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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to
Commission file number: 333-49581, 033-63657
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ING INSURANCE COMPANY OF AMERICA
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(Exact name of registrant as specified in its charter)
Florida 06-1286272
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
Corporate Center One, 2202 North Westshore Boulevard, #350, Tampa, Florida 33607
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (866) 723-4646
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Former name, former address and formal fiscal year, if changed since last report
Indicate by check /X/ 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
------------- -------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 25,500 shares of Common Stock
as of November 12, 2002, all of which were directly owned by ING Life Insurance
and Annuity Company.
NOTE: WHEREAS ING INSURANCE COMPANY OF AMERICA MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING FILED WITH
THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
1
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
Form 10-Q for period ended September 30, 2002
INDEX
PAGE
-------
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements:
Condensed Statements of Income 3
Condensed Balance Sheets 4
Condensed Statements of Changes in Shareholder's Equity 5
Condensed Statements of Cash Flows 6
Notes to Condensed Financial Statements 7
Item 2. Management's Narrative Analysis of the Results of
Operations and Financial Condition 10
Item 4. Controls and procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Certifications 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenue:
Fee income $ 1.7 $ 3.5 $ 7.5 $ 11.1
Net investment income 1.2 2.4 4.8 7.6
Net realized capital gains (losses) 0.3 (0.4) (0.7) 0.3
------------ ------------ ------------ ------------
Total revenue 3.2 5.5 11.6 19.0
Benefits and expenses:
Benefits:
Interest credited and other benefits to
policyholders 1.7 2.1 3.8 5.6
Underwriting, acquisition, and insurance expenses:
Operating expenses 0.6 0.6 2.6 2.3
Amortization:
Deferred policy acquisition costs and
value of business acquired 4.3 1.4 9.6 4.8
Goodwill -- 0.7 -- 1.9
------------ ------------ ------------ ------------
Total benefits and expenses 6.6 4.8 16.0 14.6
------------ ------------ ------------ ------------
Income (loss) before income taxes (3.4) 0.7 (4.4) 4.4
Income tax expense (benefit) (1.2) 0.1 (1.6) 1.8
------------ ------------ ------------ ------------
Net income (loss) $ (2.2) $ 0.6 $ (2.8) $ 2.6
============ ============ ============ ============
See Notes to Condensed Financial Statements.
3
ITEM 1. FINANCIAL STATEMENTS (continued)
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
CONDENSED BALANCE SHEETS
(Millions)
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------------- -------------
ASSETS (UNAUDITED)
- ------
Investments:
Fixed maturities, available for sale, at fair value
(amortized cost of $115.4 at 2002 and $120.2 at 2001) $ 123.2 $ 124.4
Securities pledged to creditors (amortized cost of $19.0 at 2002
and $7.8 at 2001) 19.5 7.8
----------------- -------------
Total investments 142.7 132.2
Cash and cash equivalents 0.4 0.6
Short term investments under securities loan agreement 22.4 9.9
Accrued investment income 1.6 2.0
Deferred policy acquisition costs 1.1 0.8
Value of business acquired 37.1 46.5
Goodwill (net of accumulated amortization of $2.6 in 2002
and 2001) 101.8 101.8
Current income taxes 2.4 --
Other assets 15.6 21.5
Separate accounts assets 616.9 821.3
---------------- ---------------
Total assets $ 942.0 $ 1,136.6
================ ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Liabilities:
Other policyholder funds $ 90.7 $ 95.6
Payables under securities loan agreement 22.4 9.9
Current income taxes -- 1.5
Deferred income taxes 7.8 7.4
Other liabilities 15.2 10.7
Separate accounts liabilities 616.9 821.3
---------------- ---------------
Total liabilities 753.0 946.4
Shareholder's equity:
Common stock 2.5 2.5
Additional paid-in capital 180.9 180.9
Accumulated other comprehensive income 2.9 1.3
Retained earnings 2.7 5.5
---------------- ---------------
Total shareholder's equity 189.0 190.2
---------------- ---------------
Total liabilities and shareholder's equity $ 942.0 $ 1,136.6
================ ===============
See Notes to Condensed Financial Statements.
4
ITEM 1. FINANCIAL STATEMENTS (continued)
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Unaudited)
(Millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Shareholder's equity, beginning of period $ 189.7 $ 187.0 $ 190.2 $ 184.6
Comprehensive income:
Net income (loss) (2.2) 0.6 (2.8) 2.6
Other comprehensive income net of tax:
Unrealized gain on securities
($2.5 and $2.9, pretax year to date) 1.5 1.5 1.6 1.9
------------ ------------ ------------ ------------
Total comprehensive income (loss) (0.7) 2.1 (1.2) 4.5
------------ ------------ ------------ ------------
Shareholder's equity, end of period $ 189.0 $ 189.1 $ 189.0 $ 189.1
============ ============ ============ ============
See Notes to Condensed Financial Statements.
5
ITEM 1. FINANCIAL STATEMENTS (continued)
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2002 2001
------------------ ------------------
Net cash provided by operating activities $ 23.4 $ 11.2
Cash Flows from Investing Activities:
Proceeds from the sale of:
Fixed maturities available for sale 35.1 65.6
Short-term investments -- 2.8
Investment maturities and collections of:
Fixed maturities available for sale 12.4 9.2
Acquisition of investments:
Fixed maturities available for sale (57.1) (69.0)
Short-term investments (1.0) --
Other, net 0.7 --
------------------ ------------------
Net cash provided by (used for) investing activities (9.9) 8.6
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 4.7 4.8
Maturities and withdrawals from insurance contracts (22.3) (26.3)
Other, net 3.9 (5.2)
------------------ ------------------
Net cash (used for) financing activities (13.7) (26.7)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (0.2) (6.9)
Cash and cash equivalents, beginning of period 0.6 9.1
------------------ ------------------
Cash and cash equivalents, end of period $ 0.4 $ 2.2
================== ==================
See Notes to Condensed Financial Statements.
6
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
ING Insurance Company of America ("IICA", or the "Company"), formerly known
as Aetna Insurance Company of America ("AICA") is a provider of financial
products and services in the United States. The Company is a wholly-owned
subsidiary of ING Life Insurance and Annuity Company ("ILIAC"). ILIAC is a
wholly-owned subsidiary of ING Retirement Holdings, Inc. ("HOLDCO"). HOLDCO
is a wholly-owned subsidiary of ING Retirement Services, Inc. ("IRSI"),
whose ultimate parent is ING Groep N.V. ("ING"), a financial services
company based in The Netherlands.
These condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
and are unaudited. These condensed interim financial statements necessarily
rely on estimates, including assumptions as to annualized tax rates. In the
opinion of management, all adjustments necessary for a fair statement of
results for the interim periods have been made. All such adjustments are of
a normal, recurring nature. Certain reclassifications have been made to
2001 financial information to conform to the 2002 presentation.
The accompanying condensed financial statements should be read in
conjunction with the financial statements and related notes as presented in
the Company's 2001 Annual Report on Form 10-K. Certain financial
information that is normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America, but that is not required for interim reporting
purposes, has been condensed or omitted.
Operating results for nine months ended September 30, 2002, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
The Company has one operating segment, and all revenue reported by the
Company is derived from external customers.
2. NEW ACCOUNTING STANDARDS
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Accounting
for Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new statement, goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with
the new statement. Other intangible assets will continue to be amortized
over their estimated useful lives.
7
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (continued)
2. NEW ACCOUNTING STANDARDS (continued)
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
The Company adopted the new statement effective January 1, 2002.
Application of the nonamortization provisions of the new statement resulted
in an increase in net income of $0.7 million and $2.0 million for the three
months and nine months ended September 30, 2002, respectively. The Company
performed the first of the required impairment tests for goodwill as of
January 1, 2002. The results indicate an impairment of goodwill exists. The
required steps for measuring the amount of the impairment will be completed
and the resulting impairment loss will be recorded as a change in
accounting principle prior to December 31, 2002. The impairment loss
recorded will be the difference between the carrying amount and the
estimated fair value of goodwill.
Had the Company been accounting for its goodwill under SFAS 142 for all
periods presented, the Company's net income for the three months and nine
months ended September 30, 2001 would have been as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
(MILLIONS) SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
------------------------------------------------------------------------------------------
Reported net income $ 0.6 $ 2.6
Add back goodwill amortization 0.7 1.9
------------------------------------------------------------------------------------------
Adjusted net income $ 1.3 $ 4.5
==========================================================================================
3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Deferred Policy Acquisition Costs ("DAC") is an asset, which represents
certain costs of acquiring certain insurance business, which are deferred
and amortized. These costs, all of which vary with and are primarily
related to the production of new and renewal business, consist principally
of commissions, certain underwriting and contract issuance expenses, and
certain agency expenses. Value of Business Acquired ("VOBA") is an asset,
which represents the present value of estimated net cash flows embedded in
the Company's contracts, which existed at the time the Company was acquired
by ING. DAC and VOBA are evaluated for recoverability at each balance sheet
date and these assets would be reduced to the extent that gross profits are
inadequate to recover the asset.
The amortization methodology varies by product type based upon two
accounting standards: Statement of Financial Accounting Standards No. 60,
"Accounting and Reporting by Insurance Enterprises" ("SFAS 60") and
Statement of Financial Accounting Standards No. 97, "Accounting by
Insurance Companies for Certain Long-Duration Contracts & Realized Gains &
Losses on Investment Sales" ("SFAS 97").
Under SFAS 60, acquisition costs for traditional life insurance products,
which primarily include whole life and term life insurance contracts, are
amortized over the premium payment period in proportion to the premium
revenue recognition.
8
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (continued)
3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
(continued)
Under SFAS 97, acquisition costs for investment-type products, which
include universal life policies and fixed and variable deferred annuities,
are amortized over the lives of the policies (up to 30 years) in relation
to the emergence of estimated gross profits from surrender charges;
investment, mortality net of reinsurance ceded and expense margins; and
actual realized gain (loss) on investments. Amortization is adjusted
retrospectively when estimates of current or future gross profits to be
realized from a group of products are revised.
Each period, company management reviews the assumptions affecting the
amortization calculation related to the DAC and VOBA assets. During the
third quarter of 2002, the Company revised certain of its future
assumptions to reflect the recent equity market and interest rate
environment. The effect of these changes in assumptions during the third
quarter was a reduction in DAC and VOBA assets of $2.0 million and
additional pretax DAC and VOBA amortization of the same amount for the
three months ended September 30, 2002.
4. INCOME TAXES
The Company's effective tax rates for the nine months ended September 30,
2002 and September 30, 2001 were 36% and 41%, respectively. This decrease
reflects the implementation of SFAS 142 (refer to Note 2) which
discontinued the amortization of goodwill, a nondeductible expense, and an
decrease in the deduction allowed for dividends received. The Company's
effective tax rates for the three months ended September 30, 2002 and
September 30, 2001 were 35% and 14%, respectively. This increase reflects
the implementation of SFAS 142, as discussed above, and a decrease in the
deduction allowed for dividends received.
9
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following narrative analysis of the results of operations and financial
condition presents a review of the Company for the three month and nine month
periods ended September 30, 2002 and 2001. This review should be read in
conjunction with the financial statements and other data presented herein, as
well as the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section contained in the Company's 2001 Annual Report on
Form 10-K.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission (the "SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemptions of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information.
OVERVIEW
RECENT ACCOUNTING DEVELOPMENTS
In June 2001, the FASB issued SFAS No. 142, Accounting for Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
Under the new statement, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the new statement. Other intangible assets
will continue to be amortized over their estimated useful lives (refer to Note 2
of Notes to Condensed Financial Statements).
10
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
OVERVIEW (continued)
NATURE OF BUSINESS
The Company offers qualified and nonqualified annuity contracts that include a
variety of funding and payout options for individuals and employer sponsored
retirement plans qualified under Internal Revenue Code Section 403(b), as well
as nonqualified deferred compensation plans. Annuity contracts may be deferred
or immediate (payout annuities). These products also include programs offered to
qualified plans and nonqualified deferred compensation plans that package
administrative and record-keeping services along with a variety of investment
options, including affiliated and nonaffiliated mutual funds and variable and
fixed investment options.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the use of estimates and
assumptions in certain circumstances that affect amounts reported in the
accompanying condensed financial statements and related footnotes. These
estimates and assumptions are evaluated on an on-going basis based on historical
developments, market conditions, industry trends and other information that is
reasonable under the circumstances. There can be no assurance that actual
results will conform to estimates and assumptions, and that reported results of
operations will not be materially adversely affected by the need to make future
accounting adjustments to reflect changes in these estimates and assumptions
from time to time. Item 7 of the Company's Annual Report on Form 10-K discusses
critical accounting policies, which are most sensitive to estimates and
judgments and involve a higher degree of judgment and complexity.
11
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS
The decrease in earnings, excluding goodwill amortization and net realized
capital gains and losses, of $4.0 million and $6.6 million, for the three months
and nine months ended September 30, 2002, respectively, is primarily due to an
increase in amortization of deferred acquisition costs and value of business
acquired, a decrease in fee income, and a decrease in investment income,
partially offset by a decrease in interest credited and other benefits to
policyholders.
Substantially all of the fee income reported by the Company is derived from
variable assets under management. For the quarter ended September 30, 2002,
variable assets under management decreased $167.0 million, or 24%, compared
to the same period in 2001 due to a decline in the stock market and
withdrawals in excess of deposits. This decrease is the primary reason for
the decrease in fee income for the three and nine months ended
September 30, 2002.
The decrease in investment income, interest credited and other benefits to
policyholders is due to a decline in assets under management related to
annuities with fixed options, assets under management and a decline in interest
rates. Assets under management related to fixed options decreased due to
withdrawals exceeding deposits.
Amortization of deferred policy acquisition costs and value of business
acquired increased $2.9 million and $4.8 million for the three and nine months
ended September 30, 2002, respectively. Amortization is reflected in proportion
to actual and estimated future gross profits. Estimated future gross profits
are computed based on underlying assumptions related to the underlying
contracts, including but not limited to margins, lapse, persistency, expenses,
and asset growth. Due to the significant decline in the equity markets during
the three and nine months ended September 30, 2002, the assumed amount of
future assets under management and related future asset-based fee revenues was
revised to reflect current asset levels, as of September 30, 2002, which
resulted in a reduction of the estimated future gross profits. Additionally,
during the third quarter of 2002, the Company revised certain of its future
assumptions affecting the amortization of the DAC and VOBA assets to reflect
the recent equity market and interest rate environment. The effect of these
changes in assumptions was additional pretax DAC and VOBA amortization for the
three and nine months ended September 30, 2002 (refer to Note 3 of Notes to
Condensed Consolidated Financial Statements). The reduction in estimated
future gross profits, due to the decline in equity markets, and the
aforementioned change in assumptions are the primary reasons for the increase
in amortization for the three and nine months ended September 30, 2002.
The Company's annuity deposits and assets under management are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
(MILLIONS) (UNAUDITED) 2002 2001 2002 2001
------------ ------------ ------------ ------------
Deposits
Annuities -- fixed options $ 1.8 $ 1.0 $ 5.5 $ 5.6
Annuities -- variable options 5.8 4.5 15.8 24.3
- -------------------------------------------------------------------------------------------------------------------------------
Total--deposits $ 7.6 $ 5.5 $ 21.3 $ 29.9
===============================================================================================================================
Assets under management
Annuities -- fixed options (1) $ 152.8 $ 161.4
Annuities -- variable options (2) 530.4 697.4
- -------------------------------------------------------------------------------------------------------------------------------
Total -- assets under management $ 683.2 $ 858.8
===============================================================================================================================
(1) Excludes net unrealized capital gains of $8.3 million and $5.9 million at
September 30, 2002 and September 30, 2001, respectively.
(2) Includes $390.7 million and $533.9 million at September 30, 2002 and
September 30, 2001, respectively, of assets invested through the Company's
products in unaffiliated mutual funds.
12
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
FINANCIAL CONDITION
INVESTMENTS
FIXED MATURITIES
At September 30, 2002 and December 31, 2001, the Company's carrying value of
available for sale fixed maturities including fixed maturities pledged to
creditors (hereinafter referred to as "total fixed maturities") represented 100%
of the total general account invested assets for both periods. For the same
periods, $117.3 million, or 82% of total fixed maturities, and $120.1 million,
or 91% of total fixed maturities, respectively, supported experience-rated
products. Total fixed maturities reflected net unrealized capital gains of $8.3
million and $4.2 million at September 30, 2002 and December 31, 2001,
respectively.
It is management's objective that the portfolio of fixed maturities be of high
quality and be well diversified by market sector. The fixed maturities 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
fixed maturities portfolio was AA at September 30, 2002 and December 31, 2001.
Fixed maturities rated BBB and below may have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity of the issuer to make principal and interest payments than
is the case with higher rated fixed maturities.
The percentage of total fixed maturities by quality rating category is as
follows:
SEPTEMBER 30, 2002 DECEMBER 31, 2001
- -----------------------------------------------------------------------------
AAA 47.4% 36.0%
AA 5.3 5.9
A 32.3 35.1
BBB 13.0 23.0
BB 0.1 --
B and Below 1.9 --
- -----------------------------------------------------------------------------
Total 100.0% 100.0%
=============================================================================
The percentage of total fixed maturities by market sector is as follows:
SEPTEMBER 30, 2002 DECEMBER 31, 2001
- ------------------------------------------------------------------------------------
U.S. Corporate 56.9% 65.1%
Residential Mortgage-Backed 16.3 11.7
U.S. Treasuries/Agencies 17.8 10.3
Commercial/Multifamily Mortgage-Backed 4.7 7.5
Asset-Backed 4.3 5.4
- ------------------------------------------------------------------------------------
Total 100.0% 100.0%
====================================================================================
13
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
INVESTMENTS (continued)
FIXED MATURITIES (continued)
Below investment grade securities have different characteristics than investment
grade corporate debt securities. Risk of loss upon default by the borrower is
greater with respect to below investment grade securities than with other
corporate debt securities. Below investment grade securities are generally
unsecured and are often subordinated to other creditors of the issuer. Also,
issuers of below investment grade securities usually have higher levels of debt
and are more sensitive to adverse economic conditions, such as recession or
increasing interest rates, than are investment grade issuers. The Company
attempts to manage the overall risk in the below investment grade portfolio, as
in all investments, through careful credit analysis, adherence to investment
policy guidelines, and diversification by issuer and/or guarantor and by
industry.
The Company analyzes the investment portfolio, including below investment grade
securities, at least quarterly in order to determine if the Company's ability to
realize the carrying value on any investment has been impaired. For debt and
equity securities, if impairment in value is determined to be other than
temporary (i.e., if it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the security), the cost basis
of the impaired security is written down to fair value, which becomes the new
cost basis. The amount of the write-down is included in earnings as a realized
loss. Future events may occur, or additional or updated information may be
received, which may necessitate future write-downs of securities in the
Company's portfolio.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Company to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Company's principal sources of liquidity are product charges, investment
income and maturing investments. Primary uses of these funds are payments of
commissions and operating expenses, interest credits, investment purchases, as
well as withdrawals and surrenders.
The Company's liquidity position is managed by maintaining adequate levels of
liquid assets, such as cash or cash equivalents and short-term investments. The
Company has entered into agreements with ILIAC under which ILIAC has agreed to
cause the Company to have sufficient capital to meet certain capital and surplus
levels. Management believes that its sources of liquidity are adequate to meet
the Company's short-term cash obligations which cannot be funded from operating
sources.
The National Association of Insurance Commissioners ("NAIC") risk-based capital
requirements require insurance companies to calculate and report information
under a risk-based capital formula. These requirements are intended to allow
insurance regulators to monitor the capitalization of insurance companies based
upon the type and mixture of risks inherent in a Company's operations. The
formula includes components for asset risk, liability risk, interest rate
exposure, and other factors. The Company has complied with the NAIC's risk-based
capital reporting requirements. Amounts reported indicate that the Company has
total adjusted capital above all required capital levels.
14
ITEM 4. CONTROLS AND PROCEDURES
a) Within the 90-day period prior to the filing of this report, the Company
carried out an evaluation, under the supervision and with the participation
of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule 13a-14 of
the Securities Exchange Act of 1934). Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that the
Company's current disclosure controls and procedures are effective in
ensuring that material information relating to the Company required to be
disclosed in the Company's periodic SEC filings is made known to them in a
timely manner.
b) There have not been any significant changes in the internal controls of the
Company or other factors that could significantly affect these internal
controls subsequent to the date the Company carried out its evaluation.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in lawsuits arising, for the most part, in the ordinary
course of its business operations. In some cases the suing party may seek to
represent a class of persons with similar claims, and may assert claims for
substantial compensatory and punitive damages. While the outcome of these
lawsuits cannot be determined at this time, after consideration of the defenses
available to the Company, applicable insurance coverage and any related reserves
established, these lawsuits are not currently expected to result in liability
for amounts material to the financial condition of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K.
None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ING INSURANCE COMPANY OF AMERICA
--------------------------------
(Registrant)
November 12, 2002 By /s/ Chris Duane Schreier
- ------------------ -------------------------------
(Date) Chris Duane Schreier
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
By /s/ Cheryl Price
-------------------------------
Cheryl Price
Chief Accounting Officer
(Principal Accounting Officer)
17
CERTIFICATION
I, Chris Duane Shreier, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ING Insurance Company
of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies, defenses
and material weaknesses.
Date: November 12, 2002
-----------------
By /s/ Chris Duane Schreier
------------------------------
Chris Duane Schreier
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
18
CERTIFICATION
I, Thomas J. McInerney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ING Insurance Company
of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies, defenses
and material weaknesses.
Date: November 12, 2002
-----------------
By /s/ Thomas J. McInerney
------------------------------
Thomas J. McInerney
President
(Duly Authorized Officer and Principal Executive Officer)
19
CERTIFICATION
Pursuant to 18 U.S.C. Section1350, the undersigned officer of ING Insurance
Company of America (the "Company") hereby certifies that, to the officer's
knowledge, the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
November 12, 2002 By /s/ Chris Duane Schreier
- ------------------ -------------------------------
(Date) Chris Duane Schreier
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section1350 and is not being filed as parT of the Report or as a separate
disclosure document.
20
CERTIFICATION
Pursuant to 18 U.S.C. Section1350, the undersigned officer of ING Insurance
Company of America (the "Company") hereby certifies that, to the officer's
knowledge, the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
November 12, 2002 By /s/ Thomas J. McInerney
- ------------------ -------------------------------
(Date) Thomas J. McInerney
President
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section1350 and is not being filed as parT of the Report or as a separate
disclosure document.
21