AIG SUNAMERICA LIFE ASSURANCE CO - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File No. 33-47472

AIG SUNAMERICA LIFE ASSURANCE COMPANY

Incorporated in Arizona 86-0198983
IRS Employer
Identification No.

1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant’s telephone number, including area code: (310) 772-6000

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes X No

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED BY RULE 12b-2 OF THE SECURITIES EXCHANGE ACT OF 1934). Yes No X

THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT’S COMMON STOCK ON AUGUST 14, 2003 WAS AS FOLLOWS:

Common Stock (par value $1,000 per share) 3,511 shares outstanding

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT

TABLE OF CONTENTS


		BALANCE SHEET
		BALANCE SHEET (Continued)
		STATEMENT OF INCOME AND COMPREHENSIVE INCOME
		STATEMENT OF INCOME AND COMPREHENSIVE INCOME
		STATEMENT OF CASH FLOWS
		NOTES TO FINANCIAL STATEMENTS
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
SIGNATURES
Exhibit Index
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

AIG SUNAMERICA LIFE ASSURANCE COMPANY

INDEX


		Page
		Number(s)

Part I — Financial Information
	Balance Sheet (Unaudited) — June 30, 2003 and December 31, 2002		3-4
	Statement of Income and Comprehensive Income (Unaudited) — Three Months and Six Months Ended June 30, 2003 and 2002		5-6
	Statement of Cash Flows (Unaudited) — Six Months Ended June 30, 2003 and 2002		7-8
	Notes to Financial Statements (Unaudited)		9-10
	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11-33
	Quantitative and Qualitative Disclosures About Market Risk		34
	Controls and Procedures		35
Part II — Other Information			36
	Exhibits and Reports on Form 8-K		38

AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET
(Unaudited)


		June 30,		December 31,
		2003		2002

		(in thousands)
ASSETS
Investments and cash:
	Cash and short-term investments	$	280,808	$	65,872
	Bonds, notes and redeemable preferred stocks available for sale, at fair value (amortized cost: June 30, 2003, $5,686,567; December 31, 2002, $5,492,677)		5,861,858		5,528,569
	Mortgage loans		754,586		738,601
	Policy loans		206,172		215,846
	Separate account seed money		28,483		25,366
	Common stocks available for sale, at fair value (cost: June 30, 2003 and December 31, 2002, $4,111)		3,291		2,609
	Real estate		22,091		22,315
	Securities lending collateral		270,648		585,760
	Other invested assets		16,652		8,766

	Total investments and cash		7,444,589		7,193,704
Variable annuity assets held in separate accounts			16,439,908		14,758,642
Accrued investment income			83,137		75,326
Deferred acquisition costs			1,368,587		1,364,748
Income taxes currently receivable from Parent			106,921		100,123
Due from affiliates			—		26,304
Goodwill			4,603		4,603
Other assets			13,160		15,382

TOTAL ASSETS		$	25,460,905	$	23,538,832

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
BALANCE SHEET (Continued)
(Unaudited)


		June 30,		December 31,
		2003		2002

		(in thousands)
LIABILITIES AND SHAREHOLDER’S EQUITY
Reserves, payables and accrued liabilities:
	Reserves for fixed annuity contracts	$	4,478,965	$	4,285,098
	Reserves for universal life insurance contracts		1,635,684		1,676,073
	Reserves for guaranteed investment contracts		357,284		359,561
	Securities lending payable		270,648		585,760
	Modified coinsurance deposit liability		20,046		31,393
	Due to affiliates		5,431		—
	Payable to brokers		232,852		8,529
	Other liabilities		172,225		160,265

Total reserves, payables and accrued liabilities			7,173,135		7,106,679
Variable annuity liabilities related to separate accounts			16,439,908		14,758,642
Deferred income taxes			426,798		351,872

Total liabilities			24,039,841		22,217,193

Shareholder’s equity:
	Common stock		3,511		3,511
	Additional paid-in capital		1,125,753		1,125,753
	Retained earnings		209,204		175,871
	Accumulated other comprehensive income		82,596		16,504

	Total shareholder’s equity		1,421,064		1,321,639

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY		$	25,460,905	$	23,538,832

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months and six months ended June 30, 2003 and 2002
(Unaudited)


		Three Months						Six Months

		2003			2002			2003			2002

		(In thousands)
REVENUES
	Fee income:
	Variable annuity policy fees	$	69,070		$	97,036		$	133,026		$	161,759
	Universal life insurance policy fees		9,378			9,031			18,348			18,256
	Surrender charges		6,784			8,353			14,354			14,858
	Other fees		—			1,004			—			2,032

	Total fee income		85,232			115,424			165,728			196,905
	Investment income		101,585			94,886			200,271			191,220
	Net realized investment losses		(5,358	)		(10,679	)		(8,630	)		(13,714	)

	Total revenues		181,459			199,631			357,369			374,411

BENEFITS AND EXPENSES
	Interest expense:
	Fixed annuity contracts		39,328			33,866			78,093			67,835
	Universal life insurance contracts		18,737			20,048			37,839			39,634
	Guaranteed investment contracts		2,031			3,072			4,047			6,097
	Securities lending agreements		1,545			3,417			3,446			6,035

	Total interest expense		61,641			60,403			123,425			119,601
	General and administrative expenses		19,030			19,555			40,289			38,382
	Amortization of deferred acquisition costs		40,256			60,704			79,077			107,357
	Annual commissions		15,995			15,814			30,173			31,620
	Claims on universal life contracts, net of reinsurance recoveries		5,720			3,448			11,233			7,910
	Guaranteed minimum death benefits, net of reinsurance recoveries		14,483			10,431			36,459			17,752

Total benefits and expenses			157,125			170,355			320,656			322,622

PRETAX INCOME			24,334			29,276			36,713			51,789
Income tax expense			1,507			4,374			3,380			7,769

NET INCOME			22,827			24,902			33,333			44,020

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the three months and six months ended June 30, 2003 and 2002
(Unaudited)


	Three Months						Six Months

	2003			2002			2003			2002

	(In thousands)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized gains on debt and equity securities available for sale identified in the current period	$	78,406		$	52,200		$	96,926		$	20,788
Less reclassification adjustment for net realized losses included in net income		3,400			8,405			4,755			10,831
Change related to cash flow hedges		—			(1,335	)		—			(2,218	)
Income tax expense		(28,633	)		(20,745	)		(35,589	)		(10,291	)

OTHER COMPREHENSIVE INCOME		53,173			38,525			66,092			19,110

COMPREHENSIVE INCOME	$	76,000		$	63,427		$	99,425		$	63,130

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS
For the six months ended June 30, 2003 and 2002
(Unaudited)


			2003			2002

			(In thousands)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income			$	33,333		$	44,020
Adjustments to reconcile net income to net cash provided by operating activities:
	Interest credited to:
		Fixed annuity contracts		78,093			67,835
		Universal life insurance contracts		37,839			39,634
		Guaranteed investment contracts		4,047			6,097
	Net realized investment losses			8,630			13,714
	Amortization (Accretion) of net discounts (premiums) on investments			2,291			(391	)
	Amortization of deferred acquisition costs			79,077			107,357
	Acquisition costs deferred			(121,316	)		(126,019	)
	Provision for deferred income taxes			39,337			69,885
	Change in:
		Accrued investment income		(7,811	)		(3,628	)
		Other assets		2,222			4,881
		Income taxes currently receivable from Parent		(6,798	)		(7,566	)
		Due from/to affiliates		(18,265	)		(32,492	)
		Other liabilities		22,303			(9,749	)
	Other, net			10,039			9,197

NET CASH PROVIDED BY OPERATING ACTIVITIES				163,021			182,775

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
	Bonds, notes and redeemable preferred stocks			(1,328,167	)		(921,523	)
	Mortgage loans			(29,883	)		(41,166	)
	Other investments, excluding short-term investments			(14,849	)		(1,514	)
Sales of:
	Bonds, notes and redeemable preferred stocks			858,085			336,574
	Other investments, excluding short-term investments			67			396
Redemptions and maturities of:
	Bonds, notes and redeemable preferred stocks			492,682			255,012
	Mortgage loans			14,560			49,933
	Other investments, excluding short-term investments			59,927			99,999

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES			$	52,422		$	(222,289	)

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
For the six months ended June 30, 2003 and 2002
(Unaudited)


		2003			2002

		(In thousands)
CASH FLOW FROM FINANCING ACTIVITIES:
Deposits received on:
	Fixed annuity contracts	$	803,595		$	815,813
	Universal life insurance contracts		22,573			24,128
Net exchanges from the fixed accounts of of variable annuity contracts Net realized investment losses variable annuity contracts			(405,412	)		(463,914	)
Withdrawal payments on:
	Fixed annuity contracts		(242,148	)		(180,037	)
	Universal life insurance contracts		(33,365	)		(36,849	)
	Guaranteed investment contracts		(6,240	)		(5,365	)
Claims and annuity payments on:
	Fixed annuity contracts		(55,667	)		(49,881	)
	Universal life insurance contracts		(62,153	)		(51,712	)
Net repayments of other short-term financings			(10,343	)		(13,660	)
Net payment related to a modified coinsurance transaction			(11,347	)		(15,579	)
Net cash and short-term investments transferred to the Parent in the distribution of Saamsun Holdings Corp.			—			(82,873	)

NET CASH USED IN FINANCING ACTIVITIES			(507	)		(59,929	)

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS			214,936			(99,443	)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD			65,872			200,064

CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD AT END OF PERIOD AT END OF PERIOD		$	280,808		$	100,621

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness		$	3,446		$	6,035

Net income taxes refunded by Parent		$	29,159		$	54,550

See accompanying notes to financial statements

AIG SUNAMERICA LIFE ASSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

AIG SunAmerica Life Assurance Company (FKA Anchor National Life Insurance Company) (the “Company”), is a direct wholly owned subsidiary of SunAmerica Life Insurance Company (the “Parent”), which is a wholly owned subsidiary o

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[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

		OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


Incorporated in Arizona		86-0198983 IRS Employer Identification No.

1.		BASIS OF PRESENTATION

		AIG SunAmerica Life Assurance Company (FKA Anchor National Life Insurance Company) (the “Company”), is a direct wholly owned subsidiary of SunAmerica Life Insurance Company (the “Parent”), which is a wholly owned subsidiary o