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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
-------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-75938, 333-19123, 333-47527, 333-52358, 2-76642
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RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
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(Exact name of registrant as specified in its charter)
New York 53-0242530
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1000 Woodbury Road, Suite 102, Woodbury, NY 11797
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (516) 682-8700
------------------------------
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Former name, former address and formal fiscal year,
if changed since last report
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 [ ]
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:
250,000 shares of Common Stock as of November 14, 2002, all of which were
directly owened by Security-Connecticut Life Insurance Company
NOTE: WHEREAS RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK 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
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
Form 10Q 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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 15
Item 6. Exhibits and Reports on Form 8-K....................................................... 15
Signatures ....................................................................................... 16
Index ....................................................................................... 17
Certifications ....................................................................................... 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- --------------
Revenue:
Premiums $ 16.7 $ 13.1 $ 51.2 $ 33.3
Fee income 28.1 28.4 80.7 83.0
Net investment income 34.1 32.8 101.3 106.0
Net realized capital gains (losses) 5.8 3.8 (2.3) 11.0
-------------- ------------- -------------- --------------
Total revenue 84.7 78.1 230.9 233.3
Benefits and expenses:
Benefits:
Interest credited and other benefits to
Policyholders 50.3 52.3 135.4 130.9
Underwriting, acquisition, and insurance expenses:
Operating expense 6.3 7.1 28.9 37.0
Amortization:
Deferred policy acquisition costs and
value of business acquired 9.0 12.0 17.8 27.9
Goodwill - 5.6 - 16.9
Other:
Dividends and experience refunds to
Policyholders 0.1 (2.8) 1.3 (2.4)
-------------- ------------- -------------- --------------
Total benefits and expenses 65.7 74.2 183.4 210.3
-------------- ------------- -------------- --------------
Income before income taxes 19.0 3.9 47.5 23.0
Income tax expense 6.9 3.3 16.7 14.0
-------------- ------------- -------------- --------------
Net income $ 12.1 $ 0.6 $ 30.8 9.0
============== ============= ============== ==============
See Notes to Condensed Financial Statements.
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance 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 $1,492.6 and $1,455.4 at 2001) $1,561.8 $1,486.2
Equity securities, at fair value (cost of $6.9 at 2002 and $6.1 at 2001) 7.0 6.0
Mortgage loans on real estate 255.0 265.5
Policy loans 85.4 85.0
Short-term investments 16.3 5.4
Other investments 10.3 6.8
Securities pledged to creditors (cost of $72.4 at 2002 and $40.1 at 2001) 73.5 13.9
---------------- ----------------
Total investments 2,009.3 1,868.8
Short term investments under securities loan agreement 75.8 15.1
Accounts and notes receivable 19.6 7.7
Accrued investment income 21.1 21.9
Due from affiliates 1.5 47.1
Reinsurance recoverable 53.0 51.6
Deferred policy acquisition costs 36.0 26.0
Value of business acquired 76.8 64.7
Goodwill (net of accumulated amortization of ($31.3 in 2002 and 2001) 864.9 864.9
Deferred income taxes 23.3 46.5
Other assets 2.2 3.7
Separate accounts assets 430.1 487.4
---------------- ----------------
Total assets $3,613.6 $3,505.4
---------------- ----------------
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits and claims reserves $1,575.7 $1,550.5
Unearned premiums 1.3 0.9
Other policy claims and benefits 40.0 40.7
Other policyholder funds 22.6 17.3
---------------- ----------------
Total insurance reserves liability 1,639.6 1,609.4
Payables under securities loan agreement 75.8 15.1
Current income taxes 5.7 -
Cash overdraft 0.3 17.5
Other borrowed money 70.1 75.4
Other liabilities 106.1 87.9
Separate accounts liabilities 430.1 487.4
---------------- ----------------
Total liabilities 2,327.7 2,292.7
Shareholder's equity:
Common stock 2.8 2.8
Additional paid-in capital 1,222.3 1,194.6
Accumulated other comprehensive income 28.2 6.5
Retained earnings 32.6 8.8
---------------- ----------------
Total shareholder's equity 1,285.9 1,212.7
---------------- ----------------
Total liabilities and shareholder's equity $ 3,613.6 $ 3,505.4
================ ================
See Notes to Condensed Financial Statements.
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance 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 $ 1,271.3 $ 1,216.0 $ 1,212.7 $ 1,207.8
Comprehensive income:
Net income 12.1 0.6 30.8 9.0
Other comprehensive income net of tax:
Unrealized gain on securities
(2002 - $32.9 and 2001- $27.5 pretax year to date) 6.1 10.1 21.8 17.9
-------------- -------------- -------------- --------------
Total comprehensive income 18.2 10.7 52.6 26.9
-------------- -------------- -------------- --------------
Contribution of capital - - 31.4 -
Dividend paid (3.6) (4.0) (10.8) (12.0)
-------------- -------------- -------------- --------------
Shareholder's equity, end of period $ 1,285.9 $ 1,222.7 $ 1,285.9 $ 1,222.7
============== ============== ============== ==============
See Notes to Condensed Financial Statements.
5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Nine Months Ended September 30,
2002 2001
----------------- ------------------
Net cash provided by operating activities $ 99.5 $ 23.5
Cash Flows from Investing Activities:
Proceeds from the sale of:
Fixed maturities available for sale 1,405.5 924.8
Other investments 0.3
Investment maturities and collections of:
Fixed maturities available for sale 28.2 38.0
Mortgage loans on real estate 18.1 281.3
Acquisition of investments:
Fixed maturities available for sale (1,467.6) (984.3)
Equity securities (1.1) (0.1)
Short-term investments (71.6) 18.4
Mortgages (7.5) (310.5)
Other Investments (77.1) (0.2)
Decrease in policy loans (0.4) (0.9)
----------------- ------------------
Net cash used in investing activities (173.2) (33.5)
----------------- ------------------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 119.5 98.3
Maturities and withdrawals from insurance contracts (104.6) (102.8)
Increase in borrowed money 55.4 61.0
Contribution of First Golden 31.4 -
Dividends to shareholder (10.8) (12.0)
----------------- ------------------
Net cash provided by financing activities 90.9 44.5
----------------- ------------------
Net increase in cash and cash equivalents 17.2 34.5
Cash and cash equivalents, beginning of period (17.5) (2.1)
----------------- ------------------
Cash and cash equivalents, end of period $ (0.3) $ 32.4
================= ==================
See Notes to Condensed Financial Statements.
6
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
ReliaStar Life Insurance Company of New York ("RLNY" or "the Company") is a
wholly- owned subsidiary of Security-Connecticut Life Insurance Company
("Security-Connecticut") a Minnesota domiciled insurance company, which
provides financial products and services in the United States.
Security-Connecticut is a wholly-owned subsidiary of ReliaStar Life
Insurance Company ("ReliaStar Life"). ReliaStar Life is a wholly-owned
subsidiary of ReliaStar Financial Corp. ("ReliaStar"), a holding and
management company domiciled in Delaware. ReliaStar's ultimate parent is
ING Groep, N.V. ("ING"), a global financial services company based in The
Netherlands.
On April 1, 2002, ReliaStar Life acquired First Golden American Life
Insurance Company of New York ("First Golden"), an affiliated entity for a
purchase price of $27.7 million in cash and $0.2 million in receivables.
The purchase price was based on First Golden's statutory-basis book value.
ReliaStar Life contributed First Golden to Security-Connecticut.
Security-Connecticut contributed First Golden to RLNY and First Golden was
dissolved into RLNY. The contribution of First Golden to RLNY was recorded
as an increase to stockholder's equity of $31.4 million. Approval for the
merger was obtained from the Insurance Departments of the States of New
York and Delaware.
These condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
and are unaudited. These interim condensed 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 for the year
ended December 31, 2001 as presented on the Form S-1 filed by the Company
on April 1, 2002. 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 conducts its business through one operating segment and all
revenue reported by the Company is derived from external customers.
7
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
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.
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 $5.6 million and $16.8 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 $ 9.0
Add back goodwill amortization 5.6 16.9
--------------------------------------------------------------------------
Adjusted net income $ 6.2 $ 25.9
==========================================================================
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.
8
ITEM 1. FINANCIAL STATEMENTS (continued)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (CONTINUED)
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.
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 on the results of
the Company was not material.
4. INVESTMENTS
IMPAIRMENTS
During the first nine months of 2002, the Company determined that fourteen
(14) fixed maturities had other than temporary impairments. As a result,
for the nine months ended September 30, 2002, the Company recognized a
total pre-tax loss of $5.7 million to reduce the carrying value of the
fixed maturities to their combined fair value of $7.8 million. During the
first nine months of 2001, the Company determined that two fixed maturities
had other than temporary impairments. As a result, at September 30, 2001,
the Company recognized a pre-tax loss of $0.6 million to reduce the
carrying value of the fixed maturities to their fair value of $0.6 million.
5. INCOME TAXES
The Company's effective tax rates for the nine months ended September 30,
2002 and September 30, 2001 were 35% and 61%, respectively. The Company's
effective tax rates for the three months ended September 30, 2002 and
September 30, 2001 were 36% and 85%, respectively. Relative to the amount
of pretax income in all periods, the disallowance of goodwill amortization
as a deduction principally contributed to the decrease in the effective tax
rates.
9
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following narrative analysis of the results of operations 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 Form S-1 filed on April 1, 2002.
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 associates 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, 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 is principally engaged in the business of providing life insurance
and related financial services products. The Company provides and distributes
individual life insurance and annuities; employee benefits products and
services; retirement plans and life and health reinsurance. The Company operates
primarily in the United States and is authorized to conduct business in all 50
states.
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 affected in a materially adverse manner by the need to
make future accounting adjustments to reflect changes in these estimates and
assumptions from time to time.
RESULTS OF OPERATIONS
The increase in earnings, excluding net realized capital gains (losses) and
amortization of goodwill, of $4.6 million and $13.6 million, for the three and
nine months ended September 30, 2002, respectively is primarily due to a
decrease in amortization of deferred policy acquisition costs and value of
business acquired and an increase in life premiums.
Amortization of deferred policy acquisition costs and value of business acquired
decreased $3.0 million and $10.1 million for the three and nine months ended
September 30, 2002, respectively. This increase is primarily due to purchase
accounting adjustments made in December 2001.
Operating expenses decreased by $0.8 million and $8.1 million for the three and
nine months ended September 30, 2002, respectively, compared to the same periods
in 2001, primarily due to lower allocations of corporate and service charges
from the Company's parent and other affiliates who provide services to the
Company.
11
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Life premiums increased by $3.6 million and $17.9 million for the three and nine
months ended September 30, 2002, respectively, compared to the same periods in
2001. Net investment income increased by $1.3 million and decreased $4.7 million
for the three months and nine months ended September 30, 2002, respectively,
compared to the same periods in 2001. Interest credited and other benefits to
policyholders increased by $0.9 million and $6.6 million for the three months
and nine months ended September 30, 2002, respectively, compared to the same
periods in 2001. The net earnings impact of premiums, investment income, and
interest credited and other benefits to policyholders resulted in an increase to
earnings of $4.0 million and $5.0 million for the three and nine months ended
September 30, 2002, respectively, due to business growth, partially offset by
lower interest rates.
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 $ 0.9 $ 0.5 $ 3.4 $ 3.9
Annuities -variable options 0.4 0.9 1.5 4.5
- ----------------------------------------------------------------------------------------------------
Total - deposits $ 1.3 $ 1.4 $ 4.9 $ 8.4
====================================================================================================
Annuity Assets Under Management
Annuities - fixed options $ 398.7 $ 443.7
Annuities - variable options 144.1 192.3
- ----------------------------------------------------------------------------------------------------
Total - annuity assets under management $ 542.8 $ 636.0
====================================================================================================
FINANCIAL CONDITION
INVESTMENTS
FIXED MATURITIES
At September 30, 2002 and December 31, 2001, the Company's carrying value of
available for sale fixed maturities represented 77.7% and 79.5%, respectively,
of the total general account invested assets. Total fixed maturities included
net unrealized capital gains of $69.2 million and $44.7 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 A+ 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.
12
The percentage of total fixed maturities by quality rating category is as
follows:
September 30, 2002 December 31, 2001
- --------------------------------------------------------------------------------
AAA 44.6% 35.6%
AA 5.4 6.8
A 20.5 18.0
BBB 24.0 31.8
BB 3.9 4.4
B and below 1.6 3.4
- --------------------------------------------------------------------------------
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 54.3% 59.2%
Residential Mortgage-backed 23.3 20.2
Commercial/Multifamily Mortgage-backed 7.1 7.7
Foreign (1) 0.2 -
U.S. Treasuries/Agencies 4.8 0.4
Asset-backed 10.3 12.5
- --------------------------------------------------------------------------------
Total 100.0% 100.0%
================================================================================
(1) Primarily U.S. dollar denominated
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.
13
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
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 life and annuity premiums and
policyholder claims and product charges, investment income, maturing
investments, proceeds from debt issuance, and capital contributions. Primary
uses of these funds are payments of commissions and operating expenses, interest
and premium credits, investment purchases, repayment of debt, 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.
Additional sources of liquidity include borrowing facilities to meet short-term
cash requirements. The Company maintains a $97.4 million reciprocal loan
agreement with ING American Insurance Holding, Inc, and the Company has
established a $30.0 million revolving note facility with SunTrust Bank which
expires on July 30, 2003. 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 Commissioner's ("NAIC") risk-based capital
requirements requires 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.
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
14
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
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) Reports on Form 8-K.
None
15
SIGNATURE
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.
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Registrant)
November 14, 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)
16
INDEX
Exhibits to Form 10-Q
Nine months ended September 30, 2002
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
Page Number
-----------
EXHIBITS.
1. Underwriting Agreement Between ReliaStar Life Insurance
Company of New York and Directed Services, Inc............................................. ______
3. (a) Articles of Incorporation of ReliaStar Life Insurance Company of New York................... ______
(b) By-laws of ReliaStar Life Insurance Company of New York..................................... ______
(c) Resolution of Board of Directors for Powers of Attorney..................................... ______
4. (a) Individual Deferred Combination Variable and Fixed Annuity Contract......................... ______
(b) Deferred Combination Variable and Fixed Annuity Group Master Contract....................... ______
(c) Individual Retirement Annuity Rider Page.................................................... ______
(d) Schedule Page to the DVA Plus NY Contract featuring The Galaxy VIP Fund..................... ______
(e) Section 72 Rider............................................................................ ______
(f) Change of Name Endorsement.................................................................. ______
(g) Deferred Combination Variable and Fixed Annuity Certificate (Group)......................... ______
(h) Section 72 Rider (Group).................................................................... ______
(i) Individual Retirement Annuity Rider (Group)................................................. ______
(j) Simple Individual Retirement Annuity Rider (Group).......................................... ______
(k) 403(b) Rider (Group)........................................................................ ______
(l) Roth Individual Retirement Annuity Rider (Group)............................................ ______
(m) Deferred Combination Variable and Fixed Annuity Contract (Individual)....................... ______
(n) Section 72 Rider (Individual)............................................................... ______
(o) Individual Retirement Annuity Rider (Individual)............................................ ______
(p) Simple Individual Retirement Annuity Rider (Individual)..................................... ______
17
INDEX
Exhibits to Form 10-Q
Nine months ended September 30, 2002
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
Page Number
-----------
(q) 403(b) Rider (Individual)................................................................... ______
(r) Roth Individual Retirement Annuity Rider (Individual)....................................... ______
(s) Individual Deferred Combination Variable and Fixed Annuity Application (Old)................ ______
(t) Individual Deferred Combination Variable and Fixed Annuity Application (PE)................. ______
(u) Individual Deferred Combination Variable and Fixed Annuity Application (New)................ ______
(v) Enrollment Form............................................................................. ______
5. Opinion and Consent of Linda E. Senker, Esquire............................................. ______
10. (a) Form of Services Agreement between Directed Services, Inc
and ReliaStar Life Insurance Company of New York............................................ ______
(b) Form of Administrative Services Agreement between ReliaStar Life Insurance
Company of New York and Golden American Life Insurance Company.............................. ______
(c) Form of Administrative Services Agreement between ReliaStar Life Insurance
Company of New York and Equitable Life Insurance Company of Iowa............................ ______
(d) Form of Custodial Agreement between Registrant and The Bank of New York.................... ______
(e) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and the Travelers Series Fund Inc....................................... ______
(f) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and the Greenwich Street Series......................................... ______
(g) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and the Smith Barney Concert Allocation Series Inc...................... ______
(h) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and PIMCO Variable Insurance Trust...................................... ______
(i) Form of Asset Management Agreement between ReliaStar Life
Insurance Company of New York and ING Investment Management LLC............................. ______
(j) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and The Galaxy VIP Fund................................................. ______
18
INDEX
Exhibits to Form 10-Q
Nine months ended September 30, 2002
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
Page Number
-----------
(k) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and the ING Variable Insurance Trust.................................... ______
(l) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and ING Variable Products Trust......................................... ______
(m) Form of Participation Agreement between ReliaStar Life Insurance
Company of New York and the Prudential Series Fund, Inc..................................... ______
(n) Form of Amended Schedule Page to the Participation Agreement
between ReliaStar Life Insurance Company of New York and Prudential Series Fund, Inc....... ______
(o) Form of Participation Agreement between ReliaStar Life
Insurance Company of New York and ProFund Advisors LLC...................................... ______
(p) Form of Reinsurance Agreement ReliaStar Life Insurance Company
of New York and London Life Reinsurance Company of Pennsylvania............................. ______
23. (a) Consent of Ernst & Young LLP, Independent Auditors.......................................... ______
(b) Consent of Deloitte & Touche LLP, Independent Auditors...................................... ______
(c) Consent of Linda E. Senker, Esquire incorporated in Item 5 of
this Part II, together with the Opinion of Linda E. Senker.................................. ______
24. Powers of Attorney.......................................................................... ______
19
CERTIFICATION
I, Chris Duane Schreier, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life
Insurance Company of New York.
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 14, 2002
-----------------
By /s// Chris Duane Schreier
-------------------------
Chris Duane Schreier
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
20
CERTIFICATION
I, James R.Gelder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life
Insurance Company of New York.
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 1, 2002
By /s/ James R. Gelder
-------------------
James R. Gelder
President
(Duly Authorized Officer and Chief Executive Officer)
21