-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PG3rn2wOHSoBufVtUJDSOKZYP4vu74FJLErHjhO6ceM3P82dXvbNeNSvuaba/SG1 V0PwGEtdA71f1f03DOFxcw== 0000950146-96-000534.txt : 19960606 0000950146-96-000534.hdr.sgml : 19960606 ACCESSION NUMBER: 0000950146-96-000534 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19960415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AETNA LIFE INSURANCE & ANNUITY CO /CT CENTRAL INDEX KEY: 0000837010 STANDARD INDUSTRIAL CLASSIFICATION: 6311 IRS NUMBER: 710294708 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1940 Act SEC FILE NUMBER: 033-60477 FILM NUMBER: 96547239 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032737834 MAIL ADDRESS: STREET 1: 151 FARMINGTON AVENUE CITY: HARTFORD STATE: CT ZIP: 06156 POS AMI 1 AMENDMENT NO. 1 TO FORM S-1 33-60477.DOC S-1PO-E-ALIAC.dot. - 33-60477.DOC - 4/11/ 96 3:51 P M As filed with the Securities and Exchange Registration No. 33-60477 Commission on April 15, 1996 - - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Aetna Life Insurance and Annuity Company - - ------------------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Connecticut - - ------------------------------------------------------------------ (State or other Jurisdiction of Incorporation or Organization) 63 - - ------------------------------------------------------------------ (Primary Standard Industrial Classification Code Number) 71-0294708 - - ------------------------------------------------------------------ (I.R.S. Employer Identification No.) 151 Farmington Avenue, Hartford, Connecticut 06156, (860) 273-7834 (Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices) Susan E. Bryant, Counsel Aetna Life Insurance and Annuity Company 151 Farmington Avenue, RE4C, Hartford, Connecticut 06156 (860) 273-7834 - - ------------------------------------------------------------------ (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) - - -------------------------------------------------------------------------- The annuities covered by this registration statement are to be issued from time to time after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [XX] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] GUARANTEED ACCUMULATION ACCOUNT A GUARANTEED INTEREST OPTION AVAILABLE UNDER VARIABLE ANNUITY CONTRACTS ISSUED BY AETNA LIFE INSURANCE AND ANNUITY COMPANY CROSS REFERENCE SHEET Pursuant to Regulation S-K Item 501(b) Form S-1 Item No. Information Required in Prospectus Location in Prospectus 1 Forepart of the Registration Statement and Outside Front Cover Page of Outside Front Cover Prospectus. 2 Inside Front and Outside Back Cover Pages of Prospectus.............. Table of Contents (inside front cover) 3 Summary Information, Risk Factors... Summary Ratio of Earnings to Fixed Charges.. Not Applicable 4 Use of Proceeds..................... Investments 5 Determination of Offering Price..... Not Applicable 6 Dilution............................ Not Applicable 7 Selling Security Holders............ Not Applicable 8 Plan of Distribution................ Description of the Account 9 Description of Securities to be Description of the Account Registered..... 10 Interests of Named Experts and Not Applicable Counsel....... Form S-1 Item No. Information Required in Prospectus Location in Prospectus 11 Information with Respect to the Registrant.......................... The Company; Directors and Executive Officers; Executive Compensation; Security Ownership of Management; Legal Proceedings; Financial Statements 12 Disclosure of Commission Position on Indemnification for Securities Act Not Applicable Liabilities. GUARANTEED ACCUMULATION ACCOUNT a Guaranteed Interest Option available under Variable Annuity Contracts issued by Aetna Life Insurance and Annuity Company This Prospectus describes the Guaranteed Accumulation Account ("GAA"), a credited interest funding option available under certain variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the "Company"). The Company guarantees stipulated rates of interest for stated periods of time on amounts applied to GAA. During a specified period of time, amounts may be allocated to available "guaranteed terms" within either a short-term or long-term classification. Interest is credited daily at a rate that will provide a guaranteed annual effective yield over the period of one year. Guaranteed interest rates will never be less than the minimum rate specified in the Contract. THE COMPANY CANNOT PREDICT OR GUARANTEE FUTURE LEVELS OF GUARANTEED INTEREST RATES NOR GUARANTEE WHAT SUCH RATES WILL BE UNTIL THEY ARE DECLARED FOR EACH GUARANTEED TERM. All of the general assets of the Company, including amounts deposited to GAA, are available to meet the guarantees under GAA. These assets are chargeable with liabilities arising out of other business of the Company. The Company will invest the amounts received in relation to GAA primarily in investment-grade fixed income securities. Contract Holders do not have any claim against specific assets of the Company relating to GAA. WITHDRAWALS OR TRANSFERS FROM A GUARANTEED TERM PRIOR TO THE END OF THAT GUARANTEED TERM MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT. WITHDRAWALS FROM THE CONTRACT MAY ALSO BE SUBJECT TO A DEFERRED SALES CHARGE AND/OR A MAINTENANCE FEE AT THE TIME OF WITHDRAWAL. It is possible that you may receive an amount less than the amount paid into the Contract for surrenders of amounts held under the Contract. (See "Market Value Adjustment" and "Contract Charges," as well as the Contract Prospectus.) THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. This Prospectus is dated May 1, 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 ("Exchange Act"), and, in accordance therewith, files periodic reports and other information with the Securities and Exchange Commission (the "Commission"). Reports and other information concerning the Company may be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material also can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 2 TABLE OF CONTENTS
PAGE AVAILABLE INFORMATION 2 GLOSSARY 4 SUMMARY 5 Description of the Guaranteed Accumulation Account 5 Guaranteed Rates and Guaranteed Terms 5 Transfers and Withdrawals 5 Market Value Adjustment 5 Maturity of a Guaranteed Term 6 Maturity Value Transfer Provision 6 Contract Charges 6 Investments 6 Guaranteed Account Notifications 6 DESCRIPTION OF THE GUARANTEED ACCUMULATION ACCOUNT 7 General 7 Contributions to GAA 7 Deposit Period 7 Guaranteed Term 8 Guaranteed Term Classifications 8 Guaranteed Interest Rates 8 Maturity of a Guaranteed Term 9 Maturity Value Transfer Provision 9 TRANSFERS 10 Transfers from GAA 10 Transfers Between Guaranteed Term Classifications 10 SURRENDERS 10 MARKET VALUE ADJUSTMENT 11 Deposit Period Yield 11 Current Yield 11 MVA Formula 12 CONTRACT CHARGES 12 MISCELLANEOUS 12 Annuity Period 12 Deferral of Payments 12 Reinstatement 13 Contract Loans (403(B) Plans Only) 13 INVESTMENTS 13 DISTRIBUTION OF CONTRACTS 14 TAX CONSIDERATIONS 14 Taxation of the Company 14 Taxation of Annuities 14 THE COMPANY 14 History and Business 14 Financial Services Segment 15 Life Insurance Segment 16 Generation Account Investments 17 Other Matters 18 Properties 19 DIRECTORS AND EXECUTIVE OFFICERS 20 EXECUTIVE COMPENSATION 22 SECURITY OWNERSHIP OF MANAGEMENT 24 INDEMNIFICATION 24 EXPERTS 24 LEGAL PROCEEDINGS 24 LEGAL MATTERS 24 APPENDIX I--Examples of Market Value Adjustment Calculations 26 APPENDIX II--Examples of Market Value Adjustment Yields 28 SELECTED FINANCIAL DATA 29 MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS 29 FINANCIAL STATEMENTS OF THE COMPANY 30
3 GLOSSARY The following terms are defined as they are used in this Prospectus: Accumulation Period: The period during which Purchase Payment(s) are accumulated to provide future annuity benefits. Aggregate Market Value Adjustment Amount: The sum of all Market Value Adjustments calculated due to a surrender or transfer from Guaranteed Terms prior to the end of those Guaranteed Terms. This total may be a positive or negative figure. Annuity: A series of payments for life or a definite period. Annuity Period: The period during which Annuity payments are made. Contract Holder: The entity to which the Contract is issued. The Contract Holder is usually the employer, sponsor or trustee. Deposit Period: The period of time during which one or more Purchase Payments or transfers of accumulated values may be made to available Guaranteed Terms to receive stipulated interest rates for stated periods of time. A Deposit Period may be a month, a calendar quarter, or any other period of time specified by the Company. Guaranteed Interest Rates: The interest rate(s) guaranteed to be credited, for a stated period of time, on amounts applied to a GAA Guaranteed Term during a specific Deposit Period. Interest rates are annual effective yields reflecting a full year's interest. Interest is credited daily. Guaranteed Term: The period of time specified by the Company during which one or a series of Guaranteed Interest Rates are credited. Guaranteed Term Classifications: The grouping of Guaranteed Terms according to their time to maturity: Short-Term--All Guaranteed Terms of 3 years or less; or Long-Term--All Guaranteed Terms of between 3 and 10 years. Home Office: The Company's principal executive office located at 151 Farmington Avenue, Hartford, Connecticut 06156. Market Value Adjustment (MVA): An adjustment, if applicable, to the amount withdrawn or transferred from a Guaranteed Term prior to the end of that Guaranteed Term. The adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit and is computed using the formula given in the Contract. The adjustment is expressed as a percentage of each dollar being withdrawn. Market Value Adjustment Amount (MVA Amount): The amount by which the funds being withdrawn or transferred from a Guaranteed Term is increased or decreased due to the MVA. Maturity Value Transfer Provision: A provision that is available at maturity when the Company automatically reinvests the total maturing Guaranteed Term value into the open Deposit Period. This provision allows Contract Holders or Participants to transfer or surrender the automatically reinvested value, without an MVA, to an open Deposit Period within either Guaranteed Term Classification or to other available investment options until the last business day of the month following the maturity of a Guaranteed Term. This provision only applies to the first request received from the Contract Holder, or if applicable, Participant with respect to a particular matured Guaranteed Term. The last business day of the month is defined as the last business day of the month when the New York Stock Exchange is open. Participant ("You"): An eligible person participating under a Variable Annuity Contract. Purchase Payment(s): The gross payment(s) made to the Company under a Contract. Variable Annuity Contract: An Annuity Contract providing for the accumulation of values, and for retirement payments which vary in dollar amount with investment results. 4 SUMMARY Description of the Guaranteed Accumulation Account The Guaranteed Accumulation Account ("GAA") is a guaranteed interest option available as a funding option under certain Variable Annuity Contracts issued by the Company. Amounts invested in GAA are credited with interest rates guaranteed by the Company for stated periods of time. Amounts must remain in GAA for the full Guaranteed Term to receive the quoted interest rates. Withdrawals or transfers from a Guaranteed Term before the end of the Guaranteed Term may be subject to a Market Value Adjustment. During a Deposit Period, Contract Holders or, if applicable, Participants may direct some or all of their Purchase Payment(s) to GAA. Although the Company may impose a minimum Purchase Payment on a Contract, there is no minimum amount of payment if the investment comes from a Purchase Payment. Transfers of accumulated amounts from other funding options to GAA are also allowed. If a transfer is made to GAA from other Contract funding options, the transferred value may not be less than $500 (see "Contributions to the Guaranteed Accumulation Account"). More specifically, Contract Holders or, if applicable, Participants may allocate Purchase Payments or transfer accumulated values during a Deposit Period to available Guaranteed Terms within the Short-Term and Long-Term Classifications. (See "Guaranteed Term Classifications.") Guaranteed Rates and Guaranteed Terms Interest is credited daily at a rate that will provide the guaranteed annual effective yield over the period of one year. The Company will declare the Guaranteed Interest Rate(s) for all available Guaranteed Terms prior to the Deposit Period for those Guaranteed Terms. These Guaranteed Interest Rate(s) are guaranteed for that Deposit Period and for the length of the Guaranteed Term. Guaranteed Interest Rates will never be less than the annual effective rate stated in the Contract. (See "Guaranteed Interest Rates"). Transfers and Withdrawals Full or partial surrenders and transfers to other funding options under the Contract are permitted from GAA. In addition, transfers from Guaranteed Terms within one Guaranteed Term Classification may be made to the current Deposit Period of other Guaranteed Terms within a different Guaranteed Term Classification. However, amounts applied to a Guaranteed Term during a Deposit Period may not be transferred during that Deposit Period or for 90 days after the close of that Deposit Period, except for transactions processed under the Maturity Value Transfer Provision. This restriction may not apply in all circumstances. Contract Holders or, if applicable, Participants may choose the Guaranteed Term Classification(s) from which amounts will be first withdrawn due to a transfer or partial surrender. Amounts are withdrawn starting with the oldest Guaranteed Term which has not reach maturity from each Guaranteed Term Classification chosen. (See "Surrenders" and "Transfers and Withdrawals.") Market Value Adjustment Amounts withdrawn or transferred from a Guaranteed Term prior to the Maturity Date may be subject to a Market Value Adjustment. The Market Value Adjustment reflects the change in the value of the investment due to changes in interest rates since the date of deposit, and may be positive or negative depending on interest rate activity at the time of such withdrawal. If amounts are withdrawn from GAA due to annuitization under one of the lifetime Annuity options described in the Contract Prospectus, only the positive Aggregate Market Value Adjustment, if any, is applied. Only a positive Aggregate Market Value Adjustment amount, if any, is applied to amounts withdrawn from GAA due to the death of a Participant if withdrawn within the first six months after the date of death. (See "Market Value Adjustment" and "Annuity Period.") 5 Maturity of a Guaranteed Term On or before maturity of the Guaranteed Term, a Contract Holder or, if applicable, Participant, may instruct the Company to, on maturity, (a) transfer the matured value to one or more new Guaranteed Terms available under the current Deposit Period, (b) transfer the matured value to one or more of the variable funding options available under the Variable Annuity Contract, or (c) surrender the matured value. In all three instances, no Market Value Adjustment would be applicable to the transferred or surrendered matured value. However, a deferred sales charge may be assessed on the amount surrendered from the Contract. (See "Transfers" and "Surrenders.") If the Company does not receive direction from the Contract Holder or Participant, if applicable, at its Home Office by the maturity date of the Guaranteed Term, the amount from the maturing Guaranteed Term will be transferred to the available Deposit Period for the Guaranteed Term having the shortest maturity within the same Guaranteed Term Classification. (See "Maturity of a Guaranteed Term.") Maturity Value Transfer Provision The Maturity Value Transfer Provision is available at maturity when the Company automatically reinvests the total maturing Guaranteed Term value into the open Deposit Period. This provision allows Contract Holders or Participants, if applicable, to transfer or surrender, without a Market Value Adjustment, all or a portion of the matured value that was transferred to a new Guaranteed Term by default (if applicable, a deferred sales charge may still be assessed on the surrendered amount). (See "Maturity of a Guaranteed Term.") Contract Charges Certain charges such as the mortality and expense risk charge and administrative expense charge are assessed under the Contract to compensate the Company for costs associated with administering the Contract. These charges are not deducted from GAA. Other charges, such as deferred sales charges, maintenance fees, premium taxes and transfer fees, as well as any federal income taxes and tax penalties, may be deducted from amounts held in or transferred from GAA. For a description of all fees and charges deducted under the Contract, see "Contract Charges" and the Contract Prospectus. Investments The interest rate(s) credited during any Guaranteed Term does not necessarily relate to investment performance. As in the case of all of the Company's general account assets, deposits received under the GAA option, regardless of which Guaranteed Term Classification is used, will generally be invested in federal, state and municipal obligations, corporate bonds, preferred stocks, real estate mortgages, real estate, certain other fixed income investments, and cash or cash equivalents. All of the general assets of the Company are available to meet the guarantees under the GAA. (See "Investments.") Guaranteed Account Notifications At least 18 calendar days prior to the maturity date, the Company will notify you of a Guaranteed Term's maturity. The notice will also include information relating to the current Deposit Period's Guaranteed Interest Rates and the available Guaranteed Terms. At any time, you may obtain information concerning available Deposit Periods, Guaranteed Interest Rates, and Guaranteed Terms through the use of a toll-free telephone number within five business days before the upcoming maturity date (1-800-GAA-FUND or 1-800-422-3863). (See "Description of the Guaranteed Accumulation Account--General" and "Maturity of a Guaranteed Term.") 6 DESCRIPTION OF THE GUARANTEED ACCUMULATION ACCOUNT General This Prospectus describes the provisions of the Guaranteed Accumulation Account ("GAA"), a guaranteed interest option available under Variable Annuity Contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company ("Company"). Amounts allocated to GAA are held in a noninsulated, nonunitized separate account. (See "Investments.") GAA offers guaranteed interest rates ("Guaranteed Interest Rates") for stated periods of time ("Guaranteed Terms"). All Purchase Payments or transfers to GAA during a specific period of time ("Deposit Periods") participate in a specific Guaranteed Term with corresponding Guaranteed Interest Rates. Guaranteed Terms are classified according to their length of time to maturity ("Guaranteed Term Classifications"). Each Deposit Period may offer various Guaranteed Terms within one or both Guaranteed Term Classifications. A Market Value Adjustment, which may be positive or negative, may be applied to any values withdrawn or transferred from a Guaranteed Term prior to the end of that Guaranteed Term, except for amounts transferred under the Maturity Value Transfer Provision. However, if funds are withdrawn from Guaranteed Terms due to the death of the Participant within six months after the Participant's date of death, only a positive Aggregate Market Value Adjustment Amount, if any, will be applied. After the six-month period, the positive or negative Aggregate Market Value Adjustment Amount will be applied. Only a positive Aggregate Market Value Adjustment Amount, if any, is applied to any values withdrawn from Guaranteed Terms due to annuitization under one of the lifetime Annuity options. If funds are transferred from one Guaranteed Term prior to the end of that Guaranteed Term to a Guaranteed Term of the other Guaranteed Term Classification, a Market Value Adjustment (positive or negative) is applied. The Company maintains a toll-free telephone number for Contract Holders or, if applicable, Participants wishing to obtain information concerning available Deposit Periods, Guaranteed Interest Rates, and Guaranteed Terms. The telephone number is 1-800-GAA-FUND (1-800-422-3863). In addition, the Company will send notification of the upcoming Deposit Period dates and information on the current Guaranteed Interest Rates, Guaranteed Terms and projected matured Guaranteed Term values to Contract Holders, or, if applicable, Participants who have funds in a maturing Guaranteed Term. This notification will be sent at least 18 calendar days prior to the maturity of a Guaranteed Term. Contributions to GAA Amounts may be applied to Guaranteed Terms available in a current Deposit Period by allocating one or more Purchase Payment(s) to GAA or by transferring accumulated value(s) from other funding options available under the Contract or from other Guaranteed Terms. Although the Company may impose a minimum Purchase Payment on a Contract, there is no minimum Purchase Payment required for a Guaranteed Term. Please refer to the applicable Contract prospectus. Amounts applied to a Guaranteed Term during a Deposit Period may not be transferred during that Deposit Period or for 90 days after the close of that Deposit Period, except under the Maturity Value Transfer Provision. Deposit Period The Deposit Period is a period of time during which one or more Purchase Payments or transfers from other Contract funding options or other Guaranteed Terms may be made to available Guaranteed Terms to receive stipulated Guaranteed Interest Rates for stated periods of time. Each Deposit Period may be a month, a calendar quarter, or any other period of time specified by the Company. Both Guaranteed Term Classifications will be available during each Deposit Period. In addition, more than one Guaranteed Term within a Guaranteed Term Classification may be available during each Deposit Period. For example, a Deposit Period might offer a 1-year and a 3-year Guaranteed Term under the Short-Term Classification and a 5-year and a 7-year Guaranteed Term under the Long-Term Classification. 7 Guaranteed Term A Guaranteed Term is the period of time specified by the Company during which one or a series of Guaranteed Interest Rates are credited. Guaranteed Terms are offered at the Company's discretion for various lengths of time ranging from one to ten years. Guaranteed Term Classifications Guaranteed Term Classifications refer to the grouping of Guaranteed Terms according to their time to maturity. The following are the Guaranteed Term Classifications: Short-Term--All Guaranteed Terms of 3 years or less; or Long-Term--All Guaranteed Terms of between 3 and 10 years. During each Deposit Period, the Company may offer more than one Guaranteed Term within each Guaranteed Term Classification. Contract Holders or, if applicable, Participants may elect to allocate Purchase Payments to Guaranteed Terms within one or both of these Guaranteed Term Classifications during a Deposit Period. Guaranteed Interest Rates Guaranteed Interest Rates are the interest rates that are guaranteed to be credited on amounts applied during a Deposit Period for a specific Guaranteed Term. Guaranteed Interest Rates are annual effective yields, reflecting a full year's interest. The interest is credited daily at a rate that will produce the guaranteed annual effective yield over the period of one year. Guaranteed Interest Rates are credited according to the length of the Guaranteed Term as follows: (bullet) Guaranteed Terms of One Year or Less: A Guaranteed Interest Rate is credited from the date of deposit to the last day of the Guaranteed Term. (bullet) Guaranteed Terms of Greater than One Year: Several different Guaranteed Interest Rates may be applicable during a Guaranteed Term of more than one year. The initial Guaranteed Interest Rate is credited from the date of deposit to the end of a specified period within the Guaranteed Term. The remainder of the Guaranteed Term may also allow for several different Guaranteed Interest Rates for subsequent specific periods of time. For example, a 5-year Guaranteed Term may guarantee 5% for the first year, 4.75% for the next two years, and 4.5% for the remaining two years. The Company will announce the available Guaranteed Terms and current Guaranteed Interest Rates for each Deposit Period at least 18 calendar days prior to the start of each Deposit Period. In no event will the Company guarantee or credit a Guaranteed Interest Rate less than the minimum rate specified in the Contract. In addition, GAA does not allow for the crediting of interest above the Guaranteed Interest Rates which are announced by the Company prior to the start of a Deposit Period. The Company's determination of Guaranteed Interest Rates is influenced by, but not necessarily correspond to, interest rates available on fixed income investments which the Company may acquire using amounts deposited into GAA (see "Investments"). In addition, the Company will consider other factors in determining Guaranteed Interest Rates including regulatory and tax requirements, sales commissions and administrative expenses borne by the Company, general economic trends, and competitive factors. THE COMPANY MAKES THE FINAL DETERMINATION REGARDING GUARANTEED INTEREST RATES. THE COMPANY CANNOT PREDICT THE LEVEL OF FUTURE GUARANTEED INTEREST RATES. 8 Maturity of a Guaranteed Term At least 18 calendar days prior to the maturity of a Guaranteed Term, the Company will send notification to Contract Holders or, if applicable, Participants of the upcoming Deposit Period, the projected value for the amount maturing in the Guaranteed Term and the Guaranteed Interest Rate and Guaranteed Term for the current Deposit Period. Contract Holders or, if applicable, Participants may transfer amounts in any maturing Guaranteed Term to new Guaranteed Terms. The amount in any maturing Guaranteed Term may also be transferred into any other allowable option(s) available under the Contract. There is no Market Value Adjustment applied to amounts transferred or surrendered from a Guaranteed Term on the date that Guaranteed Term matures; however, a deferred sales charge, if applicable, may be assessed. If the Company does not receive direction from the Contract Holder or, if applicable, the Participant at its Home Office (or any other designated office) by the maturity date of a Guaranteed Term, the Company will automatically transfer the matured value to a Guaranteed Term having the shortest maturity within the same Guaranteed Term Classification that will be available for the new Deposit Period. The new Guaranteed Term may have a different length of time to maturity than the maturing Guaranteed Term. For example, if a 3-year Guaranteed Term matures and no direction is received, amounts in this maturing Guaranteed Term will be transferred to the 2-year Guaranteed Term, which is the Guaranteed Term available within the Short-Term Classification of the new Deposit Period. If, however, only one Term is available within the Classification, then the matured Guaranteed Term value will be reinvested in that Term. Once the matured amount has been transferred, the Contract Holder or, if applicable, Participant will receive a statement confirming the transfer, along with information on the new Guaranteed Rate(s) and Guaranteed Term. Maturity Value Transfer Provision The Maturity Value Transfer Provision is available at maturity when the Company automatically reinvests the total maturing Guaranteed Term value into the open Deposit Period. This provision allows Contract Holders or Participants to transfer or surrender, without a Market Value Adjustment, the matured value that was transferred by the Company to a new Guaranteed Term (if applicable, a deferred sales charge may be assessed on the amount surrendered from the Contract). If all of the matured value is transferred or surrendered under the Maturity Value Transfer Provision, any interest accrued under the current Guaranteed Term will be credited through the date of transfer or surrender. The right to make a transfer or surrender under the Maturity Value Transfer Provision is available until the last business day of the month following the maturity date of a Guaranteed Term. The last business day of the month is defined as the last business day of the month that the New York Stock Exchange is open. The Maturity Value Transfer Provision only applies to the first request received from the Contract Holder, or, if applicable, Participant, with respect to a particular matured Guaranteed Term value. TRANSFERS As described in the Contract Prospectus, all or any portion of accumulated values under the Contract may be transferred at least 12 times during a calendar year, without a transfer charge. Under some Contracts, after 12 such transfers, each additional transfer is subject to a transfer charge of not more than $10, deducted from the Contract value. Under other Contracts, unlimited transfers may be made without charge. Please refer to the applicable Contract prospectus. Amounts applied to a Guaranteed Term during a Deposit Period may not be transferred to any other funding option or Guaranteed Term during that Deposit Period or for 90 days after the close of that Deposit Period. Funds transferred under the Maturity Value Transfer Provision or upon the maturity of a Guaranteed Term are not counted as one of the 12 free transfers of accumulated values allowed per calendar year by those Contracts allowing 12 free transfers. In addition, no Market Value Adjustment is applied to the matured Guaranteed Term value transferred upon maturity of a Guaranteed Term or for values withdrawn or transferred from a Guaranteed Term under the Maturity Value Transfer Provision. 9 When a request is made to transfer a specific dollar amount in circumstances in which a Market Value Adjustment is applicable, the Market Value Adjustment will be included in the determination of the amount withdrawn from a Guaranteed Term(s) to fulfill the request. Therefore, the amount actually withdrawn from the Guaranteed Term(s) may be more or less than the requested dollar amount. (See "Appendix I" for an example.) Transfers from GAA Contract Holders or, if applicable, Participants can choose the Guaranteed Term Classification from which Funds will be first withdrawn. The Company withdraws funds starting from the oldest Guaranteed Term which has not reached maturity within the Guaranteed Term Classification chosen. If no direction is received, funds are withdrawn pro rata among the Guaranteed Term Classifications, starting with the oldest Guaranteed Term which has not reached maturity, and any other investment options. A positive or negative Market Value Adjustment is applied to the amount requested for transfer. (See "Market Value Adjustment.") Transfers Between Guaranteed Term Classifications Transfers are permitted from Guaranteed Terms within the Short-Term Classification to available Long- Term Guaranteed Terms of a current Deposit Period. Transfers are also permitted from Guaranteed Terms within the Long- Term Classification to available Short-Term Guaranteed Terms of a current Deposit Period. For example, funds may be transferred from a 3-year Guaranteed Term (any time after 90 days from the close of the Deposit Period applicable to that 3-year Guaranteed Term) to the open Deposit Period of a 7-year Guaranteed Term. Funds will be first transferred from the oldest Deposit Period for which the Guaranteed Term has not reached maturity. A Market Value Adjustment is assessed on the transferred amount. The transfer is counted as one of the 12 free transfers allowed each year by those Contracts allowing 12 free transfers. A transfer of value from one Guaranteed Term prior to maturity of that Guaranteed Term to another Guaranteed Term within the same Guaranteed Term Classification is not permitted under any of the Contracts. SURRENDERS The Contract allows for full or partial surrenders at any time during the Accumulation Period. To make a full or partial surrender, a surrender request form must be properly completed and submitted to the Company's Home Office (or any other designated office). Partial surrenders are made pro rata among the Contract funding options unless requested otherwise by the Contract Holder or, if applicable, the Participant. For surrender purposes, each Guaranteed Term Classification is considered a separate funding option. The portion of the partial surrender made from GAA is withdrawn from the Guaranteed Term Classification elected by the Contract Holder or, if applicable, the Participant. Within the elected Guaranteed Term Classification, funds will be removed starting with the oldest Guaranteed Term which has not reached maturity. If no Guaranteed Term Classification is elected, the Company will withdraw funds from Guaranteed Terms in each Guaranteed Term Classification (starting with the oldest Guaranteed Term which has not reached maturity) in the same proportion as the value of each Guaranteed Term Classification has to the total value of the Contract. A Market Value Adjustment is applied to the amount surrendered if surrendered prior to the end of a Guaranteed Term, except for values surrendered under the Maturity Value Transfer Provision. The surrendered amount may also be subject to a deferred sales charge and a maintenance fee. Please refer to the applicable Contract prospectus for information regarding deferred sales charges and maintenance fees. When a request for a partial surrender of a specific dollar amount is made, the Market Value Adjustment will be included in the determination of the amount withdrawn from a Guaranteed Term to fulfill the request. Therefore, the amount actually withdrawn from the Guaranteed Term(s) may be more or less than the requested dollar amount. (See "Appendix I" for an example.) 10 MARKET VALUE ADJUSTMENT A Market Value Adjustment ("MVA") is applied to amounts transferred or withdrawn from GAA prior to the end of a Guaranteed Term. In order to accommodate these surrenders or transfers, the Company may need to liquidate certain assets or use existing cash flow which would otherwise be available to invest at current interest rates. The assets may be sold at a profit or a loss depending upon market conditions. This MVA reflects the changes in interest rates since the Deposit Period. When interest rates increase after the Deposit Period, the value of the investment decreases and the Market Value Adjustment Amount may become negative. Conversely, when interest rates decrease after the Deposit Period, the value of the investment increases and the Market Value Adjustment Amount may be positive. The MVA is a factor applied to amounts withdrawn from a Guaranteed Term prior to the end of the Guaranteed Term in connection with transfers (including transfers made in order to elect a nonlifetime Annuity option) and surrenders. Only a positive Aggregate Market Value Adjustment Amount, if any, is applied to funds withdrawn from Guaranteed Terms due to the death of the Participant if withdrawn within six months after the Participant's date of death. After the six month period, the calculated Aggregate Market Value Adjustment Amount (positive or negative) is applied. If funds are withdrawn from Guaranteed Terms due to annuitization of the Contract under one of the lifetime Annuity options only a positive Aggregate Market Value Adjustment Amount, if any, is applied. If two or more consecutive Guaranteed Terms have the same Guaranteed Interest Rate(s) and mature on the same date, the Company will calculate MVA's applicable to each Guaranteed Term. The most favorable MVA to the Contract Holder or Participant will be applied to any surrender or transfer from either Guaranteed Term prior to the Guaranteed Terms' maturity. Market Value Adjustment Amounts can be positive or negative and therefore the imposition of an MVA may increase or decrease the amount withdrawn from a Guaranteed Term to satisfy the request for surrender or transfer. The MVA Amount depends on the relationship of the Deposit Period yield of U.S. Treasury Notes that mature in the last quarter of the Guaranteed Term, to the current yield of such U. S. Treasury Notes at the time of withdrawal. In general, if the current yield is the lesser of the two, the MVA will decrease the amount withdrawn from a Guaranteed Term to satisfy the request for surrender or transfer; if the current yield is the higher of the two, the MVA will increase the amount withdrawn from a Guaranteed Term to satisfy the request for surrender or transfer. The MVA involves a Deposit Period yield and a current yield. An adjustment is made in the formula of the MVA to reflect the period of time remaining in the Guaranteed Term from the Wednesday of the week of withdrawal. To determine the Deposit Period yield and the current yield, certain information must be obtained about the prices of outstanding U.S. Treasury issues. This information may be found each business day in publications such as the Wall Street Journal which publishes the yield-to-maturity percentages for all Treasury Notes as of the preceding business day. These percentages are used in determining the Deposit Period yield and the current yield for the MVA calculation. Deposit Period Yield Determining the Deposit Period yield used in the MVA calculation involves consideration of interest rates prevailing during the Deposit Period of the Guaranteed Term from which the withdrawal will be made. First, the Treasury Notes that mature in the last three months of the Guaranteed Term are identified, and then, the yield-to-maturity percentages of these Treasury Notes for the last business day of each week in the Deposit Period are determined. The resulting percentages are then averaged to determine the Deposit Period yield. Current Yield To determine the current yield, use the same Treasury Notes identified for the Deposit Period yield: Treasury Notes that mature in the last three months of the Guaranteed Term. However, the yield-to-maturity percentages used are those for the last business day of the week preceding the withdrawal. Average these percentages to determine the current yield. 11 For example, assume the withdrawal will be processed on May 16, 1996. List the yield-to-maturity percentage figures as of May 10, 1996 for the same Treasury Notes that determined the Deposit Period yield. Average these yields to determine the current yield. MVA Formula The mathematical formula used to determine the MVA is: ( x ) (365) (1 + i) - - ------- (1 + j) where "i" is the deposit period yield; "j" is the current yield; and "x" is the number of days remaining (computed from Wednesday of the week of withdrawal) in the Guaranteed Term. (For examples of how to calculate MVAs, please refer to "Appendix I.") CONTRACT CHARGES Certain charges are deducted directly or indirectly from the funding options available under the Contract. If the Contract allows for the deduction of a maintenance fee on an annual basis, the fee is deducted on a pro rata basis from all funding options, including GAA. In addition, the maintenance fee is deducted upon total surrender of a Contract. A deferred sales charge, if applicable, is also deducted upon a full or partial surrender of some Contracts. If the surrender occurs prior to the maturity of a Guaranteed Term, the deferred sales charge and the MVA will be assessed. During each calendar year, the Contract Holder (or the Participant, if authorized) may change the allocation of future Purchase Payments among the investment options allowed by the Contract. Unlimited allocation changes are allowed. In addition, we allow unlimited transfers of accumulated values to available investment options during the Accumulation Period. We allow at least 12 free transfers in any calendar year. Thereafter, under some Contracts, we reserve the right to charge $10 for each subsequent transfer. Mortality and expense risk charges and other asset-based charges that may be deducted from variable funding options are not deducted from any credited interest option under the Contract (including GAA). These charges are only applicable to the variable funding options. Please refer to the applicable Contract prospectus for further details on Contract deductions. The Contract prospectus includes a full description of the sales charges made upon withdrawal. MISCELLANEOUS Annuity Period GAA cannot be used as an option during the Annuity Period. Prior to annuitization, values in Guaranteed Terms must be transferred to one or more of the funding options which allow for Annuity payments. The Aggregate Market Value Adjustment Amount (positive or negative) is applied to any amount transferred from Guaranteed Terms before the end of those Guaranteed Terms due to annuitization to the nonlifetime Annuity option available under the Contract. Only a positive Aggregate Market Value Adjustment Amount, if any, is applied due to annuitization to a lifetime Annuity option. Please refer to the applicable Contract Prospectus for a discussion of the Annuity Period. Deferral of Payments Under certain emergency conditions, the Company may defer payment of a GAA surrender value for a period of up to 6 months. Please refer to the applicable Contract Prospectus for further details. 12 Reinstatement The Contract Holder or, if applicable, the Participant may elect to reinstate all or a portion of the proceeds received from a full surrender within 30 days after such surrender. Any amounts reinstated to GAA will be applied to the current Deposit Period. Within the current Deposit Period, amounts are then proportionately reinstated to the Guaranteed Term Classifications in the same manner as the amounts were allocated prior to surrender. Any negative MVA amount applied to a surrender is not included in the reinstatement. Please refer to the applicable Contract prospectus for further details on reinstatement of the Contract. Contract Loans (403(b) Plans Only) The GAA value is included in determining the value of a Contract against which a loan may be made. However, loans may not be made from amounts held in GAA. In order to receive amounts held in GAA as a loan, the amounts must first be transferred to a funding option from which loans may be made (see the applicable Contract prospectus for further information on Contract loans). Amounts transferred from Guaranteed Terms due to a loan request will be subject to an MVA. INVESTMENTS Amounts applied to Guaranteed Terms under the Short-Term Classification of GAA will be deposited into the Company's general account which supports insurance and annuity obligations. General account assets of the Company must be invested in accordance with applicable state laws. These laws govern the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations; corporate bonds; preferred stocks; real estate mortgages; real estate and certain other fixed income investments. All of the general assets of the Company, including amounts deposited to GAA, are available to meet the guarantees under GAA. These assets are chargeable with liabilities arising out of any other business of the Company. Amounts applied to Guaranteed Terms under the Long-Term Classification of GAA will be deposited to and accounted for in a noninsulated, nonunitized separate account established under Title 38a, Section 38a-433, of the Connecticut General Statutes. A nonunitized separate account is a separate account in which the Contract Holder or Participant does not participate in the performance of the assets through unit values or any other interest. The assets of the noninsulated, nonunitized separate account may be charged with liabilities arising out of any other business of the Company. Contract Holders and Participants allocating funds to the Long-Term Classification of GAA do not receive a unit of ownership of assets accounted for in this separate account. The assets accrue solely to the benefit of the Company. Contract Holders and Participants do not participate in the investment gain or loss from assets accounted for in the separate account. Such gain or loss is borne entirely by the Company. All benefits available to Participants under the Long-Term Classification of GAA are Contract guarantees made by the Company and are accounted for in the separate account. These general account assets are chargeable with liabilities arising out of any other business of the Company. The Company intends to invest in assets which, in the aggregate, have characteristics, especially cash flow patterns, reasonably related to the characteristics of the liabilities. Various immunization techniques will be used to achieve the objective of close aggregate matching of assets and liabilities. The Company will primarily invest in investment- grade fixed income securities including: (bullet) Securities issued by the United States Government or its agencies or instrumentalities, which issues may or may not be guaranteed by the United States Government. (bullet) Debt securities which have an investment grade, at the time of purchase, within the four highest grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating service. (bullet) Other debt instruments, including, but not limited to, issues of or guaranteed by banks or bank holding companies and of corporations which obligations although not rated by Moody's, Standard & Poor's, or other 13 nationally recognized rating services, are deemed by the Company's management to have an investment quality comparable to securities which may be purchased as stated above. (bullet) Commercial paper, cash or cash equivalents, and other short-term investments having a maturity of less than one year which are considered by the Company's management to have investment quality comparable to securities which may be purchased as stated above. In addition, the Company may invest in futures and options. Financial futures and related options thereon and options on securities are purchased solely for non-speculative hedging purposes. In the event the securities prices are anticipated to decline, the Company may sell a futures contract or purchase a put option on futures or securities to protect the value of securities held in or to be sold for the general account or the nonunitized separate account. Similarly, if securities prices are expected to rise, the Company may purchase a futures contract or a call option thereon against anticipated positive cash flow or may purchase options on securities. WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT STRATEGY OF GAA, THE COMPANY IS NOT OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE CONTRACTS ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS MAY BE REQUIRED BY CONNECTICUT AND OTHER STATE INSURANCE LAWS NOR WILL THE GUARANTEED INTEREST RATES ESTABLISHED BY THE COMPANY UNDER THE LONG-TERM CLASSIFICATION NECESSARILY RELATE TO THE PERFORMANCE OF THE NONUNITIZED SEPARATE ACCOUNT. DISTRIBUTION OF CONTRACTS The Company will serve as Underwriter for the securities sold herein. The Company is registered as a broker- dealer with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract with one or more registered broker-dealers ("Distributors") to offer and sell the Contracts. The Company and one or more affiliates may also sell the Contracts directly. All registered representatives for the Distributor will also be licensed as insurance agents to sell Variable Annuity Contracts. For additional information, see the Contract Prospectus. TAX CONSIDERATIONS Contract Holders and Participants should seek advice from their tax advisers as to the application of federal (and where applicable, state and local) tax laws to amounts received by them and by their beneficiaries under the Contracts. Please refer to the applicable Contract Prospectus for further information. Taxation of the Company The Company is taxed as a life insurance company under Part I of Subchapter L of the Internal Revenue Code. All assets supporting the Annuity obligations of GAA are owned by the Company. Any income earned on such assets is considered income to the Company. Taxation of Annuities Generally, any income earned on GAA deposits is not taxable to individual Contract Holders or Participants until distributed from the Contract. For further information concerning the tax treatment of Purchase Payments and distributions from the Contracts, please refer to the applicable Contract Prospectus. THE COMPANY History and Business Aetna Life Insurance and Annuity Company is a stock life insurance company organized in 1976 under the insurance laws of Connecticut. Aetna Life Insurance and Annuity Company, together with its two wholly owned subsidiaries, Aetna Insurance Company of America and Aetna Private Capital, Inc., is hereafter called the "Company". The Company is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a wholly owned 14 subsidiary of Aetna Life and Casualty Company ("Aetna") which, with Aetna's subsidiaries, constitutes one of the nation's largest insurance/financial services organizations based on its assets at December 31, 1994. Two subsidiaries, Systematized Benefits Administrators, Inc. ("SBA") and Aetna Investment Services, Inc. ("AISI"), which were previously reported with the Company's operations were distributed in the form of dividends to ARSI in December of 1995. The impact to the Company's operations of distributing these dividends was immaterial. The Company's Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Company markets a variety of life insurance, retirement and other savings and investment products including individual and group annuities, financial services and mutual funds. The Company's products are designed for individuals, pension plans, small businesses and employer-sponsored groups. The Company's operations are reported through two major business segments: financial services and life insurance. Financial Services Segment The financial services segment includes individual and group annuity products which offer a variety of funding and distribution options for personal and employer-sponsored retirement plans that qualify under Internal Revenue Code Sections 401, 403, 408, and 457, and individual and group nonqualified annuity contracts. These contracts may be immediate or deferred and are offered primarily to individuals, pension plans, small businesses and employer- sponsored groups in the health care, government, education (collectively "not-for-profit" organizations) and corporate markets. The Company also offers life insurance supplemental contracts. Financial services also include pension plan administrative services. In 1995, the Company discontinued writing structured settlements of certain liabilities. Annuity products typically offer fixed (fully guaranteed and experience rated) investment options and variable investment options (discussed below). For fully guaranteed and experience rated options the Company earns a spread representing the difference between income on investments and interest credited to customer reserves. The Company's variable products (variable annuity and variable life contracts) utilize Separate Accounts to provide contractholders with a vehicle for investments under which the contractholders assume the investment risks as well as the benefit of favorable performance. Assets held under these products are invested, as designated by the contractholder or participant under a contract, in Separate Accounts, which in turn invest in shares of mutual funds that are managed by the Company or other selected mutual funds that are not managed by the Company. The Company acts as an investment adviser for its affiliated mutual funds (a retail fund--Aetna Series Fund, Inc. and variable products funds--Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Aetna Get Fund Series B) and receives advisory fees for its investment management services. The Company also receives from the Aetna Series Fund, Inc. service fees for providing administrative and shareholder services and distribution fees for promoting sales of the Adviser Class shares. The Company is compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable annuity contracts (actuarial margin) (see Note 8 of the Notes to the Consolidated Financial Statements). Product retention is a key driver of profitability for annuity products. To encourage product retention, annuity contracts typically impose a surrender charge on policyholder balances withdrawn for a period of time after the contract's inception. The period of time and level of the charge vary by product. In addition, a new approach being incorporated into recent variable contracts with fixed interest account investment options allows contractholders to receive an incremental interest rate if withdrawals from the fixed account are spread over a period of five years. Further, more favorable credited rates may be offered after policies have been in force for a period of time. Existing tax penalties on annuity distributions prior to age 59-1/2 provide an additional disincentive to premature surrenders of annuity balances, but do not impede transfers of those balances to products of other competitors. Certain of the Company's annuity products allow customers to borrow against their policies. Outstanding policy loans on annuity policies at December 31, 1995 were $181.3 million. Net investment income on annuity policy loans was $4.0 million for the year ended December 31, 1995. In the financial services segment markets, competition arises from other insurance companies, banks, mutual funds and other investment managers. Principal competitive factors are cost, service, level of investment performance and the perceived financial strength of the investment manager or sponsor. Competition in financial services markets may affect, among other matters, both business growth and the pricing of the Company's products and services. 15 Products sold in the corporate pensions market are sold through pension professionals, stock brokers and third party administrators who work closely with salaried field office employees. Products sold in the not- for-profit organization market are distributed primarily through dedicated career agents, registered life brokers and broker/dealers. Products sold in the individual market are distributed primarily through dedicated career agents, registered life brokers, banks and broker/dealers. Reserves for limited payment contracts (immediate annuities with life contingent payout) are computed on the basis of assumed investment yield, mortality, morbidity and expenses (including a margin for adverse deviation), which generally vary by plan, year of issue and policy duration. Reserves for investment contracts (deferred annuities and immediate annuities without life contingent payouts) are equal to cumulative deposits plus credited interest less charges thereon. Of those investment contracts which are experience-rated, the reserves also reflect net realized capital gains/losses (which the Company reflects through credited rates on an amortized basis) and unrealized capital gains/losses related to Financial Accounting Standard ("FAS") No. 115 (see Note 1 of the Notes to the Consolidated Financial Statements). The following table summarizes assets under management for the principal customer groups of the financial services segment. Amounts reflected exclude unrealized gains (losses) of $689.9 million and $(337.7) million at December 31, 1995 and 1994, respectively, related to market value adjustments required under FAS 115. See Management's Analysis of the Results of Operations and Note 1 for further discussion on assets under management and FAS 115, respectively.
(Millions) 1995 1994 1993 --------------------------- ----- --------- --------- --------- Corporate pensions $ 4,233.5 $ 3,217.4 $ 2,886.2 Not-for-profit organizations 12,086.1 10,025.9 9,087.1 Individuals 6,214.8 4,879.6 3,981.0 ----- --------- --------- --------- Total $22,534.4 $18,122.9 $15,954.3 --------------------------- ----- --------- --------- ---------
Deposits, which are not included in premiums or revenue, are shown in the following table for the years indicated:
(Millions) 1995 1994 1993 --------------------------- ----- -------- -------- -------- Corporate pensions $1,075.9 $ 890.3 $ 714.5 Not-for-profit organizations 1,093.0 1,093.3 1,107.8 Individuals 1,200.6 670.2 460.9 ----- -------- -------- -------- Total $3,369.5 $2,653.8 $2,283.2 --------------------------- ----- -------- -------- --------
Life Insurance Segment The life insurance segment includes universal life, variable universal life, interest-sensitive whole life and term insurance. These products are offered primarily to individuals, small businesses, employer-sponsored groups and executives of Fortune 2000 companies. The Company's universal life insurance product accounted for approximately 92% of individual life insurance sales in 1995. The Company's in-force block of insurance includes a sizable block of traditional ordinary life insurance originally written by an affiliate, Aetna Life Insurance Company ("Aetna Life"), and transferred to the Company via a reinsurance agreement in 1988 (see Note 8 of the Notes to the Consolidated Financial Statements). This closed book of business contributed 29% of the life insurance segment's earnings in 1995. Universal life products include a cash value component that is credited with interest at competitive rates. The Company earns the spread between investment income and interest credited on customer cash values. Universal life cash values are charged for cost of insurance coverage and for administrative expenses. The Company is also compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable universal life contracts. Life insurance products typically require high costs to acquire business. As with the financial services segment, retention is an important driver of profitability and is encouraged through product features. For example, universal and interest-sensitive whole life insurance contracts typically impose a surrender charge on policyholder balances withdrawn within seven to twenty years of the contract's inception or for variable life within ten years. The period of time and level of the charge vary by product. In addition, more favorable credited rates and policy loan terms may be offered after policies have been in force for a period of time. To further encourage retention, life insurance agents are typically paid renewal commissions or service fees. 16 Certain of the Company's life insurance products allow customers to borrow against their policies. Outstanding policy loans on individual life policies at December 31, 1995 were $157.3 million. Net investment income on individual life policy loans was $9.7 million for the year ended December 31, 1995. The markets for life insurance products are highly competitive among insurance companies. Competition largely is based upon product features and prices. Competition in life insurance markets may affect, among other matters, both business growth and the pricing of the Company's products and services. Life insurance products are marketed by managing general agents, regional brokers, banks and broker/dealers. Reserves for universal life and interest-sensitive whole life products (which are all experience-rated) are equal to cumulative deposits less withdrawals and charges, plus credited interest thereon, plus/less net realized capital gains/ losses (which the Company reflects through credited rates on an amortized basis). These reserves also reflect unrealized capital gains/losses related to FAS 115. Reserves for all other fixed individual life contracts are computed on the basis of assumed investment yield, mortality, morbidity and expenses (including a margin for adverse deviation), which generally vary by plan, year of issue and policy duration. These reserves are computed amounts that, with additions from premiums and deposits to be received, and with interest on such reserves compounded annually at assumed rates, are expected to be sufficient to meet the Company's policy obligations at their maturities or to pay expected death or retirement benefits or other withdrawal requests. Reinsurance arrangements with affiliated and non-affiliated insurance companies are utilized to limit exposure to losses in excess of predetermined amounts per individual life. The Company's retention limit per individual life is $2.0 million (see Notes 8 and 9 of the Notes to the Consolidated Financial Statements). LIFE INSURANCE IN FORCE AND OTHER STATISTICAL DATA* The following table summarizes changes in individual life insurance in force before deductions for reinsurance ceded to other companies for the years indicated:
(Millions, except as noted below) 1995 1994 1993 ------------------------------------------------ --------- --------- ---------- Sales and additions: Direct: Permanent $ 3,757.9 $ 3,369.4 $ 2,767.0 Term 2,600.4 559.9 237.2 Assumed: Permanent 1,358.5 -- -- --------- --------- ---------- Total $ 7,716.8 $ 3,929.3 $ 3,004.2 ========= ========= ========== Terminations: Direct: Surrenders and Conversions $ 1,467.0 $ 1,316.4 $ 1,632.6 Lapses 891.4 860.9 816.7 Other 152.7 170.0 170.6 Assumed: Surrenders and Conversions 53.6 59.4 80.3 Lapses 331.8 303.9 376.2 Other 54.2 57.9 55.1 --------- --------- ---------- Total $ 2,950.7 $ 2,768.5 $ 3,131.5 ========= ========= ========== In force: Direct: Permanent $32,333.2 $30,563.0 $29,507.1 Term 3,698.3 1,621.3 1,095.2 Assumed: Permanent 2,392.9 1,244.8 1,344.9 Term 1,203.8 1,433.0 1,754.1 --------- --------- ---------- Total $39,628.2 $34,862.1 $33,701.3 ========= ========= ========== Number of direct policies in force (thousands) 378.1 378.3 384.6 ========= ========= ========== Average size of direct policy in force (thousands) $ 95.3 $ 85.1 $ 79.6 ========= ========= ==========
*Only nonparticipating business is written by the Company. 17 General Account Investments Consistent with the nature of the contract obligations involved in the Company's operations, the majority of the general account assets are invested in long-term, debt securities such as corporate debt securities, residential mortgage- backed securities, commercial and multifamily mortgage-backed securities, other asset-backed securities and government securities. It is management's objective that the portfolios be of high quality while achieving competitive investment yields and returns. Investment portfolios generally match the duration of the insurance liabilities they support. The general account of the Company has been segmented to improve the asset/liability matching process. The duration of investments is monitored and security purchases and sales are executed with the objective of having adequate funds available to satisfy the Company's maturing liabilities. Please see Investments in the Management's Analysis of the Results of Operations for a further discussion of investments. For information concerning the valuation of investments, see Notes 1, 2 and 3 of the Notes to Consolidated Financial Statements. Other Matters Regulation. The insurance business of the Company is subject to comprehensive, detailed regulation throughout the United States. The laws of the various jurisdictions establish supervisory agencies with broad authority to regulate, among other things, the granting of licenses to transact business, trade practices, agent licensing, policy forms, underwriting and claims practices, reserve adequacy, insurer solvency, the maximum interest rates that can be charged on life insurance policy loans, the minimum rates that must be provided for accumulation of surrender values, the form and content of required financial statements and the type and amounts of investments permitted. The Company is required to file detailed reports with supervisory agencies in each of the jurisdictions in which it does business, and its operations and accounts are subject to examination by such agencies at regular intervals. Although the federal government does not directly regulate the business of insurance, many federal laws do affect the business. Existing or recently proposed federal laws that may significantly affect or would affect, if passed, the insurance business cover such matters as pensions and other employee benefits, removal of barriers preventing banks from engaging in the insurance and mutual fund businesses, the taxation of insurance companies, and the tax treatment of insurance products. Material changes in applicable federal and state laws and regulations could adversely affect the Company's business operations, although the Company is unable to predict whether any such changes will be implemented. Several states, including Connecticut, regulate affiliated groups of insurers such as the Company and its affiliates under insurance holding company statutes. Under such laws, intercorporate asset transfers and dividend payments from insurance subsidiaries may require prior notice to or approval of the insurance regulators, depending on the size of such transfers and payments relative to the financial position of the Company making the transfer. Changes in control also are regulated under these laws. As a Connecticut-domiciled insurance company, the Company is subject to comprehensive regulation under the Connecticut insurance laws and by the Connecticut Insurance Department. In recent years, state insurance regulators have been considering changes in statutory accounting practices and other initiatives to strengthen solvency regulation. The National Association of Insurance Commissioners (NAIC) has adopted risk-based capital ("RBC") standards for life insurers. The RBC formula is a regulatory tool designed to identify weakly capitalized companies by comparing the adjusted surplus to the required surplus, which reflects the risk profile of the Company (RBC ratio). Within certain ratio changes, regulators have increasing authority to take action as the RBC ratio decreases. There are four levels of regulatory action ranging from requiring insurers to submit a comprehensive plan to the state insurance commissioner to when the state insurance commissioner places the insurer under regulatory control. The Company's RBC ratio at December 31, 1995 was significantly above the levels which would require regulatory action. Rating agencies also use their own risk-based capital standards as part of determining a company's rating. The NAIC also is considering several other solvency-related regulations including the development of a model investment law and amendments to the model insurance holding company law which would limit types and amounts of insurance company investments. In addition, in recent years there has been growing interest among certain members of Congress concerning possible federal roles in the regulation of the insurance industry. Because these other initiatives are in a preliminary stage, management cannot assess the potential impact of their adoption on the Company. 18 Under insurance guaranty fund laws existing in all states, insurers doing business in those states can be assessed (up to prescribed limits) for certain obligations of insolvent insurance companies to policyholders and claimants. The after tax charges to earnings for guaranty fund obligations for the years ended December 31, 1995, 1994 and 1993 were $1.4 million, $0.6 million and $0.9 million, respectively. The amounts ultimately assessed may differ from the amounts charged to earnings thus far because such assessments may not be made for several years and will depend upon the final outcome of regulatory proceedings. The Company provides a variety of products and services to employee benefit plans that are covered by the Employee Retirement Income Security Act of 1974 ("ERISA"). In December 1993, in a case involving an employee benefit plan and an insurance company, the United States Supreme Court ruled that assets in the insurance company's general account that were attributable to the non-guaranteed portion of a group pension contract issued to the plan were "plan assets" for purposes of ERISA and that the insurance company was an ERISA fiduciary with respect to those assets. In reaching its decision, the Court declined to follow a 1975 Department of Labor ("DOL") interpretive bulletin that had suggested that insurance company general account assets were not plan assets. The Company and other insurers are seeking clarification from the DOL of the effects, if any, of the decision on their businesses, as well as pursuing clarification of the decision through Federal legislation. Management is not currently able to predict how the decision, or the outcome of any legislative or regulatory initiatives, will ultimately affect its business. Aetna Life Insurance and Annuity Company is regulated by the Securities and Exchange Commission ("SEC") and some state securities regulators as a broker-dealer and investment adviser. The Company's variable products involve investments through Separate Accounts, some of which are registered as investment companies with the SEC, as are the retail mutual funds and the variable mutual funds offered by the Company. Additionally, interests in some of the Separate Accounts, the retail mutual funds, the variable product mutual funds and certain other products used as funding vehicles for the Company's variable products are registered with the SEC. Shares of the retail mutual funds are also registered with all fifty of the state securities regulators. Miscellaneous. According to the Fortune Service 500, as of December 31, 1994, the Company ranked 19th and 22nd among all United States domiciled life insurance companies based upon total assets and premium income, respectively. As of December 31, 1995, the Company had approximately 2,700 employees. The Company's rating at February 6, 1996 by A.M. Best was A+ (Superior). Management believes that the Company's computer facilities, systems and related procedures are adequate to meet its business needs. The Company's data processing systems and backup and security policies, practices and procedures are regularly evaluated by the Company's management and internal auditors and are modified as considered necessary. The Company is not dependent upon any single customer and no single customer accounted for more than 10% of revenue in 1995. In addition, neither segment of the Company's business is dependent upon a single customer or a few customers, the loss of which would have a significant impact on the segment. See Note 12 of the Notes to the Consolidated Financial Statements regarding segment information. Forward-Looking Information. The Private Securities Litigation Reform Act of 1995 ("the Act") provides a new "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. The Company desires to take advantage of the new "safe harbor" provisions of the Act. Certain information contained herein, particularly the information appearing under the heading "Outlook" contained in Management's Analysis of the Results of Operations, is forward-looking. Information regarding certain important factors that could cause actual results of operations or outcomes of other events to differ materially from any such forward- looking statement appear together with such statement within this section and within Management's Analysis of the Results of Operations. Properties The Company occupies office space which is owned or leased by Aetna Life Insurance Company or other affiliates. Expenses associated with these offices are allocated on a direct and indirect basis to the Company and the other subsidiaries of Aetna. 19 DIRECTORS AND EXECUTIVE OFFICERS The following are the Directors and Executive Officers of the Company. The terms of office for all Directors and Executive Officers will run until the Company's next annual meeting and until their successors are duly elected and qualified.
Principal Occupation and Current Position Employment During Past Five Years; Name, Age with the Company Other Directorships of Directors ---------------------- --------------------------- ------------------------------------------------- Daniel P. Kearney Director, President and President (since December 1993), Aetna Life Age 56 Chief Executive Officer Insurance and Annuity Company; Executive Vice President (since December 1993), and Group Executive, Financial Division (February 1991 - December 1993), Aetna Life and Casualty Company. Director: Aetna Investment Services, Inc. (since November 1994); Aetna Insurance Company of America (since May 1994); MBIA, Inc. (since 1992). Christopher J. Burns Director and Senior Vice Senior Vice President, Sales & Service (since Age 49 President February 1996), and Senior Vice President, Life (March 1991 - February 1996), Aetna Life Insurance and Annuity Company. Director: Aetna Financial Services, Inc. (since January 1996), Aetna Investment Services, Inc. (since July 1993). Laura R. Estes Director and Senior Vice Senior Vice President, Manage/Design Products and Age 46 President Services (since February 1996), and Senior Vice President, Pensions (March 1991 - February 1996), Aetna Life Insurance and Annuity Company. Director: Aetna Financial Services, Inc. (since January 1996); Aetna Investment Services, Inc. (since July 1993). Timothy A. Holt Director, Senior Vice Senior Vice President, Strategy & Finance, and Age 43 President and Chief Chief Financial Officer (since February 1996), Financial Officer Aetna Life Insurance and Annuity Company; Vice President, Portfolio Management/Investment Group (August 1992 - February 1996), Aetna Life and Casualty Company; Treasurer (February 1990 - July 1991), Aeltus Investment Management, Inc. Gail P. Johnson Director and Vice President Vice President, Service and Retain Customers Age 45 (since February 1996); Vice President, Defined Benefit Services (September 1994 - February 1996); Vice President, Plan Services, Pensions and Financial Services (December 1992 - September 1994); Managing Director, Business Strategy (July 1991 - December 1992); Assistant Vice President, Financial Division (June 1987 - July 1991); -- Aetna Life Insurance and Annuity Company. 20 Principal Occupation and Current Position Employment During Past Five Years; Name, Age with the Company Other Directorships of Directors ---------------------- --------------------------- ------------------------------------------------- John Y. Kim Director and Senior Vice President (since December 1995), Aeltus Age 35 President Investment Management, Inc.; Chief Investment Officer (since May 1994), Aetna Life and Casualty Company; Managing Director (September 1993 - April 1994), Mitchell Hutchins Institutional Investors (New York, New York); Vice President and Senior Portfolio Manager (October 1991 - August 1993), and Vice President, Investor Relations (1990 - 1992), Aetna Life and Casualty Company. Shaun P. Mathews Director and Vice President Vice President, Products Group (since February Age 40 1996); Senior Vice President, Strategic Markets and Products (February 1993 - February 1996); and Senior Vice President, Mutual Funds (March 1991 - February 1993) -- Aetna Life Insurance and Annuity Company. Director: Aetna Investment Services, Inc. (since July 1993); Aetna Insurance Company of America (since February 1993). Glen Salow Director and Vice President Vice President, Information Technology (since Age 41 February 1996), Vice President, Information Technology, Investments and Financial Services (February 1995 - February 1996), Vice President, Investment Systems (1992 - 1995), AIT -- Aetna Life Insurance and Annuity Company; Senior Vice President (December 1986 - August 1992), Lehman Brothers. Creed R. Terry Director and Vice President Vice President, Select and Manage Markets (since Age 52 February 1996), Market Strategist (August 1995 - February 1996) -- Aetna Life Insurance and Annuity Company; President (1991 - 1995), Chemical Technology Corporation (a subsidiary of Chemical Bank). Zoe Baird Senior Vice President and Senior Vice President and General Counsel (since Age 43 General Counsel April 1992), Vice President and General Counsel (July 1990 - April 1992), Aetna Life and Casualty Company. Director: Zurn Industries, Inc. (since April 1993); Southern New England Telecommunication Corp. and Southern New England Telephone Company (since November 1990). Susan E. Schechter Corporate Secretary and Counsel (since November 1993), Aetna Life and Age 43 Counsel Casualty Company; Associate Attorney (September 1986 - October 1993), Steptoe & Johnson. 21 Principal Occupation and Current Position Employment During Past Five Years; Name, Age with the Company Other Directorships of Directors ---------------------- --------------------------- ------------------------------------------------- Eugene M. Trovato Vice President and Vice President and Treasurer, Corporate Age 45 Treasurer, Corporate Controller (since February 1996), Vice President Controller and Controller (February 1995 - February 1996), Aetna Life Insurance and Annuity Company; Vice President, Financial Reporting (December 1991 - February 1995), Assistant Vice President, Financial Reporting (June 1989 - December 1991), Aetna Life and Casualty Company. Diane B. Horn Vice President and Chief Vice President and Chief Compliance Officer Age 51 Compliance Officer (since February 1996), and Senior Compliance Officer (August 1993 - February 1996), Aetna Life Insurance and Annuity Company; Director of Compliance (May 1991 - July 1993), Kemper Life Insurance Company.
EXECUTIVE COMPENSATION Executive officers of the Company may also serve one or more affiliated companies of Aetna Life Insurance and Annuity Company. Allocations have been made as to each individual's time devoted to his or her duties as an executive officer of the Company. The following table shows the cash compensation paid, based on these allocations, to the seven most highly compensated executive officers whose allocated compensation exceeds $100,000 for services rendered in all capacities to the Company during 1995. Such officers may also receive non-cash compensation from other affiliated companies of the Company; however, none of such non-cash compensation is allocated to the Company. CASH COMPENSATION TABLE
Name of Individual Capacities in Cash or Number in Group which served Compensation - - ----------------------------- ------------------- ------------- John Y. Kim Senior Vice President $776,353 Daniel P. Kearney President and CEO 588,196 Dominick J. Agostino Senior Vice President 543,678 Laura R. Estes Senior Vice President 342,904 Scott A. Striegel Senior Vice President 328,595 Christopher J. Burns Senior Vice President 290,558 Shaun P. Mathews Senior Vice President 263,607
SUMMARY COMPENSATION TABLE
Long-Term Compensation Annual Compensation Awards Payouts ------------------- --------- -------- Securities Long-Term Underlying Incentive Name and Principal Stock Plan All other Position Year Salary Bonus Options Payouts Compensation - - ----------------------------- ---- -------- -------- --------- -------- ------------- John Y. Kim 1995 $250,000 $542,300 4,000 $0 1994 250,000 521,400 7,500 1993 166,000 55,000 2,600 22 Long-Term Compensation Annual Compensation Awards Payouts ------------------- --------- -------- Securities Long-Term Underlying Incentive Name and Principal Stock Plan All other Position Year Salary Bonus Options Payouts Compensation - - ----------------------------- ---- -------- -------- --------- -------- ------------- Daniel P. Kearney 1995 $518,269 $485,000 82,500 $761,750 $33,683 1994 500,000 200,000 16,500 33,820 1993 476,442 300,000 17,000 32,885 Dominick J. Agostino 1995 $250,000 $125,000 2,000 $ 78,114 1994 250,000 0 4,500 1993 0 0 0 Laura R. Estes 1995 $225,000 $135,000 8,000 $221,600 1994 210,000 120,000 6,000 1993 200,000 85,000 2,800 Scott A. Striegel 1995 $225,000 $105,000 8,000 $221,600 1994 210,000 64,000 6,000 1993 200,000 35,000 4,000 27,000 - - ----------------------------- ---- -------- -------- --------- --------
Stock Option Grants Table The following table sets forth certain information concerning stock options granted during 1995 by the Company to the CEO and each of the four most highly compensated executive officers of the Company (other than the CEO) in 1995. The hypothetical grant date present values of stock options granted in 1995 shown below are presented pursuant to SEC rules and are calculated under the modified Black-Scholes Model for pricing options. The gains, if any, realizable upon exercise of stock options will depend upon the market price of the Company's Common Stock at the time the stock option is exercised. The individuals named below will not be able to realize a gain from the stock options granted unless, during the exercise period, the market price of the Company's Common Stock increases above the exercise price of the options. An increase in the market price of the Company's Common Stock would also benefit the Company's other shareholders. Stock Option Grants in 1995
Individual Grants (1) Number of Percent of Securities Total Underlying Stock Options Exercise Stock Granted to Price Grant Date Options Employees in Per Expiration Present Name Granted 1995 Share Date Value (4) - - --------------------------- ------------- ------------- -------- ------------- ---------------- John Y. Kim 4,000 (2) .2% $53.50 2/24/2005 $ 39,703 (5) Daniel P. Kearney 17,500 (2) .8% 53.50 2/24/2005 165,825 (5) 65,000 (3) 3.1% 57.00 4/28/2005 652,116 (6) Dominick J. Agostino 2,000 (2) .1% 53.50 2/24/2005 18,951 (5) Laura R. Estes 8,000 (2) .4% 53.50 2/24/2005 75,806 (5) Scott A. Striegel 8,000 (2) .4% 53.50 2/24/2005 75,806 (5)
(1) Granted under the Company's 1994 Stock Incentive Plan (the Plan). The Plan permits participants to use shares of the Company's Common Stock to exercise options. The Plan provides that the option price shall not be less than 100% of the fair market value of the Common Stock at the time the option is granted. Under the Plan, options may be granted until April 30, 2001. (2) Date of grant was February 24, 1995; initial exercise date is February 25, 1996; options vest in installments over a period of three years. (3) Date of grant was April 28, 1995; initial exercise date is April 29, 1997; options vest over a period of three years provided certain performance criteria have been met. (4) Grant Date present values are calculated under the modified Black-Scholes Model. The Black-Scholes Model is a mathematical formula used to value options publicly traded in the securities markets and it assumes that options are freely transferable. Because the employee stock options granted above are not freely transferable, the Company believes that the grant date present values shown above may be overstated. 23 (5) The assumptions made and factors used by the Company in the Black-Scholes Model calculation for the options granted February 24, 1995 were as follows: (i) a volatility factor of 0.226, representing the average of the three-year and ten-year historical volatility factors for the Common Stock determined as of the date of the option grant; (ii) a risk-free rate of return of 7.47%, representing the 10-year U.S. Treasury bond rate in effect on the date of the option grant; (iii) a dividend yield of 5.2%, representing the Company's then current annual dividend, divided by the Common Stock price on the date of the option grant; and (iv) a ten-year option term, representing the full term of the option granted. To give effect to the three-year vesting period of the options, the value of each option was discounted by 20%, the percentage of options estimated to expire due to turnover of all recipients of options during the vesting period. No further discount to the option value calculated was taken to give effect to the fact that the options are not freely transferable or to the exercise or lapse of the options prior to the end of the ten-year option period. (6) The assumptions made and factors used by the Company in the Black-Scholes Model calculation for the options granted April 28, 1995 were as follows: (i) a volatility factor of 0.229, representing the average of the three-year and ten-year historical volatility factors for the Common Stock as of the date of the option grant; (ii) a risk-free rate of return of 7.06%, representing the 10-year U.S. Treasury bond rate in effect on the date of the option grant; (iii) a dividend yield of 4.8%, representing the Company's then current annual dividend, divided by the Common Stock price on the date of the option grant; and (iv) a ten-year option term, representing the full term of the option granted. To give effect to the three-year vesting period and the risk of forfeiture of the performance vested options, the value of each option was discounted by 32.5%. No further discount to the option value calculated was taken to give effect to the fact that the options are not freely transferable or to the exercise or lapse of the options prior to the end of the ten-year option period. There is no assurance that the hypothetical present values of stock options presented in the table above represent the actual values of such options. The hypothetical values shown should not be construed as predictions by the Company as to the future value of its Common Stock.
Aggregated Stock Options/SAR Exercised in 1995 December 31, 1995 Stock Option/SAR Value Table ------------------- ----------------- -------- -------------------------------------------------------- Number of Securities Underlying Unexercised Value of Unexercised Options/SARs at in-the-Money Options December 31, 1995 (2) at December 31, 1995 (3) -------------------------- --------------------------- Acquired Value upon Realized Exercise upon Unexercisable Unexercisable Name (1) Exercise Exercisable (4) Exercisable (4) ------------------- --------- -------- ----------- ------------ ----------- ------------- John Y. Kim 0 $ 0 2,500 9,000 $ 56,875 $ 176,750 Daniel P. Kearney 8,264 246,012 34,236 93,500 742,638 1,225,875 Dominick J. Agostino 0 0 6,500 0 133,875 0 Laura R. Estes 5,200 84,425 8,800 12,000 200,750 182,000 Scott A. Striegel 4,300 59,425 9,550 12,000 152,975 182,000
(1) Includes 6,125 shares as to which Mr. Kearney received cash in lieu of shares upon exercise of SARs. (2) Tandem SARs are attached to exercisable stock options relating to 13,875 shares held by Mr. Kearney. No tandem SARs are attached to any unexercisable stock options. 24 (3) Based on December 29, 1995 closing stock price of $69.25. (4) Represents stock options which are not vested. SECURITY OWNERSHIP OF MANAGEMENT The Company's directors and officers do not beneficially own any outstanding shares of stock of the Company. All of the outstanding shares of stock of the Company are beneficially owned by its parent, Aetna Retirement Holdings, Inc., which are indirectly held by Aetna Life and Casualty Company. The percentage of shares of Aetna Life and Casualty Company beneficially owned by any director of the Company, and by all directors and officers of the Company as a group, does not exceed one percent (1%) of the class outstanding. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. 25 EXPERTS The consolidated financial statements and schedules of the Company as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995, have been included herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing herein and elsewhere in the Registration Statement and upon the authority of such firm as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP on the above-mentioned consolidated financial statements and consolidated financial statement schedules refer to a change in 1993 in the Company's methods of accounting for certain investment in debt and equity securities. LEGAL PROCEEDINGS The Company and its Board of Directors know of no material legal proceedings pending to which the Company is a party or which would materially affect the Company. LEGAL MATTERS The validity of the securities offered by this Prospectus has been passed upon by Susan E. Bryant, Esq. Counsel of the Company. 25 APPENDIX I EXAMPLES OF MARKET VALUE ADJUSTMENT CALCULATIONS The following are examples of Market Value Adjustment ("MVA") calculations using several hypothetical Deposit Period yields and current yields. These examples do not include the effect of any deferred sales charge that may be assessed under the Contract upon withdrawal.
EXAMPLE I Assumptions: Assumptions: i, the Deposit Period yield, is 8% i, the Deposit Period yield, is 5% j, the current yield, is 10% j, the current yield, is 6% x, the number of days remaining (computed from x, the number of days remaining (computed from Wednesday of the week of withdrawal) in the Wednesday of the week of withdrawal) in the Guaranteed Term, is 927. Guaranteed Term, is 927. ( x ) ( x ) (365) (365) MVA= (1 + i) MVA= (1 + i) -------- ------- (1 + j) (1 + j) (927) (927) (365) (365) = (1.08) = (1.05) ------- ------- (1.10) (1.06) = .9545 = .9762 In this example, the Deposit Period yield of 8% In this example, the Deposit Period yield of 5% is less than the current yield of 10%; is less than the current yield of 6%; therefore, therefore, the MVA is less than 1. The amount the MVA is less than 1. The amount withdrawn withdrawn from the Guaranteed Term is multiplied from the Guaranteed Term is multiplied by this by this MVA. MVA. If a withdrawal or transfer of a stated If a withdrawal or transfer of a stated percentage is requested, the value withdrawn percentage is requested, the value withdrawn from a Guaranteed Term will reflect the from a Guaranteed Term will reflect the deduction of the negative MVA Amount. However, deduction of the negative MVA Amount. However, if a withdrawal or transfer request of a if a withdrawal or transfer request of a specific dollar amount is requested, the amount specific dollar amount is requested, the amount withdrawn from a Guaranteed Term will be withdrawn from a Guaranteed Term will be increased to compensate for the negative MVA increased to compensate for the negative MVA Amount. For example, a withdrawal request to Amount. For example, a withdrawal request to receive a check for $2,000 would result in a receive a check for $2,000 would result in a $2,095.34 withdrawal from the Guaranteed Term. $2,048.76 withdrawal from the Guaranteed Term. 26 EXAMPLE II Assumptions: Assumptions: i, the Deposit Period yield, is 10% i, the Deposit Period yield, is 5% j, the current yield, is 8% j, the current yield, is 4% x, the number of days remaining (computed from x, the number of days remaining (computed from Wednesday of the week of withdrawal) in the Wednesday of the week of withdrawal) in the Guaranteed Term, is 927. Guaranteed Term, is 927. ( x ) ( x ) (365) (365) MVA= (1 + i) MVA= (1 + i) ------- ------- (1 + j) (1 + j) (927) (927) (365) (365) = (1.08) = (1.05) ------- ------- (1.10) (1.04) = 1.0477 = 1.0246 In this example, the Deposit Period yield of 10% In this example, the Deposit Period yield of 5% is greater than the current yield of 8%; is greater than the current yield of 4%; therefore, the MVA is greater than 1. The amount therefore, the MVA is greater than 1. The amount withdrawn from the Guaranteed Term is multiplied withdrawn from the Guaranteed Term is multiplied by this MVA. by this MVA. If a withdrawal or transfer of a stated If a withdrawal or transfer of a stated percentage is requested, the value withdrawn percentage is requested, the value withdrawn from a Guaranteed Term will reflect the addition from a Guaranteed Term will reflect the addition of the positive MVA Amount. However, if a of the positive MVA Amount. However, if a withdrawal or transfer request of a specific withdrawal or transfer request of a specific dollar amount is requested, the amount withdrawn dollar amount is requested, the amount withdrawn from a Guaranteed Term will be decreased to from a Guaranteed Term will be decreased to reflect the positive MVA Amount. For example, a reflect the positive MVA Amount. For example, a withdrawal request to receive a check for $2,000 withdrawal request to receive a check for $2,000 would result in a $1,908.94 withdrawal from the would result in a $1,951.98 withdrawal from the Guaranteed Term. Guaranteed Term.
27 APPENDIX II EXAMPLES OF MARKET VALUE ADJUSTMENT YIELDS The following hypothetical examples show the Market Value Adjustment based on a given current yield at various times remaining in the Guaranteed Term. Table A illustrates figures based on a Deposit Period yield of 10%; Table B illustrates figures based on a Deposit Period yield of 5%. The Market Value Adjustment will have either a positive or negative influence on the amount withdrawn from or remaining in a Guaranteed Term. Also, the amount of the Market Value Adjustment generally decreases as the end of the Guaranteed Term approaches. TABLE A: Deposit Period Yield of 10%
Change in Deposit Current Period Time Remaining to Yield Yield Maturity of Guaranteed Term ------- -------- ---------------------------------------------------------- 8 Years 6 Years 4 Years 2 Years 1 Year 3 Months ------- ------- ------- ------- ------ --------- 15% +5% -29.9% -23.4% -16.3% -8.5% -4.3% -1.1% 13% +3% -19.4 -14.9 -10.2 -5.2 -2.7 -0.7 12% +2% -13.4 -10.2 -7.0 -3.5 -1.8 -0.4 11% +1% -7.0 -5.3 -3.6 -1.8 -0.9 -0.2 9% -1% 7.6 5.6 3.7 1.8 0.9 0.2 8% -2% 15.8 11.6 7.6 3.7 1.9 0.5 7% -3% 24.8 18.0 11.7 5.7 2.8 0.7 5% -5% 45.1 32.2 20.5 9.8 4.8 1.2
TABLE B: Deposit Period Yield of 5%
Change in Deposit Current Period Time Remaining to Yield Yield Maturity of Guaranteed Term ------- -------- ---------------------------------------------------------- 8 Years 6 Years 4 Years 2 Years 1 Year 3 Months ------- ------- ------- ------- ------ --------- 9% +4% -25.9% -20.1% -13.9% -7.2% -3.7% -0.9% 8% +3% -20.2 -15.6 -10.7 -5.5 -2.8 -0.7 7% +2% -14.0 -10.7 -7.3 -3.7 -1.9 -0.5 6% +1% -7.3 -5.5 -3.7 -1.9 -0.9 -0.2 4% -1% 8.0 5.9 3.9 1.9 1.0 0.2 3% -2% 16.6 12.2 8.0 3.9 1.9 0.5 2% -3% 26.1 19.0 12.3 6.0 2.9 0.7 1% -4% 36.4 26.2 16.8 8.1 4.0 1.0
28 SELECTED FINANCIAL DATA
(MILLIONS) 1995 1994 1993 1992 1991 --------- --------- --------- --------- --------- Total Revenue $ 1,537.3 $ 1,332.2 $ 1,264.5 $ 1,176.1 $ 1,129.5 ========= ========= ========= ========= ========= Net Income $ 175.9 $ 145.3 $ 142.9 $ 122.8 $ 89.8 ========= ========= ========= ========= ========= Total Assets $27,144.9 $20,934.1 $20,135.7 $16,932.9 $15,154.0 ========= ========= ========= ========= =========
MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS Consolidated Results of Operations: Operating Summary
Operating Summary (millions) 1995 1994 1993 -------------------------------------------------------- --------- --------- --------- Premiums $ 130.8 $ 124.2 $ 82.1 Charges assessed against policyholders 318.9 279.0 251.5 Net investment income 1,004.3 917.2 911.9 Net realized capital gains 41.3 1.5 9.5 Other income 42.0 10.3 9.5 -------------------------------------------------------- --------- --------- --------- Total revenue 1,537.3 1,332.2 1,264.5 -------------------------------------------------------- --------- --------- --------- Current and future benefits 915.3 854.1 818.4 Operating expenses 318.7 235.2 207.2 Amortization of deferred policy acquisition costs 43.3 26.4 19.8 -------------------------------------------------------- --------- --------- --------- Total benefits and expenses 1,277.3 1,115.7 1,045.4 -------------------------------------------------------- --------- --------- --------- Income before federal income taxes 260.0 216.5 219.1 Federal income taxes 84.1 71.2 76.2 -------------------------------------------------------- --------- --------- --------- Net income $ 175.9 $ 145.3 $ 142.9 ======================================================== ========= ========= ========= -------------------------------------------------------------------------------------------- Deposits not included in premiums Fully above: guaranteed $ 415.7 $ 249.0 $ 263.7 Experience-rated 1,428.0 1,351.4 1,216.8 Non-guaranteed 2,059.1 1,365.9 1,062.5 -------------- --------- --------- --------- Total $ 3,902.8 $ 2,966.3 $ 2,543.0 --------------------------------------- -------------- --------- --------- --------- Assets under management: (1) Fully guaranteed $ 3,399.6 $ 2,620.3 $ 2,423.5 Experience-rated 10,999.9 9,272.0 9,241.5 Non-guaranteed 11,522.9 8,064.6 7,111.0 -------------- --------- --------- --------- Total $25,922.4 $19,956.9 $18,776.0 --------------------------------------- -------------- --------- --------- ---------
(1) Included above are net unrealized capital gains (losses) of $797.1 million, $(386.4) million and $747.1 million at December 31, 1995, 1994 and 1993, respectively. Overview The Company's adjusted earnings (after-tax) follow (in millions):
1995 1994 1993 ------ ------ ------- Net Income $175.9 $145.3 $142.9 Less: Net realized capital gains 26.8 1.0 6.2 ------ ------ ------- Adjusted earnings $149.1 $144.3 $136.7 ====== ====== =======
The Company's adjusted earnings increased 3% in 1995 following a 6% increase in 1994. Results in 1995 reflected improved earnings in the financial services segment, while earnings in the life insurance segment were level with the prior year. The improvement in earnings related to the financial services segment reflected an increase in charges assessed against policyholders and increased net investment income related to the growth in assets under management which were partially offset by an increase in operating expenses. This increase in operating expenses primarily 29 reflects continued business growth. The improvement in 1994 adjusted earnings reflected an increase in charges assessed against policyholders, primarily due to an increase in the volume of business in force, partially offset by increases in operating expenses, primarily related to the implementation of a new contract administration system. Assets under management, excluding the effect of FAS 115, at December 31, 1995 of $25.1 billion, were 24% above 1994 levels, primarily reflecting continued business growth and overall improvement in the stock and bond markets. The Company's contracts typically impose surrender fees which decline over the duration of the contract. Assets held under experience rated general account options have transfer and withdrawal limitations. Withdrawals from the fully guaranteed accumulation options prior to maturity include an adjustment intended to reflect the estimated fair value of the assets supporting the contract at the time of withdrawal. Approximately 91% and 90% of assets under management at December 31, 1995 and 1994, respectively, allowed for contractholder withdrawal, 63% and 57% of which, respectively, are subject to market value adjustments or deferred surrender charges at December 31, 1995. SEGMENT RESULTS Financial Services Segment
Operating Summary (millions) 1995 1994 1993 -------------------------------------------------------- --------- --------- --------- Premiums $ 82.6 $ 70.2 $ 32.0 Charges assessed against policyholders 150.4 126.6 109.4 Net investment income 823.3 745.9 739.2 Net realized capital gains 37.8 1.4 9.1 Other income 35.4 2.0 3.1 -------------------------------------------------------- --------- --------- --------- Total revenue 1,129.5 946.1 892.8 -------------------------------------------------------- --------- --------- --------- Current and future benefits 704.4 639.9 624.1 Operating expenses 256.5 176.9 149.0 Amortization of deferred policy acquisition costs 10.5 9.6 (1.4) -------------------------------------------------------- --------- --------- --------- Total benefits and expenses 971.4 826.4 771.7 -------------------------------------------------------- --------- --------- --------- Income before federal income taxes 158.1 119.7 121.1 Federal income taxes 44.3 34.2 34.3 -------------------------------------------------------- --------- --------- --------- Net income $ 113.8 $ 85.5 $ 86.8 ======================================================== ========= ========= ========= -------------------------------------------------------------------------------------------- Deposits not included in premiums Fully above: guaranteed $ 415.7 $ 249.0 $ 263.7 Experience-rated 934.4 1,064.3 979.4 Non-guaranteed 2,019.4 1,340.5 1,040.1 -------------- --------- --------- --------- Total $ 3,369.5 $ 2,653.8 $ 2,283.2 --------------------------------------- -------------- --------- --------- --------- Assets under management: (1) Fully guaranteed $ 2,789.4 $ 1,999.1 $ 1,758.0 Experience-rated 9,034.5 7,803.2 7,801.1 Non-guaranteed 11,400.4 7,982.9 7,041.4 -------------- --------- --------- --------- Total $23,224.3 $17,785.2 $16,600.5 --------------------------------------- -------------- --------- --------- ---------
(1) Included above are net unrealized capital gains (losses) of $689.9 million, $(337.7) million and $646.2 million at December 31, 1995, 1994 and 1993, respectively. Adjusted earnings in the Financial Services segment (after-tax) follow (in millions):
1995 1994 1993 ------ ----- ------ Net Income $113.8 $85.5 $86.8 Less: Net realized capital gains 24.6 0.9 5.9 ------ ----- ------ Adjusted earnings $ 89.2 $84.6 $80.9 ====== ===== ======
Effective January 1, 1995 the Company assumed responsibility for two service organizations, a plan administration service organization and a payment and retiree administration service organization, from an affiliate, with year- 30 to-date combined adjusted income of $0.2 million. As a result, other income and operating expenses include $39.1 million and $38.8 million, respectively, for the year ended December 31, 1995. Adjusted earnings increased 5% in both 1995 and 1994. The 1995 improvement in adjusted earnings reflected an increase in charges assessed against policyholders and increased net investment income related to the growth in assets under management which were partially offset by an increase in operating expenses. The 1994 improvement in adjusted earnings reflected an increase in assets under management offset in part by an increase in operating expenses. Premiums, related to annuity contracts containing life contingencies, increased by 18% in 1995, following a 119% increase in 1994. The 1995 and 1994 increases resulted primarily from increases in immediate annuity sales. Deposits, related to annuity contracts not containing life contingencies, reflected a 27% increase in 1995 following a 16% increase in 1994. Deposits in 1995 included the assumption of a $300.1 million variable annuity block of business from an unaffiliated insurer. Deposits in 1994 included the $205.0 million acquisition of a block of primarily individual annuity business from an unaffiliated insurer. Charges assessed against policyholders for certain annuity contracts increased by 19% and 16% in 1995 and 1994, respectively, reflecting the increase in assets under management. Net investment income increased by 10% in 1995, reflecting the increase in assets under management. Net investment income increased by 1% in 1994, reflecting the increase in assets under management offset by a downward trend in the net investment yield on the Company's portfolio of investments. Current and future benefits increased by 10% and 3% in 1995 and 1994, respectively, reflecting the increase in assets under management. Operating expenses, excluding the impact of moving the two service organizations into the Company as discussed above, increased by 23% in 1995 and 19% in 1994. The 1995 increase primarily reflects continued business growth. The 1994 increase primarily reflected expenses associated with the implementation of the new contract administration system. Assets under management, excluding the effect of FAS 115, at December 31, 1995 of $22.5 billion, were 24% above 1994 levels, primarily reflecting continued business growth and overall improvement in the stock and bond markets. Outlook Sales of tax-qualified annuities are expected to continue to be strong in 1996. Sales of non-qualified products are expected to significantly exceed 1995 levels as relationships formed with broker/dealers and banks in 1995 build sales momentum. The Company intends to expand its retirement planning capabilities. The Company expects to evaluate opportunities for growth of its financial services businesses and strengthen their competitive position. Life Insurance Segment
Operating Summary (millions) 1995 1994 1993 ------------------------------------------------------- -------- -------- -------- Premiums $ 48.2 $ 54.0 $ 50.1 Charges assessed against policyholders 168.5 152.4 142.1 Net investment income 181.0 171.3 172.7 Net realized capital gains 3.5 0.1 0.4 Other income 6.6 8.3 6.4 ------------------------------------------------------- -------- -------- -------- Total revenue 407.8 386.1 371.7 ------------------------------------------------------- -------- -------- -------- Current and future benefits 210.9 214.2 194.3 Operating expenses 62.2 58.3 58.2 Amortization of deferred policy acquisition costs 32.8 16.8 21.2 ------------------------------------------------------- -------- -------- -------- Total benefits and expenses 305.9 289.3 273.7 ------------------------------------------------------- -------- -------- -------- Income before federal income taxes 101.9 96.8 98.0 Federal income taxes 39.8 37.0 41.9 ------------------------------------------------------- -------- -------- -------- Net income $ 62.1 $ 59.8 $ 56.1 ======================================================= ======== ======== ======== 31 Operating Summary (millions) 1995 1994 1993 ------------------------------------------------------- -------- -------- -------- ---------------------------------------------------------------------------------------- Deposits not included in premiums above: Experience-rated $ 493.6 $ 287.1 $ 237.4 Non-guaranteed 39.7 25.4 22.4 -------------- -------- -------- -------- Total $ 533.3 $ 312.5 $ 259.8 -------------------------------------- -------------- -------- -------- -------- Assets under management: (1) Fully guaranteed $ 610.2 $ 621.2 $ 665.5 Experience-rated 1,965.4 1,468.8 1,440.4 Non-guaranteed 122.5 81.7 69.6 -------------- -------- -------- -------- Total $2,698.1 $2,171.7 $2,175.5 -------------------------------------- -------------- -------- -------- --------
(1) Included above are net unrealized capital gains (losses) of $107.2 million, $(48.7) million and $100.9 million at December 31, 1995, 1994 and 1993, respectively. Adjusted earnings in the Life Insurance segment (after-tax) follow (in millions):
1995 1994 1993 ----- ----- ------ Net Income $62.1 $59.8 $56.1 Less: Net realized capital gains 2.2 0.1 0.3 ----- ----- ------ Adjusted earnings $59.9 $59.7 $55.8 ===== ===== ======
Adjusted earnings in 1995 remained level with the prior year adjusted earnings, reflecting an increase in the volume of business in force as a result of strong sales offset by an increase in operating expenses. Adjusted earnings in 1994 increased 7% when compared to 1993 adjusted earnings. The 1994 adjusted earnings improvement reflected higher business in force offset in part by lower net investment income. Premiums, related to term and whole life insurance, decreased by 11% in 1995 following an 8% increase in 1994. The decrease in premiums in 1995 is primarily due to lower whole life insurance premiums. Deposits, related to universal life and interest-sensitive whole life insurance, grew by 71% and 20% in 1995 and 1994, respectively. Deposits in 1995 included the assumption of a $172.4 million universal life block of business from an unaffiliated insurer and also reflected strong first year sales and retention. The increase in premiums and deposits in 1994 reflected strong first year sales and retention. Charges assessed against policyholders for universal life and interest-sensitive whole life insurance increased 11% in 1995 and 7% in 1994 reflecting an increase in the volume of business in force. Net investment income increased by 6% in 1995, reflecting an increase in universal life assets under management offset in part by the downward trend in the net investment yield on the Company's portfolio of investments. Net investment income decreased 1% in 1994, reflecting the downward trend in the net investment yield on the Company's portfolio of investments, offset by the increase in universal life assets under management. Current and future benefits decreased 2% in 1995 following a 10% increase in 1994, reflecting improved mortality experience related to universal life insurance. The increase in 1994 reflected higher mortality related to universal life insurance. Amortization of deferred policy acquisition costs increased by 95% in 1995, reflecting the growth in current and estimated future gross profit margins related to universal life insurance. Amortization of deferred policy acquisition costs decreased 21% in 1994, primarily reflecting lower mortality margins related to universal life insurance. Operating expenses increased 7% in 1995, reflecting continued business growth. Operating expenses were level in 1994, reflecting savings from previous restructurings. Assets under management, excluding the effect of FAS 115, at December 31, 1995 of $2.6 billion, were 17% above 1994 levels, primarily reflecting continued business growth and overall improvement in the stock and bond markets. 32 Outlook Sales of life products through traditional channels (managing general agents and regional brokers) are expected to continue to be strong in 1996. Sales of life products through non-traditional distribution channels (banks, broker/ dealers, worksite), are expected to significantly exceed 1995 levels as the Company's retirement planning emphasis begins to build momentum. 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 experience-rated products are assumed by those customers subject to, among other things, certain minimum guarantees.
(Millions) 1995 1994 ----------------------------------------------- --------- ---------- Debt securities $12,720.8 $10,191.4 Equity securities: Non-redeemable preferred stock 57.6 47.2 Investment in affiliated mutual funds 191.8 181.9 Common stock 8.2 -- Short-term investments 15.1 98.0 Mortgage loans 21.2 9.9 Policy loans 338.6 248.7 Limited partnership -- 24.4 --------- ---------- Total Investments 13,353.3 10,801.5 Cash and cash equivalents 568.8 623.3 --------- ---------- Total Investments and Cash and Cash Equivalents $13,922.1 $11,424.8 =============================================== ========= ==========
At December 31, 1995 and 1994, the Company's carrying value of investments in debt securities were $12.7 billion and $10.2 billion, 95% and 94%, respectively, of total general account invested assets. At December 31, 1995 and 1994, $10.0 billion and $8.0 billion, 79% and 78%, 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 was AA- at December 31, 1995 and AA at December 31, 1994.
Debt Securities Quality Ratings Debt Securities Investments by Market Sector 12/31/95 12/31/95 - - ---------------------------------------- ------------------------------------------------- AAA 46.0% U.S. Corporate Securities 44.7% AA 11.7 Residential Mortgage-Backed Securities 25.2 A Foreign Securities--U.S. Dollar 25.4 Denominated 11.1 BBB 11.7 Asset-Backed Securities 7.9 BB 4.0 Commercial/Multifamily Mortgage- B and Below 1.2 Backed Securities 6.1 ------ 100.0% U.S. Treasuries/Agencies 4.6 ====== Other 0.4 ------ 100.0% ======
33
Debt Securities Quality Ratings Debt Securities Investments by Market Sector 12/31/94 12/31/94 - - ---------------------------------------- ------------------------------------------------- AAA 56.7% U.S. Corporate Securities 34.2% AA 8.3 Residential Mortgage-Backed Securities 32.1 A 23.3 U.S. Treasuries/Agencies 12.9 BBB Foreign Securites--U.S. Dollar 8.5 Denominated 9.7 BB 2.5 Asset-Backed Securities 6.7 B and Below 0.7 Commercial/Multifamily Mortgage- ------ 100.0% Backed Securities 4.0 ====== Other 0.4 ------ 100.0% ======
In 1995, as a result of a change in investment strategy, the Company reduced its investments in U.S. Treasuries/ Agencies and residential mortgage-backed securities and increased its investments in U.S. Corporate securities (see Note 2 of the Notes to the Consolidated Financial Statements). Investments in U.S. dollar denominated foreign corporations and governments, asset-backed, and commercial/multifamily mortgage-backed securities also increased. Asset-backed securities (securities backed by auto loans, credit card receivables, etc.) and commercial/ multifamily mortgage-backed securities (securitized pools of mortgages) are predominantly AAA rated, and are not subject to the prepayment risk of residential mortgage-backed securities. Outlook In 1996, the Company does not anticipate any major changes in market sector weightings, but will continue to marginally increase exposure to diversifying asset classes, such as securitized commercial mortgage-backed securities. The average quality rating of the Company's portfolio is not expected to change significantly. Duration is anticipated to remain fairly constant and will be monitored and maintained in line with liability duration to minimize interest rate risk. Liquidity and Capital Resources
(Millions) 1995 1994 1993 ---------- --------- ----------- Assets $27,144.9 $20,934.1 $20,135.7 ========== ========= =========== Shareholder's Equity $ 1,583.0 $ 1,088.5 $ 1,246.7 ========== ========= =========== Net Cash provided by Operating Activities $ 309.1 $ 206.6 $ 179.5 ========== ========= =========== Net Cash used for Investing Activities $(1,135.6) $ (908.5) $(1,151.5) ========== ========= =========== Net Cash provided by Financing Activities $ 772.0 $ 789.1 $ 1,117.5 ========== ========= =========== Cash and Cash Equivalents $ 568.8 $ 623.3 $ 536.1 ========== ========= ===========
The consolidated assets and shareholder's equity amounts for the years ended December 31, 1995, 1994 and 1993 reflect the implementation of FAS 115. See Notes 1 and 3 of Notes to Consolidated Financial Statements. Liquidity needs of the Company's businesses have generally been 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, fund withdrawals and operating expenses. Bonds, redeemable preferred stocks and mortgage loans have durations that were selected to approximate the durations of the liabilities they support. The general account of the Company has been segmented to improve the asset/ liability matching process. 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. As the Company's investment strategy focuses on matching asset and liability durations, and not specific cash flows, and additionally, since these duration assessments are dependent on numerous cash flow assumptions, asset sales may be required, from time to time, to satisfy liability obligations and/or rebalance asset portfolios. The investment 34 portfolios are closely monitored to assess asset and liability matching in order to rebalance the portfolios as conditions warrant. The Company has several alternatives available to meet any such unanticipated demands should they occur. These include liquidating the Company's substantial cash and cash equivalents or selling liquid, high quality mortgage- backed securities and corporate bonds. The Company's cash flow requirements for 1995 and 1994 were met by funds provided from operations and from the maturity and sale of investments. The Company has no debt. There were no capital contributions in 1995, 1994 or 1993. (See Note 8 of Notes to Consolidated Financial Statements). The amount of dividends that 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 $70.0 million in dividend distributions in 1996. Liquidity needs of the Company's businesses have generally been 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, fund withdrawals and operating expenses. 35 CONSOLIDATED FINANCIAL STATEMENTS Aetna Life Insurance and Annuity Company and Subsidiaries Index
Page Independent Auditors' Report F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993 F-3 Consolidated Balance Sheets as of December 31, 1995 and 1994 F-4 Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1995, 1994 and 1993 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-6 Notes to Consolidated Financial Statements F-8
F-1 Independent Auditors' Report The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, 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, 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. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its methods of accounting for certain investments in debt and equity securities. KPMG Peat Marwick LLP Hartford, Connecticut February 6, 1996 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Income (millions)
Years Ended December 31, ---------------------------- 1995 1994 1993 ------ ------ ------- Revenue: Premiums $ 130.8 $ 124.2 $ 82.1 Charges assessed against policyholders 318.9 279.0 251.5 Net investment income 1,004.3 917.2 911.9 Net realized capital gains 41.3 1.5 9.5 Other income 42.0 10.3 9.5 ------- ------- -------- Total revenue 1,537.3 1,332.2 1,264.5 ------- ------- -------- Benefits and expenses: Current and future benefits 915.3 854.1 818.4 Operating expenses 318.7 235.2 207.2 Amortization of deferred policy acquisition costs 43.3 26.4 19.8 ------- ------- -------- Total benefits and expenses 1,277.3 1,115.7 1,045.4 ------- ------- -------- Income before federal income taxes 260.0 216.5 219.1 Federal income taxes 84.1 71.2 76.2 ------- ------- -------- Net income $ 175.9 $ 145.3 $ 142.9 ======= ======= ========
See Notes to Consolidated Financial Statements. F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Balance Sheets (millions)
December 31, ---------------------- Assets 1995 1994 - - -------------------------------------------------------------- -------- ---------- Investments: Debt securities, available for sale: (amortized cost: $11,923.7 and $10,577.8) $12,720.8 $10,191.4 Equity securities, available for sale: Non-redeemable preferred stock (cost: $51.3 and $43.3) 57.6 47.2 Investment in affiliated mutual funds (cost: $173.4 and $187.1) 191.8 181.9 Common stock (cost: $6.9 at December 31, 1995) 8.2 -- Short-term investments 15.1 98.0 Mortgage loans 21.2 9.9 Policy loans 338.6 248.7 Limited partnership -- 24.4 --------- --------- Total investments 13,353.3 10,801.5 Cash and cash equivalents 568.8 623.3 Accrued investment income 175.5 142.2 Premiums due and other receivables 37.3 75.8 Deferred policy acquisition costs 1,341.3 1,164.3 Reinsurance loan to affiliate 655.5 690.3 Other assets 26.2 15.9 Separate Accounts assets 10,987.0 7,420.8 --------- --------- Total assets $27,144.9 $20,934.1 ========= ========= Liabilities and Shareholder's Equity - - -------------------------------------------------------------- Liabilities: Future policy benefits $ 3,594.6 $ 2,912.7 Unpaid claims and claim expenses 27.2 23.8 Policyholders' funds left with the Company 10,500.1 8,949.3 --------- --------- Total insurance reserve liabilities 14,121.9 11,885.8 Other liabilities 259.2 302.1 Federal income taxes: Current 24.2 3.4 Deferred 169.6 233.5 Separate Accounts liabilities 10,987.0 7,420.8 --------- --------- Total liabilities 25,561.9 19,845.6 --------- --------- Shareholder's equity: Common stock, par value $50 (100,000 shares authorized; 55,000 shares issued and outstanding) 2.8 2.8 Paid-in capital 407.6 407.6 Net unrealized capital gains (losses) 132.5 (189.0) Retained earnings 1,040.1 867.1 --------- --------- Total shareholder's equity 1,583.0 1,088.5 --------- --------- Total liabilities and shareholder's equity $27,144.9 $20,934.1 ========= =========
See Notes to Consolidated Financial Statements. F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
Years Ended December 31, ------------------------------ 1995 1994 1993 ------- ------- -------- Shareholder's equity, beginning of year $1,088.5 $1,246.7 $ 990.1 Net change in unrealized capital gains (losses) 321.5 (303.5) 113.7 Net income 175.9 145.3 142.9 Common stock dividends declared (2.9) -- -- -------- ------- -------- Shareholder's equity, end of year $1,583.0 $1,088.5 $1,246.7 ======== ======== ========
See Notes to Consolidated Financial Statements. F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Cash Flows (millions)
Years Ended December 31, ---------------------------------- 1995 1994 1993 -------- -------- ---------- Cash Flows from Operating Activities: Net income $ 175.9 $ 145.3 $ 142.9 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income (33.3) (17.5) (11.1) Decrease (increase) in premiums due and other receivables 25.4 1.3 (5.6) Increase in policy loans (89.9) (46.0) (36.4) Increase in deferred policy acquisition costs (177.0) (105.9) (60.5) Decrease in reinsurance loan to affiliate 34.8 27.8 31.8 Net increase in universal life account balances 393.4 164.7 126.4 Increase in other insurance reserve liabilities 79.0 75.1 86.1 Net increase in other liabilities and other assets 15.0 53.9 7.0 Decrease in federal income taxes (6.5) (11.7) (3.7) Net accretion of discount on bonds (66.4) (77.9) (88.1) Net realized capital gains (41.3) (1.5) (9.5) Other, net -- (1.0) 0.2 --------- --------- ---------- Net cash provided by operating activities 309.1 206.6 179.5 --------- --------- ---------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale 4,207.2 3,593.8 473.9 Equity securities 180.8 93.1 89.6 Mortgage loans 10.7 -- -- Limited partnership 26.6 -- -- Investment maturities and collections of: Debt securities available for sale 583.9 1,289.2 2,133.3 Short-term investments 106.1 30.4 19.7 Cost of investment purchases in: Debt securities (6,034.0) (5,621.4) (3,669.2) Equity securities (170.9) (162.5) (157.5) Short-term investments (24.7) (106.1) (41.3) Mortgage loans (21.3) -- -- Limited partnership -- (25.0) -- --------- --------- ---------- Net cash used for investing activities (1,135.6) (908.5) (1,151.5) --------- --------- ----------
See Notes to Consolidated Financial Statements. F-6 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Cash Flows (continued) (millions)
Years Ended December 31, --------------------------------- 1995 1994 1993 -------- ------- ---------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts $ 1,884.5 $1,737.8 $ 2,117.8 Withdrawals of investment contracts (1,109.6) (948.7) (1,000.3) Dividends paid to shareholder (2.9) -- -- --------- -------- --------- Net cash provided by financing activities 772.0 789.1 1,117.5 --------- -------- --------- Net (decrease) increase in cash and cash equivalents (54.5) 87.2 145.5 Cash and cash equivalents, beginning of year 623.3 536.1 390.6 --------- -------- --------- Cash and cash equivalents, end of year $ 568.8 $ 623.3 $ 536.1 ========= ======== ========= Supplemental cash flow information: Income taxes paid, net $ 90.2 $ 82.6 $ 79.9 ========= ======== =========
See Notes to Consolidated Financial Statements. F-7 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements December 31, 1995, 1994, and 1993 1. Summary of Significant Accounting Policies Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries (collectively, the "Company") is a provider of financial services and life insurance products in the United States. The Company has two business segments, financial services and life insurance. The financial services products include individual and group annuity contracts which offer a variety of funding and distribution options for personal and employer-sponsored retirement plans that qualify under Internal Revenue Code Sections 401, 403, 408 and 457, and individual and group non-qualified annuity contracts. These contracts may be immediate or deferred and are offered primarily to individuals, pension plans, small businesses and employer-sponsored groups in the health care, government, education (collectively "not-for-profit" organizations) and corporate markets. Financial services also include pension plan administrative services. The life insurance products include universal life, variable universal life, interest sensitive whole life and term insurance. These products are offered primarily to individuals, small businesses, employer sponsored groups and executives of Fortune 2000 companies. Basis of Presentation The consolidated financial statements include Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna Investment Services, Inc. ("AISI"), which were previously reported in the consolidated financial statements were distributed in the form of dividends to ARSI in December of 1995. The impact to the Company's financial statements of distributing these dividends was immaterial. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions have been eliminated. Certain reclassifications have been made to 1994 and 1993 financial information to conform to the 1995 presentation. Accounting Changes Accounting for Certain Investments in Debt and Equity Securities On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, which requires the classification of debt securities into three categories: "held to maturity", which are carried at amortized cost; "available for sale", which are carried at fair value with changes in fair value recognized as a component of shareholder's equity; and "trading", which are carried at fair value with immediate recognition in income of changes in fair value. F-8 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Initial adoption of this standard resulted in a net increase of $106.8 million, net of taxes of $57.5 million, to net unrealized gains in shareholder's equity. These amounts exclude gains and losses allocable to experience-rated (including universal life) contractholders. Adoption of FAS No. 115 did not have a material effect on deferred policy acquisition costs. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of ninety days or less when purchased. Investments Debt Securities At December 31, 1995 and 1994, all of the Company's debt securities are classified as available for sale and carried at fair value. These securities are written down (as realized losses) for other than temporary decline in value. Unrealized gains and losses related to these securities, after deducting amounts allocable to experience-rated contractholders and related taxes, are reflected in shareholder's equity. Fair values for debt securities are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair values are measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Cost for mortgage-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. Purchases and sales of debt securities are recorded on the trade date. Equity Securities Equity securities are classified as available for sale and carried at fair value based on quoted market prices or dealer quotations. Equity securities are written down (as realized losses) for other than temporary declines in value. Unrealized gains and losses related to such securities are reflected in shareholder's equity. Purchases and sales are recorded on the trade date. The investment in affiliated mutual funds represents an investment in the Aetna Series Fund, Inc., a retail mutual fund which has been seeded by the Company, and is carried at fair value. F-9 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Mortgage Loans and Policy Loans Mortgage loans and policy loans are carried at unpaid principal balances net of valuation reserves, which approximates fair value, and are generally secured. Purchases and sales of mortgage loans are recorded on the closing date. Limited Partnership The Company's limited partnership investment was carried at the amount invested plus the Company's share of undistributed operating results and unrealized gains (losses), which approximates fair value. The Company disposed of the limited partnership during 1995. Short-Term Investments Short-term investments, consisting primarily of money market instruments and other debt issues purchased with an original maturity of over ninety days and less than one year, are considered available for sale and are carried at fair value, which approximates amortized cost. Deferred Policy Acquisition Costs Certain costs of acquiring insurance business have been deferred. These costs, all of which vary with and are primarily related to the production of new 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. For universal life and certain annuity contracts, such costs are amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits. These costs are amortized over twenty years for annuity pension contracts, and over the contract period for universal life contracts. Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits would not be adequate to cover related losses and expenses. Insurance Reserve Liabilities The Company's liabilities include reserves related to fixed ordinary life, fixed universal life and fixed annuity contracts. Reserves for future policy benefits for fixed ordinary life contracts are computed on the basis of assumed investment yield, assumed mortality, withdrawals and expenses, including a margin for adverse deviation, which generally vary by plan, year of issue and policy duration. Reserve interest rates range from 2.25% to 10.00%. Assumed 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. Reserves for fixed universal life (included in Future Policy Benefits) and fixed deferred annuity contracts (included in Policyholders' Funds Left With the Company) are equal to the fund value. The fund F-10 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) value is equal to cumulative deposits less charges plus credited interest thereon, without reduction for possible future penalties assessed on premature withdrawal. For guaranteed interest options, the interest credited ranged from 4.00% to 6.38% in 1995 and 4.00% to 5.85% in 1994. For all other fixed options, the interest credited ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994. Reserves for fixed annuity contracts in the annuity period and for future amounts due under settlement options are computed actuarially using the 1971 Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table, the 1983 Group Annuity Mortality Table and, in some cases, mortality improvement according to scales G and H, at assumed interest rates ranging from 3.5% to 9.5%. Reserves relating to contracts with life contingencies are included in Future Policy Benefits. For other contracts, the reserves are reflected in Policyholders' Funds Left With the Company. Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported. Premiums, Charges Assessed Against Policyholders, Benefits and Expenses Premiums are recorded as revenue when due for fixed ordinary life contracts. Charges assessed against policyholders' funds for cost of insurance, surrender charges, actuarial margin and other fees are recorded as revenue for universal life and certain annuity contracts. Policy benefits and expenses are recorded in relation to the associated premiums or gross profit so as to result in recognition of profits over the expected lives of the contracts. Separate Accounts Assets held under variable universal life, variable 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 Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna Series Fund Inc., 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 which is offered through a Separate Account. The assets of the Separate Account supporting the guaranteed interest option are carried at an amortized cost of $322.2 million for 1995 (fair value $343.9 million) and $149.7 million for 1994 (fair value $146.3 million), since the Company bears the investment risk where the contract is held to maturity. Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 4.5% to 8.38% in both 1995 and 1994. Separate Accounts assets and liabilities are shown as separate captions in the Consolidated Balance Sheets. Deposits, investment income and net realized and unrealized capital gains (losses) of the Separate Accounts are not reflected in the Consolidated Statements of Income (with the exception of realized capital gains (losses) on the sale of assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. F-11 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) Federal Income Taxes The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. 2. Investments Investments in debt securities available for sale as of December 31, 1995 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- -------- -------- --------- (millions) U.S. Treasury securities and obligations of $ U.S. government agencies and corporations $ 539.5 $ 47.5 -- $ 587.0 Obligations of states and political subdivisions 41.4 12.4 -- 53.8 U.S. Corporate securities: Financial 2,764.4 110.3 2.1 2,872.6 Utilities 454.4 27.8 1.0 481.2 Other 2,177.7 159.5 1.2 2,336.0 --------- ------ ------ -------- Total U.S. Corporate securities 5,396.5 297.6 4.3 5,689.8 Foreign securities: Government 316.4 26.1 2.0 340.5 Financial 534.2 45.4 3.5 576.1 Utilities 236.3 32.9 -- 269.2 Other 215.7 15.1 -- 230.8 --------- ------ ------ -------- Total Foreign securities 1,302.6 119.5 5.5 1,416.6 Residential mortgage-backed securities: Residential pass-throughs 556.7 99.2 1.8 654.1 Residential CMOs 2,383.9 167.6 2.2 2,549.3 --------- ------ ------ -------- Total Residential mortgage-backed securities 2,940.6 266.8 4.0 3,203.4 Commercial/Multifamily mortgage-backed securities 741.9 32.3 0.2 774.0 --------- ------ ------ -------- Total Mortgage-backed securities 3,682.5 299.1 4.2 3,977.4 Other asset-backed securities 961.2 35.5 0.5 996.2 --------- ------ ------ -------- Total debt securities available for sale $11,923.7 $811.6 $ 14.5 $12,720.8 ========= ====== ====== =========
F-12 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) Investments in debt securities available for sale as of December 31, 1994 were as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- -------- -------- --------- (millions) U.S. Treasury securities and obligations of $ U.S. government agencies and corporations 1,396.1 $ 2.0 $ 84.2 $ 1,313.9 Obligations of states and political subdivisions 37.9 1.2 -- 39.1 U.S. Corporate securities: Financial 2,216.9 3.8 109.4 2,111.3 Utilities 100.1 -- 7.9 92.2 Other 1,344.3 6.0 67.9 1,282.4 --------- ------ ------ --------- Total U.S. Corporate securities 3,661.3 9.8 185.2 3,485.9 Foreign securities: Government 434.4 1.2 33.9 401.7 Financial 368.2 1.1 23.0 346.3 Utilities 204.4 2.5 9.5 197.4 Other 46.3 0.8 1.5 45.6 --------- ------ ------ --------- Total Foreign securities 1,053.3 5.6 67.9 991.0 Residential mortgage-backed securities: Residential pass-throughs 627.1 81.5 5.0 703.6 Residential CMOs 2,671.0 32.9 139.4 2,564.5 --------- ------ ------ --------- Total Residential mortgage-backed securities 3,298.1 114.4 144.4 3,268.1 Commercial/Multifamily mortgage-backed securities 435.0 0.2 21.3 413.9 --------- ------ ------ --------- Total Mortgage-backed securities 3,733.1 114.6 165.7 3,682.0 Other asset-backed securities 696.1 0.2 16.8 679.5 --------- ------ ------ --------- Total debt securities available for sale $10,577.8 $133.4 $519.8 $10,191.4 ========= ====== ====== =========
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of $797.1 million and $(386.4) million, respectively, on available for sale debt securities included $619.1 million and $(308.6) million, respectively, related to experience-rated contractholders, which were not included in shareholder's equity. The amortized cost and fair value of debt securities for the year ended December 31, 1995 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid. F-13 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued)
Amortized Fair Cost Value -------- --------- (millions) Due to mature: One year or less $ 348.8 $ 351.1 After one year through five years 2,100.2 2,159.5 After five years through ten years 2,516.0 2,663.4 After ten years 2,315.0 2,573.2 Mortgage-backed securities 3,682.5 3,977.4 Other asset-backed securities 961.2 996.2 --------- --------- Total $11,923.7 $12,720.8 ========= =========
The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Cash collateral, which is in excess of the market value of the loaned securities, is deposited by the borrower with a lending agent, and retained and invested by the lending agent to generate additional income for the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value fluctuates. At December 31, 1995, the Company had loaned securities (which are reflected as invested assets on the Consolidated Balance Sheets) with a market value of approximately $264.5 million. At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0 million, respectively, were on deposit as required by regulatory authorities. The valuation reserve for mortgage loans was $3.1 million at December 31, 1994. There was no valuation reserve for mortgage loans at December 31, 1995. The carrying value of non-income producing investments was $0.1 million and $0.2 million at December 31, 1995 and 1994, respectively. 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, 1995 are as follows:
Amortized Fair Debt Securities Cost Value ------- -------- (millions) General Electric Corporation $ $ 314.9 329.3 General Motors Corporation 273.9 284.5 Associates Corporation of North America 230.2 239.1 Society National Bank 203.5 222.3 Ciesco, L.P. 194.9 194.9 Countrywide Funding 171.2 172.7 Baxter International 168.9 168.9 Time Warner 158.6 166.1 Ford Motor Company 156.7 162.6
F-14 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) The portfolio of debt securities at December 31, 1995 and 1994 included $662.5 million and $318.3 million, respectively, (5% and 3%, respectively, of the debt securities) of investments that are considered "below investment grade". "Below investment grade" securities are defined to be securities that carry a rating below BBB-/Baa3, by Standard & Poors/Moody's Investor Services, respectively. The increase in below investment grade securities is the result of a change in investment strategy, which has reduced the Company's holdings in residential mortgage-back securities and increased the Company's holdings in corporate securities. Residential mortgage-back securities are subject to higher prepayment risk and lower credit risk, while corporate securities earning a comparable yield are subject to higher credit risk and lower prepayment risk. We expect the percentage of below investment grade securities will increase in 1996, but we expect that the overall average quality of the portfolio of debt securities will remain at AA-. Of these below investment grade assets, $14.5 million and $31.8 million, at December 31, 1995 and 1994, respectively, were investments that were purchased at investment grade, but whose ratings have since been downgraded. Included in residential mortgage-back securities are collateralized mortgage obligations ("CMOs") with carrying values of $2.5 billion and $2.6 billion at December 31, 1995 and 1994, respectively. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates whereby the CMOs would be subject to repayments of principal earlier or later than originally anticipated. At December 31, 1995 and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings consisted of sequential and planned amortization class debt securities which are subject to less prepayment and extension risk than other CMO instruments. At December 31, 1995 and 1994, approximately 81% and 82%, respectively, of the Company's CMO holdings were collateralized by residential mortgage loans, on which the timely payment of principal and interest was backed by specified government agencies (e.g., GNMA, FNMA, FHLMC). If due to declining interest rates, principal was to be repaid earlier than originally anticipated, the Company could be affected by a decrease in investment income due to the reinvestment of these funds at a lower interest rate. Such prepayments may result in a duration mismatch between assets and liabilities which could be corrected as cash from prepayments could be reinvested at an appropriate duration to adjust the mismatch. Conversely, if due to increasing interest rates, principal was to be repaid slower than originally anticipated, the Company could be affected by a decrease in cash flow which reduces the ability to reinvest expected principal repayments at higher interest rates. Such slower payments may result in a duration mismatch between assets and liabilities which could be corrected as available cash flow could be reinvested at an appropriate duration to adjust the mismatch. At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of the Company's CMO holdings consisted of interest-only strips ("IOs") or principal-only strips ("POs"). IOs receive payments of interest and POs receive payments of principal on the underlying pool of mortgages. The risk inherent in holding POs is extension risk related to dramatic increases in interest rates whereby F-15 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 2. Investments (Continued) the future payments due on POs could be repaid much slower than originally anticipated. The extension risks inherent in holding POs was mitigated somewhat by offsetting positions in IOs. During dramatic increases in interest rates, IOs would generate more future payments than originally anticipated. The risk inherent in holding IOs is prepayment risk related to dramatic decreases in interest rates whereby future IO cash flows could be much less than originally anticipated and in some cases could be less than the original cost of the IO. The risks inherent in IOs are mitigated somewhat by holding offsetting positions in POs. During dramatic decreases in interest rates POs would generate future cash flows much quicker than originally anticipated. Investments in available for sale equity securities were as follows:
Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value --------- --------- --------- ----------- (millions) 1995 --------------------- Equity Securities $ 231.6 $27.2 $1.2 $ 257.6 ------- ----- ---- ------- 1994 --------------------- Equity Securities $ 230.5 $ 6.5 $7.9 $ 229.1 ------ ----- ---- -------
3. Capital Gains and Losses on Investment Operations Realized capital gains or losses are the difference between proceeds received from investments sold or prepaid, and amortized cost. Net realized capital gains as reflected in the Consolidated Statements of Income are after deductions for net realized capital gains (losses) allocated to experience-rated contracts of $61.1 million, $(29.1) million and $(54.8) million for the years ended December 31, 1995, 1994, and 1993, respectively. Net realized capital gains (losses) allocated to experience-rated contracts are deferred and subsequently reflected in credited rates on an amortized basis. Net unamortized gains (losses), reflected as a component of Policyholders' Funds Left With the Company, were $7.3 million and $(50.7) million at the end of December 31, 1995 and 1994, respectively. Changes to the mortgage loan valuation reserve and writedowns on debt securities are included in net realized capital gains (losses) and amounted to $3.1 million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million and $(91.5) million were allocable to experience-rated contractholders, for the years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were primarily related to writedowns of interest-only mortgage-backed securities to their fair value. Net realized capital gains (losses) on investments, net of amounts allocated to experience-rated contracts, were as follows: F-16 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 3. Capital Gains and Losses on Investment Operations (Continued)
1995 1994 1993 ---- ---- ---- (millions) Debt securities $32.8 $1.0 $ 9.6 Equity securities 8.3 0.2 0.1 Mortgage loans 0.2 0.3 (0.2) ----- ---- ----- Pretax realized capital gains $41.3 $1.5 $ 9.5 ----- ---- ----- After-tax realized capital gains $25.8 $1.0 $ 6.2 ===== ==== =====
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses of $11.8 million, $25.6 million and $23.7 million were realized from the sales of investments in debt securities in 1995, 1994 and 1993, respectively. Changes in unrealized capital gains (losses), excluding changes in unrealized capital gains (losses) related to experience-rated contracts, for the years ended December 31, were as follows:
1995 1994 1993 ----- ------- ------- (millions) Debt securities $255.9 $(242.1) $164.3 Equity securities 27.3 (13.3) 10.6 Limited partnership 1.8 (1.8) -- ------ ------ ------ 285.0 (257.2) 174.9 Deferred federal income taxes (See Note 6) (36.5) 46.3 61.2 ------ ------ ------ Net change in unrealized capital gains (losses) $321.5 $(303.5) $113.7 ====== ======= ======
Net unrealized capital gains (losses) allocable to experience-rated contracts of $515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and $(47.7) million at December 31, 1994 are reflected on the Consolidated Balance Sheet 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 unrealized capital gains (losses), which are net of amounts allocable to experience-rated contractholders, at December 31:
1995 1994 1993 ----- ------ ------- (millions) Debt securities Gross unrealized capital gains $179.3 $ 27.4 $164.3 Gross unrealized capital losses (1.3) (105.2) -- ------ ------- ------ 178.0 (77.8) 164.3
F-17 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 3. Capital Gains and Losses on Investment Operations (Continued)
1995 1994 1993 ----- ------- ------ (millions) Equity securities Gross unrealized capital gains $ 27.2 $ 6.5 $ 12.0 Gross unrealized capital losses (1.2) (7.9) (0.1) ------ ------- ------ 26.0 (1.4) 11.9 Limited Partnership Gross unrealized capital gains -- -- -- Gross unrealized capital losses -- (1.8) -- ------ ------- ------ -- (1.8) -- Deferred federal income taxes (See Note 6) 71.5 108.0 61.7 ------ ------- ------ Net unrealized capital gains (losses) $132.5 $(189.0) $114.5 ====== ======= ======
4. Net Investment Income Sources of net investment income were as follows:
1995 1994 1993 ------- ----- ------- (millions) Debt securities $ 891.5 $823.9 $828.0 Preferred stock 4.2 3.9 2.3 Investment in affiliated mutual funds 14.9 5.2 2.9 Mortgage loans 1.4 1.4 1.5 Policy loans 13.7 11.5 10.8 Reinsurance loan to affiliate 46.5 51.5 53.3 Cash equivalents 38.9 29.5 16.8 Other 8.4 6.7 7.7 -------- ----- ------ Gross investment income 1,019.5 933.6 923.3 Less investment expenses (15.2) (16.4) (11.4) -------- ----- ------ Net investment income $1,004.3 $917.2 $911.9 ======== ====== ======
Net investment income includes amounts allocable to experience-rated contractholders of $744.2 million, $677.1 million and $661.3 million for the years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to contractholders is included in Current and Future Benefits. 5. Dividend Restrictions and Shareholder's Equity The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. The amount of dividends that may be paid to the shareholder in 1996 without prior approval by the Insurance Commissioner of the State of Connecticut is $70.0 million. F-18 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 5. Dividend Restrictions and Shareholder's Equity (Continued) The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and shareholder's equity 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 $70.0 million, $64.9 million and $77.6 million for the years ended December 31, 1995, 1994 and 1993, respectively. Statutory shareholder's equity was $670.7 million and $615.0 million as of December 31, 1995 and 1994, respectively. At December 31, 1995 and December 31, 1994, the Company does not utilize any statutory accounting practices which are not prescribed by insurance regulators that, individually or in the aggregate, materially affect statutory shareholder's equity. 6. Federal Income Taxes The Company is included in the consolidated federal income tax return of Aetna. Aetna allocates to each member an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes in the consolidated return. In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted which resulted in an increase in the federal corporate tax rate from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA resulted in an increase in the deferred tax liability of $3.4 million at date of enactment, which is included in the 1993 deferred tax expense. Components of income tax expense (benefits) were as follows:
1995 1994 1993 ----- ----- ------- (millions) Current taxes (benefits): Income from operations $ 82.9 $ 78.7 $ 87.1 Net realized capital gains 28.5 (33.2) 18.1 ------ ------ ------ 111.4 45.5 105.2 ------ ------ ------ Deferred taxes (benefits): Income from operations (14.4) (8.0) (14.2) Net realized capital gains (12.9) 33.7 (14.8) ------ ------ ------- (27.3) 25.7 (29.0) ------ ------ ------- Total $ 84.1 $ 71.2 $ 76.2 ====== ====== ======
Income tax expense was different from the amount computed by applying the federal income tax rate to income before federal income taxes for the following reasons: F-19 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 6. Federal Income Taxes (Continued)
1995 1994 1993 ----- ----- ------- (millions) Income before federal income taxes $260.0 $216.5 $219.1 Tax rate 35 35 % % 35 % ------ ------ ------ Application of the tax rate 91.0 75.8 76.7 ------ ------ ------ Tax effect of: Excludable dividends (9.3) (8.6) (8.7) Tax reserve adjustments 3.9 2.9 4.7 Reinsurance transaction (0.5) 1.9 (0.2) Tax rate change on deferred liabilities -- -- 3.7 Other, net (1.0) (0.8) -- ------ ------ ------ Income tax expense $ 84.1 $ 71.2 $ 76.2 ====== ====== ======
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are presented below:
1995 1994 ----- ------- Deferred tax assets: (millions) Insurance reserves $290.4 $211.5 Net unrealized capital losses -- 136.3 Unrealized gains allocable to experience-rated contracts 216.7 -- Investment losses not currently deductible 7.3 15.5 Postretirement benefits other than pensions 7.7 8.4 Other 32.0 28.3 ------ ------ Total gross assets 554.1 400.0 Less valuation allowance -- 136.3 ------ ------ Deferred tax assets, net of valuation 554.1 263.7 Deferred tax liabilities: Deferred policy acquisition costs 433.0 385.2 Unrealized losses allocable to experience-rated contracts -- 108.0 Market discount 4.4 3.6 Net unrealized capital gains 288.2 -- Other (1.9) 0.4 ------ ------ Total gross liabilities 723.7 497.2 ------ ------ Net deferred tax liability $169.6 $233.5 ====== ======
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. At December 31, 1994, $81.0 million of net unrealized capital losses were reflected in shareholder's equity without deferred tax benefits. As of December 31, 1995, no valuation allowance was required for unrealized capital gains and losses. The reversal of the valuation allowance had no impact on net income in 1995. F-20 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 6. Federal Income Taxes (Continued) 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, 1995. 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. The Internal Revenue Service ("Service") has completed examinations of the consolidated federal income tax returns of Aetna through 1986. Discussions are being held with the Service with respect to proposed adjustments. However, management believes there are adequate defenses against, or sufficient reserves to provide for, such challenges. The Service has commenced its examinations for the years 1987 through 1990. 7. Benefit Plans Employee Pension Plans--The Company, in conjunction with Aetna, has non-contributory defined benefit pension plans covering substantially all employees. The plans provide pension benefits based on years of service and average annual compensation (measured over sixty consecutive months of highest earnings in a 120 month period). Contributions are determined using the Projected Unit Credit Method and, for qualified plans subject to ERISA requirements, are limited to the amounts that are currently deductible for tax reporting purposes. The accumulated benefit obligation and plan assets are recorded by Aetna. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Agent Pension Plans--The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Employee Postretirement Benefits--In addition to providing pension benefits, Aetna also provides certain postretirement health care and life insurance benefits, subject to certain caps, for retired employees. Medical and dental benefits are offered to all full-time employees retiring at age 50 with at least 15 years of service or at age 65 with at least 10 years of service. Retirees are required to contribute to the plans based on their years of service with Aetna. The cost to the Company associated with the Aetna postretirement plans for 1995, 1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, respectively. Agent Postretirement Benefits--The Company, in conjunction with Aetna, also provides certain postemployment health care and life insurance benefits for certain agents. The cost to the Company associated to the agents' postretirement plans for 1995, 1994 and 1993 were $0.8 million, $0.7 million and $0.6 million, respectively. F-21 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 7. Benefit Plans (Continued) Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993, respectively. Stock Plans--Aetna has a stock incentive plan that provides for stock options and deferred contingent common stock or cash awards to certain key employees. Aetna also has a stock option plan under which executive and middle management employees of Aetna may be granted options to purchase common stock of Aetna at the market price on the date of grant or, in connection with certain business combinations, may be granted options to purchase common stock on different terms. The cost to the Company associated with the Aetna stock plans for 1995, 1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively. 8. Related Party Transactions The Company is compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance contracts, the Separate Accounts pay the Company a daily fee which, on an annual basis, ranges, depending on the product, from .25% to 1.80% of their average daily net assets. The Company also receives fees from the variable life and annuity mutual funds and The Aetna Series Fund for serving as investment adviser. Under the advisory agreements, the Funds pay the Company a daily fee which, on an annual basis, ranges, depending on the fund, from .25% to 1.00% of their average daily net assets. The advisory agreements also call for the variable funds to pay their own administrative expenses and for The Aetna Series Fund to pay certain administrative expenses. The Company also receives fees (expressed as a percentage of the average daily net assets) from The Aetna Series Fund for providing administration, shareholder services and promoting sales. The amount of compensation and fees received from the Separate Accounts and Funds, included in Charges Assessed Against Policyholders, amounted to $128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993, respectively. The Company may waive advisory fees at its discretion. The Company may, from time to time, make reimbursements to a Fund for some or all of its operating expenses. Reimbursement arrangements may be terminated at any time without notice. Since 1981, all domestic individual non-participating life insurance of Aetna and its subsidiaries has been issued by the Company. Effective December 31, 1988, the Company entered into a reinsurance agreement with Aetna Life Insurance Company ("Aetna Life") in which substantially all of the non- participating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. A $108.0 million commission, paid by the Company to Aetna Life in 1988, was capitalized as deferred policy acquisition costs. The Company maintained insurance reserves of $655.5 million and $690.3 million as of December 31, 1995 and 1994, respectively, relating to the business assumed. In consideration for the assumption of this business, a loan was established relating to the F-22 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 8. Related Party Transactions (Continued) assets held by Aetna Life which support the insurance reserves. The loan is being reduced in accordance with the decrease in the reserves. The fair value of this loan was $663.5 million and $630.3 million as of December 31, 1995 and 1994, respectively, and is based upon the fair value of the underlying assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current and future benefits of $43.0 million, $43.8 million and $55.4 million were assumed in 1995, 1994 and 1993, respectively. Investment income of $46.5 million, $51.5 million and $53.3 million was generated from the reinsurance loan to affiliate in 1995, 1994 and 1993, respectively. Net income of approximately $18.4 million, $25.1 million and $13.6 million resulted from this agreement in 1995, 1994 and 1993, respectively. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company also is responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $28.0 million and $24.2 million were maintained for this contract as of December 31, 1995 and 1994, 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 limit, up to a maximum of $8.0 million on any new individual life business, on a yearly renewable term basis. Premium amounts related to this agreement were $3.2 million, $1.3 million and $0.6 million for 1995, 1994 and 1993, respectively. The Company received no capital contributions in 1995, 1994 or 1993. The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. Premiums due and other receivables include $5.7 million and $27.6 million due from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4 million and $27.9 million due to affiliates for 1995 and 1994, respectively. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 9. Reinsurance 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. F-23 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 9. Reinsurance (Continued) The following table includes premium amounts ceded/assumed to/from affiliated companies as discussed in Note 8 above.
Assumed Ceded to from Direct Other Other Net Amount Companies Companies Amount ------ -------- -------- ------- (millions) 1995 - - ----------------------------- Premiums: Life Insurance $ 28.8 $ 8.6 $28.0 $ 48.2 Accident and Health Insurance 7.5 7.5 -- -- Annuities 82.1 -- 0.5 82.6 -------- ----- ----- ------ Total earned premiums $ 118.4 $16.1 $28.5 $130.8 ======== ===== ===== ====== 1994 - - ----------------------------- Premiums: Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1 Accident and Health Insurance 9.3 9.3 -- -- Annuities 69.9 -- 0.2 70.1 -------- ----- ----- ------ Total earned premiums $ 106.5 $15.3 $33.0 $124.2 ======== ===== ===== ====== 1993 - - ----------------------------- Premiums: Life Insurance $ 22.4 $ 5.6 $ 33.3 $ 50.1 Accident and Health Insurance 12.9 12.9 -- -- Annuities 31.3 -- 0.7 32.0 -------- ----- ----- ------ Total earned premiums $ 66.6 $18.5 $34.0 $ 82.1 ======== ===== ===== =======
10. Financial Instruments Estimated Fair Value The carrying values and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 were as follows: F-24 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 10. Financial Instruments (Continued)
1995 1994 ------------------ -------------------- Carrying Fair Carrying Fair Value Value Value Value ------- ------- ------- --------- (millions) Assets: Cash and cash equivalents $ 568.8 $ 568.8 $ 623.3 $ 623.3 Short-term investments 15.1 15.1 98.0 98.0 Debt securities 12,720.8 12,720.8 10,191.4 10,191.4 Equity securities 257.6 257.6 229.1 229.1 Limited partnership -- -- 24.4 24.4 Mortgage loans 21.2 21.9 9.9 9.9 Liabilities: Investment contract liabilities: With a fixed maturity 989.1 1,001.2 826.7 833.5 Without a fixed maturity 9,511.0 9,298.4 8,122.6 7,918.2
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. In evaluating the Company's management of interest rate and liquidity risk, the fair values of all assets and liabilities should be taken into consideration, not only those above. The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: Short-term instruments: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices are not available, the carrying amounts reported in the Consolidated Balance Sheets approximates fair value. Short-term instruments have a maturity date of one year or less and include cash and cash equivalents, and short-term investments. Debt and equity securities: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair value is estimated by using quoted market prices for similar securities or discounted cash flow methods. Mortgage loans: Fair value is estimated by discounting expected mortgage loan cash flows at market rates which reflect the rates at which similar loans would be made to similar borrowers. The rates reflect management's assessment of the credit quality and the remaining duration of the loans. The fair value estimate of mortgage loans of lower quality, including problem and restructured loans, is based on the estimated fair value of the underlying collateral. F-25 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 10. Financial Instruments (Continued) Investment contract liabilities (included in Policyholders' Funds Left With the Company): With a fixed maturity: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. Without a fixed maturity: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. Off-Balance-Sheet Financial Instruments (including Derivative Financial Instruments) During 1995, the Company received $0.4 million for writing call options on underlying securities. As of December 31, 1995 there were no option contracts outstanding. At December 31, 1995, the Company had a forward swap agreement with a notional amount of $100.0 million and a fair value of $0.1 million. The Company did not have transactions in derivative instruments in 1994. The Company also holds investments in certain debt and equity securities with derivative characteristics (i.e., including the fact that their market value is at least partially determined by, among other things, levels of or changes in interest rates, prepayment rates, equity markets or credit ratings/ spreads). The amortized cost and fair value of these securities, included in the $13.4 billion investment portfolio, as of December 31, 1995 was as follows:
Amortized Fair (Millions) Cost Value ------- --------- Collateralized mortgage obligations $2,383.9 $2,549.3 Principal-only strips (included above) 38.7 50.0 Interest-only strips (included above) 10.7 20.7 Structured Notes (1) 95.0 100.3
(1) Represents non-leveraged instruments whose fair values and credit risk are based on underlying securities, including fixed income securities and interest rate swap agreements. 11. Commitments and Contingent Liabilities Commitments 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, 1995, the Company had commitments to purchase investments of $31.4 F-26 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (Continued) 11. Commitments and Contingent Liabilities (Continued) million. The fair value of the investments at December 31, 1995 approximated $31.5 million. There were no outstanding forward commitments at December 31, 1994. Litigation There were no material legal proceedings pending against the Company as of December 31, 1995 or December 31, 1994 which were beyond the ordinary course of business. The Company is involved in lawsuits arising, for the most part, in the ordinary course of its business operations as an insurer. 12. Segment Information The Company's operations are reported through two major business segments: Life Insurance and Financial Services. Summarized financial information for the Company's principal operations was as follows:
(Millions) 1995 1994 1993 -------------------------------------------------------------------------- Revenue: Financial services $1,129.4 $ 946.1 $ 892.8 Life insurance 407.9 386.1 371.7 -------- -------- -------- Total revenue $1,537.3 $1,332.2 $1,264.5 -------------------------------------------------------------------------- Income before federal income taxes: Financial services $ 158.0 $ 119.7 $ 121.1 Life insurance 102.0 96.8 98.0 -------- -------- -------- Total income before federal income taxes $ 260.0 $ 216.5 $ 219.1 -------------------------------------------------------------------------- Net income: Financial services $ 113.8 $ 85.5 $ 86.8 Life insurance 62.1 59.8 56.1 -------- -------- -------- Net income $ 175.9 $ 145.3 $ 142.9 --------------------------------------------------------------------------
(Millions) 1995 1994 1993 --------------------------------------------------------------------------- Assets under management, at fair value: Financial services $23,224.3 $17,785.2 $16,600.5 Life insurance 2,698.1 2,171.7 2,175.5 --------------------------------------------------------------------------- Total assets under management $25,922.4 $19,956.9 $18,776.0 ---------------------------------------------------------------------------
F-27 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution Not Applicable Item 14. Indemnification of Directors and Officers Reference is hereby made to Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding indemnification of directors and officers of Connecticut corporations. The statute provides in general that Connecticut corporations shall indemnify their officers, directors, employees, agents, and certain other defined individuals against judgments, fines, penalties, amounts paid in settlement and reasonable expenses actually incurred in connection with proceedings against the corporation. The corporation's obligation to provide such indemnification does not apply unless (1) the individual is successful on the merits in the defense of any such proceeding; or (2) a determination is made (by a majority of the board of directors not a party to the proceeding by written consent; by independent legal counsel selected by a majority of the directors not involved in the proceeding; or by a majority of the shareholders not involved in the proceeding) that the individual acted in good faith and in the best interests of the corporation; or (3) the court, upon application by the individual, determines in view of all the circumstances that such person is reasonably entitled to be indemnified. C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut corporation cannot indemnify a director or officer to an extent either greater or less than that authorized by the statute, e.g., pursuant to its certificate of incorporation, bylaws, or any separate contractual arrangement. However, the statute does specifically authorize a corporation to procure indemnification insurance to provide greater indemnification rights. The premiums for such insurance may be shared by the corporation with the insured individuals on an agreed basis. Consistent with the statute, Aetna Life and Casualty Company has procured insurance from Lloyd's of London and several major United States excess insurers for its directors and officers and the directors and officers of its subsidiaries, including the Registrant, which supplements the indemnification rights provided by C.G.S. Section 33-320a to the extent such coverage does not violate public policy. Item 15. Recent Sales of Unregistered Securities The Company offers its Contracts through Variable Annuity Accounts D and F to qualified pension and profit sharing plans and certain governmental plans in reliance upon the exemption from registration provided by Section 3(a)(2) under the Securities Act of 1933. Data relating to the amount of securities sold is: VARIABLE ANNUITY ACCOUNT D Years Ended December 31, 1995 1994 1993 ---- ---- ---- $315,376,515 $521,462,283 $338,384,188 VARIABLE ANNUITY ACCOUNT F 1995 1994 1993 ---- ---- ---- $92,747,334 $4,163,884 Not in operation, no sales Item 16. Exhibits and Financial Statement Schedules (a) Exhibits (3.1) Articles of Incorporation of Registrant (3.2) By-Laws (4) Instruments Defining the Rights of Security Holders (a) Form of Annuity Contract (G-CDA-HF)1 (b) Form of Annuity Contract (G-CDA-IA(RP))2 (c) Form of Annuity Contracts (G-CDA-IB(ATORP)), (G-CDA-IB(AORP)), (G-401-IB(X/M)) and (G-CDA-IB(XC/SM))3 (d) Form of Annuity Contract (G-CDA-ID(DC))4 (e) Form of Annuity Contract Certificate (GTCC-HF)5 (f) Form of Annuity Contracts (G-TDA-HH(XC/M)) and (G-TDA-HH(XC/S))6 (g) Form of Annuity Contract (GTRPC-IA(XC))7 (h) Form of Annuity Contract (IA-CDA-IA)8 (i) Form of Annuity Contracts (GID-HF(A)) and (GUD-HF(A))9 (j) Form of Annuity Contract (GLID-CDA-HO)10 (k) Form of Annuity Contract (G-CDA-HD)11 (l) Form of Annuity Contract (G-CDA-IA(RPM/XC))12 (m) Form of Annuity Contracts and Certificate (G-CDA-95(ORP)), (G-CDA-95(TORP) and (GTCC-95 (ORP)13 (n) Form of Annuity Contracts and Certificate (G-CDA-ORP), CDA-IB(TORP)) and (GTCC-95(TORP)), 14 (o) Form of Annuity Contract (IRA-CDA-IC)15 (p) Form of Annuity Contract (G-CDA-IA)16 (q) Form of Annuity Contracts (GAIPH-HF) and (GUIH-HF)17 (r) Form of Annuity Contract (GIP-CDA-HB)18 (5) Opinion re Legality (10) Material contracts are listed under Exhibit 10 in the Company's Form 10-K for the fiscal year ended December 31, 1995 (File No. 33-23376), as filed electronically with the Commission on March 29, 1996. Each of the Exhibits so listed is incorporated by reference as indicated in the Form 10-K (21) Subsidiaries of the Registrant19 (23) (a) Consent of Certified Public Accountants (b) Consent of Legal Counsel (Included in Item (5) above) (24) (a) Powers of Attorney20 (b) Certificate of Resolution Authorizing Signature of Power of Attorney21 (b) Consolidated Financial Statement Schedules (i) Independent Auditors' Report (ii) Schedule I - Summary of Investments - Other than Investments in Affiliates as of December 31, 1995 (iii) Schedule III - Supplementary Insurance Information as of and for the years ended December 31, 1995, 1994 and 1993 (iv) Schedule IV - Reinsurance for the years ended December 31, 1995, 1994 and 1993 Exhibits and Schedules other than those listed above are omitted because they are not required or are not applicable. 1. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75964), as filed on February 24, 1995. 2. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75986), as filed on February 28, 1995. 3. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-42555), as filed on April 4, 1995. 4. Incorporated by reference to Registration Statement on Form N-4 (File No. 33-88722), as filed on January 20, 1995. 5. Incorporated by reference to Post-Effective Amendment No. 60 to Registration Statement on Form N-4 (File No. 2-52449), as filed on February 24, 1995. 6. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-75962), as filed on March 24, 1995. 7. Incorporated by reference to Post-Effective Amendment No. 58 to Registration Statement on Form N-4 (File No. 2-52449), as filed on February 29, 1994. 8. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75958), as filed on April 28, 1995. 9. Incorporated by reference to Post-Effective Amendment No. 4 to Registration Statement on Form N-4 (File No. 33-75982), as filed on April 28, 1995. 10. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 33-88722), as filed electronically on November 30, 1995. 11. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75960), as filed on April 28, 1995. 12. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75954), as filed on February 28, 1995. 13. Incorporated by reference to Registration Statement on Form N-4 (File No. 33-91846), as filed on May 1, 1995. 14. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75976), as filed on April 28, 1994. 15. Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement on Form N-4 (File No. 33-75988), as filed on February 27, 1995. 16. Incorporated by reference to Post-Effective Amendment No. 3 to Registration Statement on Form N-4 (File No. 33-75960), as filed on April 28, 1995. 17. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 33-75996), as filed on April 21, 1994. 18. Incorporated by reference to Post-Effective Amendment No. 2 to Registration Statement on Form N-4 (File No. 33-75984), as filed on April 28, 1995. 19. Incorporated by reference to Post-Effective Amendment No 5 to Registration Statement on Form N-4 (File No. 33-75982), as filed electronically on February 20, 1996. 20. Incorporated by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 33-75974), as filed electronically on April 9, 1996. 21. Incorporated by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 33-91846), as filed electronically on August 16, 1995. Item 17. Undertakings The undersigned registrant hereby undertakes as follows, pursuant to Item 512 of Regulation S-K: (a) Rule 415 offerings: (1) To file, during any period in which offers or sales of the registered securities are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material changes to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (h) Request for Acceleration of Effective Date: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 33-60477.DOC SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-60477) to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Hartford, State of Connecticut, on this 15th day of April, 1996. By: AETNA LIFE INSURANCE AND ANNUITY COMPANY By: Daniel P. Kearney* ------------------------------------------- Daniel P. Kearney President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 1 to Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date Daniel P. Kearney* Director and President ) - - ------------------------- (principal executive officer) ) Daniel P. Kearney ) Timothy A. Holt* Director and Chief Financial Officer ) April - - ------------------------- Timothy A. Holt ) 15, 1996 ) Christopher J. Burns* Director ) - - ------------------------- Christopher J. Burns ) ) Laura R. Estes* Director ) - - ------------------------- Laura R. Estes ) ) Gail P. Johnson* Director ) - - ------------------------- Gail P. Johnson ) ) John Y. Kim* Director ) - - ------------------------- John Y. Kim ) ) Shaun P. Mathews* Director ) - - ------------------------- Shaun P. Mathews ) ) Glen Salow* Director ) - - ------------------------- Glen Salow ) ) Creed R. Terry* Director ) - - ------------------------- Creed R. Terry ) ) Eugene M. Trovato* Vice President and Treasurer, Corporate - - ------------------------- Controller ) Eugene M. Trovato ) By: /s/ Julie E. Rockmore ------------------------------------------ Julie E. Rockmore *Attorney-in-Fact 33-60477.DOC EXHIBIT INDEX Exhibit No. Exhibit Page (16)(a)(3.1) Articles of Incorporation of Registrant -------- 16(a)(3.2) By-Laws -------- 16(a)(4)(a) Instruments Defining the Rights of Security Holders * through (r) 16(a)(5) Opinion re Legality -------- 16(a)(10) Material Contracts * 16(a)(21) Subsidiaries of the Registrant * 16(a)(23)(a) Consent of Certified Public Accountants -------- 16(a)(23)(b) Consent of Legal Counsel (Included in Item 16(a)(5) * above) 16(a)(24)(a) Powers of Attorney * 16(a)(24)(b) Certificate of Resolution Authorizing Signature of * Power of Attorney 16(b)(i) Independent Auditors' Report -------- 16(b)(ii) Schedule I - Summary of Investments - Other than Investments in Affiliates as of December 31, 1995 -------- 16(b)(iii) Schedule III - Supplementary Insurance Information as of and for the years ended December 31, 1995, 1994 and 1993 -------- 16(b)(iv) Schedule IV - Reinsurance for the years ended December 31, 1995, 1994 and 1993 -------- *Incorporated by reference EX-16.(A)(3.1) 2 ARTICLES OF INCORPORATION Certificate Restating Certificate of Incorporation of AETNA LIFE INSURANCE AND ANNUITY COMPANY By Action of the Board of Directors 1. The name of the Corporation is Aetna Life Insurance and Annuity Company. 2. The Certificate of Incorporation of Aetna Life Insurance and Annuity Company is restated by the following vote which was adopted by all the Directors in accordance with Section 33-362 (a) of the Connecticut Stock Corporation Act: VOTED: That the Certificate of Incorporation of the Company (Special Act No. 281), is amended by the "Corrected Certificate of Merger of Aetna Variable Annuity Life Insurance Company with and into Forward Life Insurance Company with the Surviving Corporation to be known as Aetna Variable Annuity Life Insurance Company (Surviving Connecticut Stock Corporation)," and as amended by Certificates of Amendment filed December 28, 1979, March 25, 1983, August 16, 1983, and September 14, 1983, reads as follows: Section 1. Olcott D. Smith, John A. Hill and Howard A. Moreen with such other persons as may hereafter be associated with them, their successors and assigns forever, are created a body politic and corporate by the name of Aetna Life Insurance and Annuity Company, with the power to acquire, by purchase or otherwise, invest in, hold, sell, convey and have and exercise any and all rights of ownership or interest in or to any real or personal property whatsoever, including, without limitation, shares, securities and any other interest in or obligation of other firms, persons, corporations, governmental bodies, or other entities; to borrow money, issue promissory notes, bonds, or other evidences of indebtedness and secure the same by mortgage, pledge or other form of security on any or all of its real or personal property or an interest therein; to make contracts of any nature and give security therefor; to carry on business in any place, if not prohibited by the laws of the place where such business is carried on; and to exercise all legal powers necessary or convenient to effect any or all of the purposes stated whether or not such powers are expressly set forth herein. Sec. 2. The business of the corporation shall be life insurance, endowments, annuities, accident insurance, health insurance and any other business or type of business which any other corporation now or hereafter chartered by Connecticut and empowered to do a life insurance business may now or hereafter lawfully do; and the corporation is specifically empowered to accept and to cede reinsurance of any such risks or hazards. The corporation may exercise such powers outside of Connecticut to the extent permitted by the laws of the particular jurisdiction. Policies or other contracts may be issued stipulated to be with or without participation in profits; and they may be with or without seal. The corporation may carry on any other lawful business in connection with the foregoing or which is calculated, directly or indirectly, to promote the interest of the corporation or to enhance the value of its properties. Sec. 3. The capital with which the corporation shall commence business shall be an amount not less than one thousand dollars. The authorized number of shares of capital stock shall be 100,000 shares of common capital stock with a par value of fifty dollars each. Sec. 4. The business, property and affairs of the corporation shall be managed under the direction of a board of directors consisting of such number of directors as may be fixed by the by-laws of the company and who shall be chosen by ballot by the shareholders, each shareholder being entitled to one vote for each share of stock held by him. The bylaws of the corporation may provide for classification of directors as to the terms of office, provided no director shall be elected by the shareholders for a shorter term than one year or for a longer term than five years and the classification shall be such that the term of one or more classes shall expire each succeeding year. If any vacancy occurs in the board of directors, such vacancy may be filled by the remaining directors for the unexpired portion of the term, and if the number of directors is increased by an amendment to the bylaws voted by the board of directors between meetings of shareholders, the additional directors, not to exceed three, may be chosen by the board of directors for terms expiring with the next annual meeting thereafter. The bylaws of the company may determine what number of directors shall constitute a quorum for the transaction of business. Sec. 5. The annual meeting of the shareholders of the corporation shall be held at such time and place within the state and upon such notice as may be prescribed in the bylaws of the corporation. Sec. 6. To carry out the purpose of this act and to organize the corporation, the incorporators shall open books of subscriptions and shall receive subscriptions to the capital stock of the corporation, receive the first installments on such subscriptions, close the subscription books when the capital stock has been subscribed to the full amount, not less than one thousand dollars, with which the incorporators shall have determined to commence business, and, if the capital stock is oversubscribed, apportion the same in their discretion among the subscribers. When the capital stock has been so subscribed, the incorporators or a majority of them shall call the first meeting of the subscribers and, when the bylaws have been adopted and the directors chosen, the incorporators shall pay to the corporation all monies received by them upon subscriptions to the capital stock, and the corporation shall thereupon be fully organized. 3. The above vote merely restates and does not change the provisions of the original Certificate of Incorporation, as supplemented and amended to date. 4. The above vote was duly adopted by the Board of Directors. Dated at Hartford, Connecticut this 19th day of July, 1988. We hereby declare, under the penalties of false statement, that the statements made in the foregoing Certificate are true. /s/ Charles N. Dawkins Vice President /s/ George N. Gingold Secretary EX-16.(A)(3.2) 3 BY-LAWS BY-LAWS Aetna Life Insurance and Annuity Company Hartford, Connecticut ARTICLE I Offices Section 1. The principal office of the Company shall be in the City of Hartford, County of Hartford, State of Connecticut. Section 2. The Company may also have offices at such other places, both within and without the State of Connecticut, as the Board of Directors may from time to time determine or the business of the Company may require. Such additional offices within or without the State of Connecticut may include one or more regional home offices and, with the approval of the Commissioner of Insurance of Connecticut, an operational home office. ARTICLE II Stockholders' Meetings Section 1. The Annual Meeting of the Stockholders of the Company shall be held at the principal office of the Company or such other place within the State of Connecticut as may be fixed from time to time by the Board of Directors. The Annual Meeting shall be held in each year on such day in March or April and at such hour as the Board of Directors may prescribe. Section 2. Special meetings of the stockholders may be called by the Board of Directors, a designated committee of the Board of Directors, or by the President and shall be held at such time and at such place as shall be specified in such call. Section 3. Written notice of each stockholders' meeting stating the place, date and hour of the meeting and (in case of a special meeting) the purpose or purposes for which the meeting is called shall be given by or at the direction of the Board, the President, the Secretary or any designated committee of the Board of Directors not less than five (5) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Section 4. The quorum for each meeting of stockholders shall consist of 25% of the voting power of shares entitled to vote at such meeting. Section 5. Persons entitled to vote at any stockholders' meeting may vote in person or by proxy executed in writing by the stockholder or his duly authorized attorney-in-fact and filed with the Secretary of the Company not less than twenty-four (24) hours prior to the meeting. ARTICLE III Directors Section 1. The Board of Directors shall consist of not less than three and not more than twenty-one Directors, and the number of directorships at any time within such minimum and maximum range shall be the number fixed by vote of the Stockholders or Directors or, in the absence thereof, shall be the number of Directors elected at the preceding Annual Meeting of Stockholders. Section 2. Vacancies in the Board of Directors shall be filled for the unexpired term by majority vote of the remaining Directors, and each person so elected shall be a Director until his successor is elected by the stockholders at the next Annual Meeting of Stockholders or at any special meeting of stockholders called for that purpose and held prior to that Annual Meeting. Section 3. Regular meetings of the Board shall be held at such place and on such day and hour at such periodic intervals as the Board may from time to time designate. Notice of such regular meetings need not be given, but the Secretary shall notify each Director by mail of the action of the Board designating or changing the place, period, day, or hour of such regular meetings. Section 4. Special meetings of the Board shall be held at the call of the President, the Secretary, or not less than one-third of the Directors then in office. Section 5. The Board of Directors of the Company may hold meetings, both regular and special, either within or without the State of Connecticut. Section 6. A quorum shall consist of a majority of the Directors at the time in office, but not less than two Directors nor less than one-third of the number of Directors provided for by Article II, Section 1. Section 7. The Board shall fix the compensation of each Director and of each member of a committee appointed by the Board pursuant to Article IV. ARTICLE IV Committees of the Board Section 1. The Board of Directors may appoint, by resolution passed by a majority of the whole Board, three (3) or more Directors to constitute an Executive Committee, which Committee, to the extent provided in such resolution, shall have and exercise all the powers of the Board when it is not in session, except as otherwise required by law. Section 2. The Board may also appoint three (3) or more Directors, by resolution passed by a majority of the whole Board, to constitute other outstanding committees and one (1) or more temporary committees, investing such committees with such powers and subjecting them to such conditions as the Board may prescribe. The Board of Directors may also appoint an advisory committee to any committee or to the Board itself. The members of such advisory committee need not be members of the Board of Directors. Section 3. Each committee shall cause regular minutes of its meetings to be recorded in books kept for that purpose. All actions of each such committee shall be reported to the Board. The presence of a majority of the members of each such committee shall be necessary to constitute a quorum. Each committee created under this section shall meet at the call of its chairman, the President, the Secretary, or any two (2) members of the committee. The members of each such committee shall continue in office until their successors are chosen unless sooner discharged. ARTICLE V Officers Section 1. The officers of the Company shall include a President, chosen from the Directors, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be chosen by the Board of Directors. The compensation of such officers shall be fixed by the Board. In addition, the Board may appoint and fix the compensation of, and may authorize any officer or officers to appoint and to fix the compensation of, such additional officers as the Board or such authorized officer or officers deem necessary for the proper conduct of the business of the Company. Any two (2) or more offices may be held by the same person except that the President shall not also be the Secretary or the Assistant Secretary of the Company. Each officer shall hold his office for such term and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors or by any officer authorized by the Board to appoint such officer. Section 2. The President shall be the chief executive officer of the Company, shall preside at all meetings of stockholders and the Board of Directors, shall have general and active management of the business of the Company, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have a vote as a member of the Board of Directors and shall be an ex officio member of all committees appointed by the Board (other than advisory committees). He shall have the general duties and powers of supervision and management usually vested in the office of President of a company. In the absence of the President, his duties shall be performed and his powers may be exercised by such other Director or officer as shall be designated by the Board or (failing such designation) by the Executive Committee. Section 3. The Secretary shall keep a record of all meetings and acts of the Board and, except as may be otherwise provided herein or in the vote appointing a committee, of all committees appointed by the Board, and he shall act as the clerk and shall be the custodian of the records of all meetings of the stockholders. He shall have such other authority and responsibility and perform such other duties as may from time to time be delegated to him by the Board. Section 4. The Treasurer, except as otherwise required by law, shall have charge and custody of and be responsible for all funds and securities of the Company; shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Company; shall be responsible for receiving and giving receipts for monies paid to the Company from any source; shall cause all monies and other valuable effects to be deposited in the name and to the credit of the Company in such depositories as may be designated by the Board of Directors, and shall perform such other duties as the Board of Directors or the President may from time to time require. Section 5. Each other officer shall have such further authority and responsibility and shall perform such further duties as may from time to time be delegated to him by the Board or the President. ARTICLE VI Notices Section 1. Whenever, under the provisions of the statutes or of the Articles of Agreement and Incorporation or of these By-Laws, notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such Director or stockholder, at his address as it appears on the records of the Company, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to Directors may also be given by telegram. Section 2. Whenever any notice whatever is required to be given under the provisions of the statutes or the Articles of Agreement and Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute a waiver of notice unless attendance is for the purpose of objecting to the transaction of business. ARTICLE VII Voting Rights Section 1. Contract Owners of and Participants under variable annuity contracts funded in any Company separate account which is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 shall be granted rights to direct the Company as to the voting of any shares held in such account of any company registered under that Act as a management investment company ("fund") in the manner provided below: (A) Group Contracts: (1) Each registered owner of a Group Contract shall be entitled to give directions with respect to that number of votes to be cast by the Company at meetings of the stockholders of the given fund as shall be determined by the following calculations: (a) for each Participant under the contract who is in the Accumulation Period, an amount equal to that portion of the current value of the Participant's Individual Account attributable to that fund, divided by the book value (net asset value) of one share of that fund; plus (b) for each Annuitant under the contract, an amount equal to the valuation reserve (established pursuant to the insurance laws of Connecticut) applicable to that portion of the current value of the Annuitant's Individual Account under the contract attributable to that fund, divided by the book value (net asset value) of one share of that fund. (2) Unless otherwise provided under the terms of the plan under which a group contract has been issued, every Participant who has acquired a fully (100%) vested interest in the benefits provided for him under a Group Contract shall have the right to instruct the Contract Owner with respect to the number of votes attributable to his Individual Account. All votes for which the Contract Owner is entitled to give direction but for which no instructions have been received will be cast by the Company, at the direction of the Contract Owner, for or against each proposal to be voted upon in the same proportion as votes for which instructions have been received by the Contract Owner. (B) Individual Contracts Each registered owner of an Individual Contract shall be entitled to give directions with respect to that number of votes to be cast by the Company at meetings of the stockholders of the given fund as shall be determined by the following calculations: (a) during the Accumulation Period, an amount equal to that portion of the current value of the contract attributable to the fund, divided by the book value (net asset value) of one share of that fund; and (b) during the Annuity Period, an amount equal to the valuation reserve (established pursuant to the insurance laws of Connecticut) applicable to that portion of the contract attributable to that fund, divided by the book value (net asset value) of one share of that fund. (C) Votes attributable to Contract Owners who do not direct the Company will be cast by the company in the same proportion as votes for which directions have been received by the Company. (D) In determining the number of votes hereunder, fractional votes will be recognized. Where the value of the contract relates to two or more funds, the calculation of votes will be performed separately for each fund. Section 2. Each Contract Owner and Participant entitled to give directions or instructions to the Company in connection with any meeting of the stockholders of any fund will receive a notice of that meeting together with appropriate solicitation materials and a statement of the number of votes as to which he is entitled to give directions or instructions. Section 3. For the purposes of determining (a) those Contract Owners and Participants entitled to notice of any meeting of the stockholders of any fund, and (b) the number of fund shares for which each such Contract Owner and Participant may direct or instruct votes therefor, the Board of Directors shall set a record date which date may be prior to, as of, or after the date of the Board meeting at which it is set but in no event earlier than 40 days prior to the date of the stockholders' meeting. ARTICLE VIII General Provisions Section 1. The Board of Directors, by resolution, shall declare any and all dividends to be paid by the Company and fix the record date therefor and the date on which such dividends are to be paid. Section 2. The fiscal year of the Company shall begin on the first day of January and end on the thirty-first day of December of each year. Section 3. The corporate seal shall contain the words "Aetna Life Insurance and Annuity Company" in a circle, and the words "Hartford, Conn." within the circle. The corporate seal shall be in the custody of the Secretary and shall be affixed by him or by his delegate to documents required to be executed under the seal of the Company, and shall be affixed to such other documents as the Board of Directors, or officers acting under its authorization, may from time to time determine necessary or desirable. ARTICLE IX Amendments These By-Laws may be amended, added to, or repealed by the holders of a majority of the outstanding shares of stock entitled to vote at any annual or special meeting of stockholders, or by a majority of the whole Board of Directors as then constituted at any meeting of the Board, provided that notice of the proposal to amend, add to, or repeal the By-Laws is included in the notice of the meeting of stockholders or Directors at which such action takes place. ------------------------- EX-16.(A)(5) 4 OPINION Page 1 April , 1996 OP-60477.Doc 04/08/96-8:09 PM a 151 Farmington Avenue Susan E. Bryant Hartford, CT 06156 Counsel Law & Regulatory Affairs, RE4C (860) 273-7834 Fax: (860) 273-8340 April 15, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Aetna Life Insurance and Annuity Company Post-Effective Amendment No. 1 to Registration Statement on Form S-1 Prospectus Title: ALIAC Guaranteed Accumulation Account Registration No. 33-60477 Dear Sirs: As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I have represented the Company in connection with the ALIAC Guaranteed Accumulation Account (the "Guaranteed Accumulation Account"), a guaranteed interest option available under certain variable annuity contracts, and the Form S-1 Registration Statement relating to such account. In connection with such representation, I have reviewed Post-Effective Amendment No. 1 to the Registration Statement for the Guaranteed Accumulation Account including the prospectus, and relevant proceedings of the Board of Directors. Based upon this review, and assuming the securities represented by the Guaranteed Accumulation Account are issued in accordance with the provisions of the prospectus, I am of the opinion that the securities, when sold, will have been validly issued and will constitute a legal and binding obligation of the Company. I further consent to the use of this opinion as an exhibit to the Registration Statement and to my being named under the caption "Legal Matters" therein. Sincerely, /s/ Susan E. Bryant Susan E. Bryant Counsel Aetna Life Insurance and Annuity Company EX-16.(A)(23)(A) 5 CONSENT OF AUDITORS Consent of Independent Certified Public Accountants The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the Prospectus. Our reports refer to a change in 1993 in the Company's methods of accounting for certain investments in debt and equity securities. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Hartford, Connecticut April 15, 1996 EX-16.(B)(I) 6 AUDITORS' REPORT Independent Auditors' Report The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: Under date of February 6, 1996, we reported on the consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, 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, 1995, as included herein. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedules as listed in the accompanying index. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statement schedules based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the financial statements, in 1993 the Company changed its methods of accounting for certain investments in debt and equity securities. /s/ KPMG Peat Marwick LLP Hartford, Connecticut February 6, 1996 EX-16.(B)(II) 7 SCHEDULE I AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Schedule I Summary of Investments - Other than Investments in Affiliates December 31, 1995
Amount at Which Shown in the Type of Investment Cost Value* Balance Sheet ------------------ ---- ------ ------------- (millions) Debt Securities: U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 539.5 $ 587.0 $ 587.0 Obligations of states and political subdivisions 41.4 53.8 53.8 U.S. Corporate securities 5,396.5 5,689.8 5,689.8 Foreign securities (1) 1,302.6 1,416.6 1,416.6 Residential mortgage-backed securities 2,940.6 3,203.4 3,203.4 Commercial/Multifamily mortgage-backed securities 741.9 774.0 774.0 Other asset-backed securities 961.2 996.2 996.2 --------- ---------- -------- Total debt securities 11,923.7 12,720.8 12,720.8 --------- ========= -------- Equity securities: Non-redeemable preferred stocks 51.3 57.6 57.6 Investment in affiliated mutual funds 173.4 191.8 191.8 Common stock 6.9 8.2 8.2 ------ ---------- --------- Total equity securites 231.6 257.6 257.6 -------- ======= -------- Short-term investments 15.1 15.1 Mortgage loans 21.2 21.2 Policy loans 338.6 338.6 --------- --------- Total investments $12,530.2 $13,353.3 ========= =========
* See Notes 1, 2 and 10 to the Consolidated Financial Statements. (1) The term "foreign" includes foreign governments, foreign political subdivisions, foreign public utilities and all other bonds of foreign issuers. All of the Company's foreign securities are denominated in U.S. dollars. EX-16.(B)(III) 8 SCHEDULE III AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) [Start restubbed page] Schedule III Supplementary Insurance Information As of and for the years ended December 31, 1995, 1994 and 1993 (Millions)
Deferred Unpaid Policyholders' policy Future claims funds left acquisition policy and claim Unearned with the Premium Segment costs benefits expenses premiums company revenue - - ------------------ ---------- --------- ---------- ---------- ------------- --------- 1995 Financial $ 602.5 $ 1,018.9 $ 1.0 $ - $ 82.6 Services $10,483.3 Life Insurance 738.8 2,574.3 26.2 1.4 16.8 48.2 ---------- --------- ---------- ---------- ------------- --------- Total $ 1,341.3 $ 3,593.2 $ 27.2 $ 1.4 $10,500.1 $ 130.8 ========== ========= ========== ========== ============= ========= 1994 Financial $ 516.8 $ 773.7 $ 1.4 $ - $ 8,942.9 $ 70.2 Services Life Insurance 647.5 2,137.3 22.4 1.7 6.4 54.0 ---------- --------- ---------- ---------- ------------- --------- Total $ 1,164.3 $ 2,911.0 $ 23.8 $ 1.7 $ 8,949.3 $ 124.2 ========== ========= ========== ========== ============= ========= 1993 Financial $ 440.8 $ 720.3 $ 1.2 $ - $ 8,898.8 $ 32.0 Services Life Insurance 610.8 2,109.3 26.0 1.7 6.2 50.1 ---------- --------- ---------- ---------- ------------- --------- Total $ 1,051.6 $ 2,829.6 $ 27.2 $ 1.7 $ 8,905.0 $ 82.1 ========== ========= ========== ========== ============= =========
(1) The allocation of net investment income is based upon the investment year method or specific identification of certain portfolios within specific segments. AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Schedule III Supplementary Insurance Information As of and for the years ended December 31, 1995, 1994 and 1993 (Millions)
Amortization Other income of deferred Net (including Current policy Other investment realized capital and future acquisition operating Segment income (1) gains and losses) benefits costs expenses - - ------------------ ----------- --------------- ---------- ------------- --------- 1995 Financial $ 823.3 $ 223.6 $ 704.4 $ 10.5 $ 256.5 Services Life Insurance 181.0 178.6 210.9 32.8 62.2 ----------- --------------- ---------- ------------- --------- Total $1,004.3 $ 402.2 $ 915.3 $ 43.3 $ 318.7 =========== =============== ========== ============= ========= 1994 Financial $ 745.9 $ 130.0 $ 639.9 $ 9.6 $ 176.9 Services Life Insurance 171.3 160.8 214.2 16.8 58.3 ----------- --------------- ---------- - ------------ --------- Total $ 917.2 $ 290.8 $ 854.1 $ 26.4 $ 235.2 =========== =============== ========== = ============ ========= 1993 Financial $ 739.2 $ 121.6 $ 624.1 $ (1.4) $ 149.0 Services Life Insurance 172.7 148.9 194.3 21.2 58.2 ----------- --------------- ---------- ------------- --------- Total $ 911.9 $ 270.5 $ 818.4 $ 19.8 $ 207.2 =========== =============== ========== ============= =========
(1) The allocation of net investment income is based upon the investment year method or specific identification of certain portfolios within specific segments. [End restubbed page] EX-16.(B)(IV) 9 SCHEDULE IV AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Schedule IV Reinsurance For the years ended December 31, (Millions)
Percentage Ceded to Assumed of Amount Direct Other from Other Net Assumed to Amount Companies Companies Amount Net ------ --------- ---------- ---------- ------------ 1995 Life insurance in force $36,031.5 $1,846.8 $3,596.7 $37,781.4 9.5% ============== ============ ============== =========== Premiums: Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2 58.1 Accident and Health Insurance 7.5 7.5 - - - Annuities 82.1 - 0.5 82.6 0.6 ============== ============ ============== =========== Total earned premiums $ 118.4 $ 16.1 $ 28.5 $ 130.8 21.8 ============== ============ ============== =========== 1994 Life insurance in force $32,184.3 $1,423.0 $2,677.8 $33,439.1 8.0% ============== ============ ============== =========== Premiums: Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1 60.6 Accident and Health Insurance 9.3 9.3 - - - Annuities 69.9 - 0.2 70.1 0.3 ============== ============ ============== =========== Total earned premiums $ 106.5 $ 15.3 $ 33.0 $ 124.2 26.6 ============== ============ ============== =========== 1993 Life insurance in force $30,602.3 $1,210.2 $3,099.0 $32,491.1 9.5% ============== ============ ============== =========== Premiums: Life Insurance $ 22.4 $ 5.6 $ 33.3 $ 50.1 66.5 Accident and Health Insurance 12.9 12.9 - - - Annuities 31.3 - 0.7 32.0 2.2 ============== ============ ============== =========== Total earned premiums $ 66.6 $ 18.5 $ 34.0 $ 82.1 41.4 ============== ============ ============== ===========
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