. Excluding net realized capital gains, the Company had net
losses of $136.1 thousand for the three months ended March 31, 1997 compared
to net losses of $164.8 thousand for the same period a year ago. First
quarter results continue to reflect increased revenues and expenses
reflecting the growth of the Company's business operations (the Company
commenced operations in the second quarter of 1995).
During the three months ended March 31, 1997, the Company's net deferred tax
asset increased by $930.7 thousand from December 31, 1996, the benefit of
which reduced the Company's net loss in first quarter of 1997. This
increase in the deferred tax asset was
10
primarily due to losses from commencement of operations discussed above.
Management believes it is more likely than not that the Company will realize
the benefit of its net deferred tax asset.
GENERAL ACCOUNT INVESTMENTS
The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of
these investments is monitored, and investment purchases and sales are
executed with the objective of having adequate funds available to satisfy
the Company's maturing liabilities. The risks associated with investments
supporting experienced-rated products are assumed by those customers subject
to, among other things, certain minimum guarantees.
The Company's invested assets were comprised of the following:
MARCH 31, DECEMBER 31,
(THOUSANDS) 1997 1996
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Debt securities................................. $62,497.7 $24,770.3
Short-term investments.......................... 1,000.0 --
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Total Investments............................. $63,497.7 $24,770.3
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At March 31, 1997, the Company's carrying value of investments in debt
securities represented 98% of total general account invested assets. At March
31, 1997 and December 31, 1996, $54,123.0 thousand or 87% and $16,520.0
thousand or 67%, respectively, of total debt securities supported experienced
rated products.
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 at March 31, 1997 and December 31, 1996
was AA and AA-, respectively.
DEBT SECURITIES QUALITY RATINGS DEBT SECURITIES INVESTMENTS BY MARKET
AT MARCH 31, 1997 SECTOR AT MARCH 31, 1997
- ---------------------------------- ------------------------------------------
AAA 61.8% U.S. Treasuries/Agencies 50.7%
AA 1.5 U.S. Corporate Securities 23.3
A 12.9 Foreign Securities-U.S. Dollar
BBB 23.8 Denominated 14.9
----- Residential Mortgage-Backed
100.0 Securities 6.0
----- Commercial/Mulifamily Mortgage-
----- Backed Securities 3.9
Asset-Backed Securities 1.2
-----
100.0
-----
-----
11
DEBT SECURITIES QUALITY RATINGS DEBT SECURITIES INVESTMENTS BY MARKET
AT MARCH 31, 1997 SECTOR AT MARCH 31, 1997
- ---------------------------------- ------------------------------------------
AAA 47.3% U.S. Corporate Securities 44.7%
A 25.4 U.S. Treasuries/Agencies 33.3
BBB 27.3 Commercial/Mulifamily Mortgage-
----- Backed Securities 10.0
100.0 Foreign Securities-U.S. Dollar
----- Denominated 8.0
----- Asset-Backed Securities 4.0
-----
100.0
-----
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12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not currently involved in legal proceedings.
ITEM 5. Other Information
(a) NAIC IRIS Ratios
The NAIC IRIS ratios cover 12 categories of statutory financial data with
defined usual ranges for each category. The ratios are intended to separate
out, for further review, those insurers who might warrant special attention.
At December 31, 1996, the Company had seven ratios falling outside the usual
range, all of which were directly associated with the writing of new business
(the Company commenced operations in the second quarter of 1995). The initial
years of operations are typically characterized by statutory losses due to
the high level of start-up costs relative to the level of assets under
management.
The Company's management carefully monitors its capital requirements and does
not believe that the Company will warrant special attention by regulators.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
13
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)
MAY 14, 1997 BY /s/ DEBORAH KOLTENUK
(DATE) ------------------------------------
Deborah Koltenuk
VICE PRESIDENT AND TREASURER,
CORPORATE CONTROLLER
(CHIEF ACCOUNTING OFFICER)
14