The Company's net income increased $64 million in 1997 and decreased $35 million in 1996. The Company's 1996 net income includes an after-tax severance and facilities charge of $31 million primarily related to actions taken or expected to be taken to improve the Company's cost structure relative to its competitors and, in addition, a corporate severance and facilities charge of $9 million allocated to the Company by Aetna (see Note 7 in the Notes to the Consolidated Financial Statements). Excluding net realized capital gains and the severance and facilities charges, results increased by $14 million, or 8%, and $18 million, or, 12%, in 1997 and 1996, respectively. The 1997 results reflect improved earnings from financial services. The 1996 results reflect improved earnings from both financial services and individual life products.
Assets under management (excluding the effect of FAS No. 115 and the transfer of assets under management that were previously reported by an affiliate), increased by 22% during 1997 and 20% in 1996 primarily due to continued business growth and overall improvement in the stock market.
Of the $12.1 billion, $11.7 billion and $11.1 billion of fixed annuity assets under management at December 31, 1997, 1996 and 1995, respectively, 25%, 25% and 23%, respectively, were fully guaranteed, and 75%, 75% and 77% were experience rated. The average earned rate on investments supporting fully guaranteed investment contracts was 7.8%, 7.9% and 8.2% and the average earned rate on investments supporting experience rated investment contracts was 7.9%, 8.0% and 8.1% for the years ended December 31, 1997, 1996 and 1995, respectively. The average credited rate on fully guaranteed investment contracts was 6.6%, 6.8% and 7.0% and the average credited rate on experience rated investment contracts was 5.9%, 6.0% and 6.2% for the years ended December 31, 1997, 1996 and 1995, respectively. The resulting interest margins on fully guaranteed investment contracts were 1.2%, 1.1% and 1.2% and on experience rated investment contracts were 2.0%, 2.0% and 1.9% for the years ended December 31, 1997, 1996 and 1995, respectively.
(1) Includes $59.1 million, $71.8 million and $81.9 million for 1997, 1996 and 1995, respectively, for annuity premiums on contracts converting from the accumulation phase to payout options with life contingencies. (2) Excludes any effect of the corporate facilities and severance charge recorded in 1996 which is not directly allocable to the segment. (3) Excludes net unrealized capital gains of $471.3 million, $321.1 million and $689.9 million at December 31, 1997, 1996 and 1995, respectively. (4) Includes $5,069.9 million, $4,633.2 million and $2,577.7 million at December 31, 1997, 1996 and 1995, respectively, related to assets held and managed by unaffiliated mutual funds. (5) The December 31, 1997 balance includes the transfer of $4,078.5 million of assets that were previously reported by an affiliate, reflecting the migration of certain other pension products which complement the Company's business strategy.
The Financial Services segment's net income increased $43 million in 1997 and decreased $20 million in 1996. The Company's 1996 net income includes an after-tax severance and facilities charge of $22 million primarily related to actions taken or expected to be taken to improve the Company's cost structure relative to its competitors (see Note 7 in the Notes to the Consolidated Financial Statements). Excluding net realized capital gains and the severance and facilities charges, results increased by $14 million, or 13%, and $15 million, or, 16%, in 1997 and 1996, respectively. The increases in 1997 and 1996 earnings for financial services reflect increased fee income primarily from increased assets under management in annuity products. Assets under management (excluding transfers of assets under management previously reported by an affiliate) increased by 23% and 21% in 1997 and 1996, respectively, primarily due to appreciation in the stock market and additional net deposits.
(1) Both premiums and current and future benefits reflect $150.6 million related to the transition of the reinsurance agreement with Aetna Life from a modified coinsurance to a coinsurance arrangement. (2) Excludes any effect of the corporate facilities and severance charge recorded in 1996 which is not directly allocable to the segment. (3) Excludes net unrealized capital gains of $80.3 million, $45.3 million and $107.2 million at December 31, 1997, 1996 and 1995, respectively. (4) Includes $108.7 million, $91.6 million and $26.5 million at December 31, 1997, 1996 and 1995, respectively, related to assets held and managed by unaffiliated mutual funds.
The Individual Life Insurance segment's net income increased $12 million in 1997 and decreased $6 million in 1996. The Company's 1996 net income includes an after-tax severance and facilities charge of $9 million primarily related to actions taken or expected to be taken to improve the Company's cost structure relative to its competitors (see Note 7 in the Notes to the Consolidated Financial Statements). Excluding net realized capital gains and the severance and facilities charges, results increased by $1 million, or 1%, and $3 million, or, 6%, in 1997 and 1996, respectively.
Premiums relate to traditional (term and whole life) life insurance. In 1997, premium and current and future benefits reflect offsetting amounts relating to the transition of the reinsurance agreement with Aetna Life from a modified coinsurance to a coinsurance arrangement at the beginning of the year (see Note 10 of the Notes to the Consolidated Financial Statements). Excluding the additional premium from the transition of the reinsurance agreement, premiums were level in 1997 and 1996 as increased premiums relating to term insurance products were offset by declining traditional whole life insurance premiums.
Deposits relate to universal life contracts. Deposits increased 10% and 21% in 1997 and 1996, respectively, reflecting continued business growth. The percentage increase in 1996 excludes $172 million of deposits, which relate to the 1995 acquisition of a universal life block of business from an unaffiliated insurer.
Using financial modeling and other techniques, the Company regularly evaluates the appropriateness of investments relative to its management-approved investment guidelines and the business objective of the portfolios. The Company operated within these investment guidelines by maintaining a mix of investments that diversifies its assets and reflects the characteristics of the liabilities that they support.
The risks associated with investments supporting experience rated pension, annuity and life products are assumed by those contractholders, not by the Company (subject to, among other things, certain minimum guarantees). Risks associated with the investments and liabilities related to experience rated pension, annuity and life products are not included in the sensitivity analysis presented below.
possible in the near term, actual results may differ, particularly as a result of any management actions that would be taken to mitigate such hypothetical losses in fair value of shareholder's equity. Based on the Company's overall exposure to interest rate risk and equity price risk, the Company believes that these changes in market rates and prices would not materially affect the consolidated near-term financial position, results of operations or cash flows of the Company.
Interest Rate Risk. Assuming an immediate increase of 100 basis points in interest rates the net hypothetical loss in fair value of shareholder's equity related to financial and derivative instruments is estimated to be $35 million (after tax), (1.9% of total shareholder's equity at December 31, 1997). The Company believes that an interest rate shift of this magnitude represents a moderately adverse scenario, and is approximately equal to the historical annual volatility of interest rate movements for the Company's intermediate term available for sale debt securities. The Company has included corresponding changes in certain insurance liabilities in this sensitivity analysis.
The effect of interest rate risk on potential near-term net income, cash flow and fair value was determined based on commonly used models. The models project the impact of interest rate changes on a wide range of factors, including duration, prepayment, put options and call options. Fair value was estimated based on the net present value of cash flows or duration estimates, using a representative set of likely future interest rate scenarios.
Equity Price Risk. The Company's available for sale equity securities are comprised primarily of domestic stocks. Assuming an immediate decrease of 10% in equity prices for domestic equity securities, the hypothetical loss in fair value of shareholder's equity related to financial and derivative instruments is estimated to be $5 million (after tax), (0.3% of total shareholder's equity at December 31, 1997).
At December 31, 1997 and 1996, the Company's carrying value of investments in debt securities represented 94% and 95%, respectively, of total general account invested assets. At December 31, 1997 and 1996, $10.7 billion and $10.3 billion, 79% and 80%, respectively, of total debt securities supported experience 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 both December 31, 1997 and 1996 was AA-.
The liquidity needs of the Company's businesses are generally met by cash provided by premiums, deposits, asset maturities and income received on investments. Cash provided from these sources is used primarily for benefit payments, contract withdrawals and operating expenses.
As the Company's investment strategy focuses on matching asset and liability durations, and not specific cash flows, and since these duration assessments are dependent on numerous cash flow assumptions, asset sales may, from time to time, be required to satisfy liability obligations and/or
rebalance asset portfolios. The investment portfolios are closely monitored to assess asset and liability matching in order to rebalance the portfolios as conditions warrant.
The Company has no debt. The Company received a capital contribution of $10 million in cash from HOLDCO in 1996. The Company did not receive capital contributions in 1997 or 1995. (See Note 10 of Notes to Consolidated Financial Statements).
The amount of dividends which may be paid to the shareholder without prior approval by the Insurance Commissioner of the State of Connecticut is subject to various restrictions. Based upon these restrictions, the Company is permitted a maximum of $78 million in dividend distributions in 1998. See "Consolidated Statements of Cash Flows" for additional information.
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 26
Consolidated Balance Sheets as of December 31, 1997 and 1996 27
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1997, 1996 and 1995 28
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 29
We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1997. 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiary at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
Benefits and expenses: Current and future benefits 1,127.8 968.6 997.2 Operating expenses 347.4 342.2 310.8 Amortization of deferred policy acquisition costs 128.4 69.8 48.0 Severance and facilities charges -- 61.3 -- ------- ------- ------- Total benefits and expenses 1,603.6 1,441.9 1,356.0 ------- ------- -------
Aetna Life Insurance and Annuity Company and its wholly owned subsidiary (collectively, the "Company") are providers of financial services and life insurance products in the United States. The Company has two business segments: financial services and individual life insurance.
As of December 31, 1997 the Company adopted Financial Accounting Standard ("FAS") No. 130, Reporting Comprehensive Income. This statement establishes standards for the reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income encompasses all changes in shareholder's equity (except those arising from transactions with shareholders) and includes net income and net unrealized capital gains or losses on available-for-sale securities. As this new standard only requires additional information in a financial statement, it does not affect the Company's financial position or results of operations.
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.
Debt and equity securities are classified as available for sale and carried at fair value. These securities are written down (as realized capital losses) for other than temporary declines in value. Unrealized capital gains and losses related to available for sale investments, other than amounts allocable to experience rated contractholders, are reflected in shareholder's equity, net of related taxes.
The Company utilizes futures contracts, swap agreements and warrants for other than trading purposes in order to manage investment returns and price risk and to align maturities, interest rates, and funds availability with its obligations. (Refer to Note 3.)
Interest rate swap agreements which are designated as interest rate risk management instruments at inception are accounted for using the accrual method. Accordingly, the difference between amounts
Certain costs of acquiring insurance business are deferred. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain expenses of underwriting and issuing contracts, and certain agency expenses. For fixed ordinary life contracts, such costs are amortized over expected premium-paying periods (up to 20 years). For universal life and certain annuity contracts, such costs are amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits over the life of the contracts (up to 20 years). Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related losses and expenses.
Future policy benefits include reserves for universal life, immediate annuities with life contingent payouts and traditional life insurance contracts. Reserves for universal life contracts are equal to cumulative deposits less charges and withdrawals plus credited interest thereon. Reserves for immediate annuities with life contingent payouts and traditional life insurance contracts are computed on the basis of assumed investment yield, mortality, and expenses, including a margin for adverse deviations. Such assumptions generally vary by plan, year of issue and policy duration. Reserve interest rates range from 2.25% to 12.00% for all years presented. Investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience.
Assets held under variable universal life and variable annuity contracts are segregated in Separate Accounts and are invested, as designated by the contractholder or participant under a contract, in shares of mutual funds which are managed by the Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except for those relating to a guaranteed interest option. Since the Company bears the investment risk where the contract is held to maturity, the assets of the Separate Account supporting the guaranteed interest option are carried at an amortized cost of $658.6 million for 1997 (fair value $668.7 million) and $515.6 million for 1996 (fair value $523.0 million). Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 4.10% to 8.00% in both 1997 and in 1996.
Debt securities available for sale as of December 31, 1997 were as follows:
At December 31, 1997 and 1996, net unrealized appreciation of $551.6 million and $366.4 million, respectively, on available-for-sale debt securities included $429.3 million and $288.5 million, respectively, related to experience rated contracts, which were not reflected in shareholder's equity but in future policy benefits and policyholders' funds left with the Company.
The carrying and fair value of debt securities for the year ended December 31, 1997 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
Amortized Fair Cost Value --------- ------ (millions) Due to mature: One year or less $367.3 $367.6 After one year through five years 2,165.1 2,195.4 After five years through ten years 2,367.3 2,407.0 After ten years 2,805.6 3,031.9 Mortgage-backed securities 4,192.7 4,431.0 Other asset-backed securities 1,014.2 1,030.9 --------- ---------
The Company did not have any investments in a single issuer, other than obligations of the U.S. government, with a carrying value in excess of 10% of the Company's shareholder's equity at December 31, 1997.
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- ----- (millions) Equity Securities $210.0 $21.3 $0.1 $231.2 ====== ===== ==== ======
Estimated Fair Value -------------------- The carrying values and estimated fair values of certain of the Company's financial instruments at December 31, 1997 and 1996 were as follows:
1997 1996 -------------------- ----------------- Carrying Fair Carrying Fair Value Value Value Value --------- ------ -------- ----- (millions) Assets: Mortgage loans $ 12.8 $ 12.4 $ 13.0 $ 13.2 Liabilities: Investment contract liabilities: With a fixed maturity $ 1,030.3 $1,005.4 $1,014.1 $1,028.8 Without a fixed maturity 10,113.2 9,587.5 9,649.6 9,427.6
exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, however, the Company controls its exposure to credit risk through credit approvals, credit limits and regular monitoring procedures. The credit exposure of interest rate swaps is represented by the fair value (market value) of contracts with a positive fair value (market value) at the reporting date. There were no interest rate swap agreements open as of December 31, 1997 and 1996.
The Company also had investments in certain debt instruments with derivative characteristics, including those whose market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short or long term), exchange rates, prepayment rates, equity markets or credit ratings/spreads. The amortized cost and fair value of these securities, included in the debt securities portfolio, as of December 31, 1997 was as follows:
1997 1996 1995 ---- ---- ---- (millions) Debt securities $962.8 $945.3 $891.5 Nonredeemable preferred stock 13.7 5.9 4.2 Investment in affiliated mutual funds 4.9 14.3 14.9 Mortgage loans 1.3 2.2 1.4 Policy loans 19.9 18.4 13.7 Reinsurance loan to affiliate 37.5 44.1 46.5 Cash equivalents 44.2 29.4 38.9 Other 10.0 2.1 8.4 -------- -------- -------- Gross investment income 1,094.3 1,061.7 1,019.5 Less investment expenses (13.8) (16.1) (15.2) -------- -------- -------- Net investment income $1,080.5 $1,045.6 $1,004.3 ======== ======== ========
The amount of dividends that may be paid to the shareholder in 1998 without prior approval by the Insurance Commissioner of the State of Connecticut is $77.6 million.
The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and shareholder's capital and surplus those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $80.5 million, $57.8 million and $70.0 million for the years ended December 31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was $778.7 million and $713.6 million as of December 31, 1997 and 1996, respectively.
Debt securities $22.5 $11.1 $32.8 Equity securities 9.9 8.6 8.3 Other 3.6 -- 0.2 ------ -------- ------ Pretax realized capital gains $36.0 $19.7 $41.3 ====== ======== ====== After tax realized capital gains $23.2 $13.0 $25.8 ====== ======== ======
Net realized capital gains of $96.1 million, $53.1 million and $61.1 million for 1997, 1996 and 1995, respectively, allocable to experience rated contracts, were deducted from net realized capital gains and an offsetting amount was reflected in policyholders' funds left with the Company. Net unamortized gains were $138.1 million and $53.3 million at December 31, 1997 and 1996, respectively.
Net unrealized capital gains allocable to experience rated contracts of $356.7 million and $72.6 million at December 31, 1997 and $245.2 million and $43.3 million at December 31, 1996 are reflected on the Consolidated Balance Sheets in policyholders' funds left with the Company and future policy benefits, respectively, and are not included in shareholder's equity.
Shareholder's equity included the following accumulated other comprehensive income, which are net of amounts allocable to experience rated contractholders, at December 31:
1997 1996 1995 ---- ---- ---- (millions) Unrealized holding gains (losses) arising during the period (1) $98.8 $(14.8) $390.5 Less: reclassification adjustment for gains and other items included in net income (2) 66.4 57.2 69.0 ----- ------ ------ Net unrealized gains (losses) on securities $32.4 $(72.0) $321.5 ===== ====== ======
(1) Includes $15.9 million and $8.0 million in 1997 and 1996, respectively, of severance-related actions and $7.9 million and $4.1 million in 1997 and 1996, respectively, of corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed by September 30, 1998. The corporate allocation actions were substantially completed in 1997.
1997 1996 1995 ---- ---- ---- (millions) Current taxes: Income Taxes: Federal income tax $64.5 $50.9 $82.9 State income tax 3.7 3.7 3.2 Net realized capital gains 45.6 25.3 28.5 ----- ---- ---- 113.8 79.9 114.6 ----- ---- ----- Deferred taxes (benefits): Income taxes: Federal 8.4 (3.5) (14.4) Net realized capital gains (losses) (32.8) (18.6) (12.9) ----- ----- ----- (24.4) (22.1) (27.3) ----- ----- ----- Total $89.4 $57.8 $87.3 ===== ===== =====
Income before income taxes $294.7 $198.9 $263.2 Tax rate 35% 35% 35% ------- ------- ------- Application of the tax rate 103.1 69.6 92.1 ------- ------- ------- Tax effect of: State income tax, net of federal benefit 2.4 2.4 2.1 Excludable dividends (15.9) (8.7) (9.3) Other, net (0.2) (5.5) 2.4 ------- ------- -------- Income taxes $89.4 $57.8 $87.3 ======= ======= ========
Deferred tax liabilities: Deferred policy acquisition costs 515.6 482.1 Market discount 5.1 6.8 Net unrealized capital gains 200.5 133.7 Other (0.6) (0.3) --------- --------- Total gross liabilities 720.6 622.3 --------- --------- Net deferred tax liability $72.0 $80.5 ========= =========
The "Policyholders' Surplus Account," which arose under prior tax law, is generally that portion of a life insurance company's statutory income that has not been subject to taxation. As of December 31, 1983, no further additions could be made to the Policyholders' Surplus Account for tax return purposes under the Deficit Reduction Act of 1984. The balance in such account was approximately $17.2 million at December 31, 1997. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes the conditions under which such taxes would become payable are remote.
Employee Postretirement Benefits - In addition to providing pension benefits, Aetna currently provides certain health care and life insurance benefits for retired employees. A comprehensive medical and dental plan is offered to all full-time employees retiring at age 50 with 15 years of service or at age 65 with 10 years of service. There is a cap on the portion of the cost paid by the Company relating to medical and dental benefits. Retirees are generally required to contribute to the plans based on their years of service with Aetna. The costs to the Company associated with the Aetna postretirement plans for 1997, 1996 and 1995 were $2.7 million, $1.8 million and $1.4 million, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock options, deferred contingent common stock or equivalent cash awards or restricted stock to certain key employees. Executive and middle management employees may be granted options to purchase common stock of Aetna at or above the market price on the date of grant. Options generally become 100% vested three years after the grant is made, with one-third of the options vesting each year. Aetna does not recognize compensation expense for stock options granted at or above the market price on the date of grant under its stock incentive plans. In addition, executives may be granted incentive units which are rights to receive common stock or an equivalent value in cash. The incentive units may vest within a range from 0% to 175% at the end of a four year period based on the attainment of performance goals. The costs to the Company associated with the Aetna stock plans for 1997, 1996 and 1995, were $2.9 million, $8.1 million and $6.3 million, respectively. As of December 31, 1996, Aetna transferred to the Company approximately $1.1 million of deferred tax benefits related to stock options. This amount is reported as an increase in retained earnings. In 1997, other changes in shareholder's equity include an additional increase of $2.3 million reflecting revisions to the allocation of the deferred tax benefit.
The Company may, from time to time, make reimbursements to an Aetna managed mutual fund for some or all of its operating expenses. Reimbursement arrangements may be terminated at any time without notice.
Investment income of $37.5 million, $44.1 million and $46.5 million was generated from the reinsurance loan to affiliate in 1997, 1996 and 1995, respectively.
Effective February 1, 1992, the Company increased its retention limit per individual life to $2.0 million and entered into a reinsurance agreement with Aetna Life to reinsure amounts in excess of this
Effective October 1, 1997, the Company entered into a reinsurance agreement with Aetna Life to assume amounts in excess of $0.2 million for certain of its participating life insurance, on a yearly renewable term basis. Premium amounts related to this agreement were $0.7 million in 1997.
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO in 1997 and 1996, respectively. In 1995, the Company dividended $2.9 million in the form of two of its subsidiaries, Systematized Benefits Administrators, Inc. and Aetna Investment Services, Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $37.0 million and $2.8 million due from affiliates in 1997 and 1996, respectively. Other liabilities include $1.2 million and $10.7 million due to affiliates for 1997 and 1996, respectively.
As of December 31, 1997, Aetna transferred to the Company $2.5 million based on its decision not to settle state tax liabilities for the years 1996 and 1997. This amount has been reported as an other increase in retained earnings.
The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverables deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets.
Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31, 1997, the Company had commitments to purchase investments of $38.7 million. The fair value of the investments at December 31, 1997 approximated $39.0 million.
(1) The 1996 results include severance and facilities charges of $30.7 million, after tax. Of this charge $21.5 million related to the Financial Services segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge recorded in 1996 which is not directly allocable to the Financial Services and Individual Life Insurance segments. (Refer to Note 7).
(4) The December 31, 1997 balance includes the transfer of $4,078.5 million of assets under management that were previously reported by an affiliate.