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
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 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 product within Mexico. Total shareholders' equity of Skandia Vida, S.A. de C.V. is $881,648 at December 31, 1995.
Fee income has increased 194%, 125% and 650% in 1995, 1994 and 1993, respectively, as a result of income from transfer agency type activities.
Increase in annuity policy reserves represent 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 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 the product which was further enhanced as a result of poor performance of the underlying mutual funds within the variable annuity contract.
The Company is reviewing various options to fund the cash strain anticipated from the acquisition costs on the coming years' sales volume.
As of December 31, 1995 and December 31, 1994, shareholder's equity was $59,713,000 and $52,205,524 respectively, which includes the carrying value of the state insurance licenses in the amount of $4,862,500 and $5,012,500 respectively.
We have audited the accompanying consolidated statements of financial condition of American Skandia Life Assurance Corporation (a wholly-owned subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1995 and 1994, 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, 1995. 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.
The Company has classified its fixed maturity investments as held to maturity as the Company has the ability and intent to hold those investments to maturity. Such investments are carried at amortized cost.
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.
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 at December 31, 1995 and related depreciation expense for the year ended December 31, 1995 was $3,749.
The costs of acquiring new business, which vary with and are primarily related to the production of new business, are being 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:
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:
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 in accordance with the provisions of the Internal Revenue Code, as amended. Prior to 1995, the Company filed a separate federal income tax return.
Investments in fixed maturities as of December 31, 1994 consist of the following:
Proceeds from maturities and sales of fixed maturity investments during 1995, 1994 and 1993, were $100,000, $2,010,000 and $10,971,574, respectively.
The state income tax expense was $2,712 and $62,658 for the years ended 1995 and 1994, respectively.
The Company leases office space under a lease agreement established in 1989 with an affiliate (American Skandia Information Services and Technology Corporation). The lease expense for 1995, 1994 and 1993 was $1,265,771, $961,080 and $280,363, respectively. Future minimum lease payments per year and in aggregate as of December 31, 1995 are as follows:
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, 1995, no amounts may be distributed without prior approval.
1994 1993 ---------------- ---------------- Annuity Annuity Charges and Fees Charges and Fees ---------------- ----------------
During 1993, the Company received $20 million from its parent in exchange for a surplus note in the amount of $20 million at a 6.84% interest rate. Interest expense for this note was $1,387,000, $1,387,000 and $11,400 for the years ended December 31, 1995, 1994 and 1993, respectively.
Payment of interest and repayment of principal for these notes requires approval by the Commissioner of the State of Connecticut. In 1995, approval was granted for the payment of surplus note interest with the stipulation that it be funded through a capital contribution from the Parent.
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 7.5% to 1% for contracts held less than 7 years.