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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
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Commission file number: 333-75938, 333-86352
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ReliaStar Life Insurance Company of New York
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(Exact name of registrant as specified in its charter)
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NEW YORK 53-0242530
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1000 WOODBURY ROAD, SUITE 208, 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 former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. 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: 1,377,863 shares of Common
Stock as of March 10, 2003 all of which were directly owned by
Security-Connecticut Life Insurance Company.
NOTE: WHEREAS RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK MEETS THE CONDITIONS
SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K, THIS FORM IS
BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION
I(2).
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RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
Annual Report on Form 10-K
For the Year Ended December 31, 2002
TABLE OF CONTENTS
Form 10-K
Item No. Page
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PART I
Item 1. Business**............................................................................ 3
Item 2. Properties** ......................................................................... 6
Item 3. Legal Proceedings..................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders* ................................ 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................ 7
Item 6. Selected Financial Data*.............................................................. 7
Item 7. Management's Narrative Analysis of the Results of Operations and
Financial Condition**................................................................. 7
Item 7A. Quantitative and Qualitative Disclosure About Market Risk............................. 13
Item 8. Financial Statements and Supplementary Data........................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure *................................................................ 44
PART III
Item 10. Directors and Executive Officers of the Registrant*................................... 44
Item 11. Executive Compensation* .............................................................. 44
Item 12. Security Ownership of Certain Beneficial Owners and Management*....................... 44
Item 13. Certain Relationships and Related Transactions* ...................................... 44
Item 14. Controls and Procedures............................ .................................. 44
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K................................................................................... 45
Index to Financial Statement Schedules................................................ 59
Signatures............................................................................ 53
* Item omitted pursuant to General Instruction I(2) of Form 10-K
** Item prepared in accordance with General Instruction I(2) of Form 10-K
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PART I
ITEM 1. BUSINESS
ORGANIZATION OF BUSINESS
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 Lion Connecticut Holding Inc.
("Lion Connecticut"). Lion Connecticut'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 at GAAP book value. Security-Connecticut
contributed First Golden to RLNY and First Golden was dissolved into RLNY at
GAAP book value. The contribution of First Golden to RLNY was recorded as an
increase to stockholder's equity of $31.4 million which equaled First Golden's
April 1, 2002 GAAP book value. Approval for the merger was obtained from the
Insurance Departments of the States of New York and Delaware.
Statement of Financial Accounting Standards ("FAS") No. 141 "Business
Combinations" excludes transfers of net assets or exchanges of shares between
entities under common control and is therefore covered by Accounting Principles
Board ("APB") Opinion No. 16 "Business Combinations." In accordance with Opinion
No. 16, the statement of financial position and other financial information is
presented as of the beginning of the period ended December 31, 2002, as though
the assets and liabilities had been transferred at January 1, 2002 on a combined
basis. Prior year information was not restated due to the immateriality of the
First Golden amounts to the prior periods.
PRODUCTS AND SERVICES
Management has determined that under FAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information," the Company has one operating segment,
ING U.S. Financial Services ("USFS").
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
and retirement plans. The Company's strategy is to offer, principally through
education-based marketing, a wide variety of products and services designed to
address customers' needs for financial security, especially tax-advantaged
savings for retirement and protection in the event of death.
The Company's 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 Sections 401, 403 and
457, as well as non-qualified deferred compensation plans. Annuity contracts may
be deferred or immediate (payout annuities). These products also include
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programs offered to qualified plans and non-qualified 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. In addition, the Company also
offers wrapper agreements entered into with retirement plans which contain
certain benefit responsive guarantees (i.e. liquidity guarantees of principal
and previously accrued interest for benefits paid under the terms of the plan)
with respect to portfolios of plan-owned assets not invested with the Company.
The Company also offers investment advisory services and pension plan
administrative services.
INDIVIDUAL LIFE AND ANNUITY INSURANCE PRODUCTS
The Company offers a wide range of individual life insurance products, including
term, universal life, second-to-die universal life, variable universal life, as
well as variable annuities through a network of independent agents and financial
professionals. These products are marketed to individual customers who prefer to
purchase insurance and investment products from a personal financial adviser.
These products target middle and upper-income families and niche markets
including U.S. military personnel and small-business owners.
Variable universal life and fixed universal life insurance products represent a
significant portion of the individual life insurance premium volume. Variable
universal life insurance policies contain alternative investment options
(generally mutual funds) and policy values which will vary based upon the
investment returns of the fund(s) selected by the policyholder, while providing
certain benefits associated with traditional life insurance, such as death
benefits and cash values. Fixed universal life policies provide for guaranteed
levels of insurance protection and minimum interest rate guarantees. Interest
sensitive products provide for interest crediting rates which may be adjusted
periodically, subject to minimum guaranteed rates as set forth in policyholder
contracts. Adjustments are made to the crediting rates on interest sensitive
products based upon a variety of factors, including investment performance,
market interest rates and competitive factors. Profits recognized on
interest-sensitive products are affected by mortality experience, the margin
between interest rates earned on investments and interest credited to
policyholders, as well as capital gains and losses on investments, persistency
and expenses.
The variable annuity products offered contain alternative investment options
(generally mutual funds) and policy values which will vary based upon the
investment returns of the fund(s) selected by the policyholder.
Variable annuities are long-term savings vehicles in which contract owner
premiums (purchase payments) are recorded and maintained in sub-accounts with a
separate account established and registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust. Variable annuities issued by the
Company are a combination of variable and fixed deferred annuity contracts under
which some or all of the premiums may be allocated by the contract owner to a
fixed account available under the contract.
The Company discourages premature surrenders of interest-sensitive products
through contractual surrender charges and the adjustment of interest crediting
rates. The policies and annuities sold contain provisions which allow the
contractholder to withdraw or surrender their contracts under defined
circumstances. These contracts generally contain provisions which apply
penalties or otherwise limit the ability of contractholders to make such
withdrawals or surrenders. The interest rates that the Company might be required
to credit under their interest-sensitive insurance products to forestall
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surrenders, particularly in a time of rapidly rising market interest rates,
could have an adverse effect on operating income.
Individual life insurance business is subject to risks in the event that the
Company's mortality experience deviates from the assumptions used in
establishing its premium rates.
EMPLOYEE BENEFIT PRODUCTS
The Company targets the sale of employee benefits and financial services to
medium and large corporate employers and affinity groups. Additionally, the
Company sells individual and payroll-deduction products to employees of its
corporate clients. Principal products include group and individual life
insurance and non-medical group insurance products. The Company also maintains
an in-force block of 401(k) retirement plan business.
Group life and disability insurance and employee benefit related services are
offered by the Company. Employee benefits products are marketed through major
brokerage operations and through direct sales to employers.
Group term life insurance is marketed to employer groups in the Company's target
market. Premiums for these policies are based largely upon the experience of the
Company, in some instances, on the experience of the particular group
policyholder. The primary risks related to this line of business include
deviations from expected mortality, expenses and investment income. The Company
seeks to control the mortality risk through reinsurance treaties.
The Company also markets group disability income insurance. This coverage
compensates employees for loss of income due to sickness or injury. The
profitability of this business is affected by morbidity experience and the
investment return on assets supporting the policy reserves.
The Company markets individual life insurance policies to employees at the
worksite and to members of affinity groups. The products delivered to these
markets include universal life insurance policies, whole life insurance policies
and individual term life policies.
The Company also markets individual cancer policies to employees at the worksite
as well as medical stop loss coverage to employer sponsors of self-funded
employee health benefit plans.
COMPETITION
The businesses in which the Company engages in are each highly competitive. The
products compete in marketplaces characterized by a large number of competitors
with similar products. Competition is based largely upon the crediting rates
under the policies, the credit and claims paying ratings of competing insurers,
name recognition, the commission structures of competing insurers and the levels
of service afforded distributors. Competing investment opportunities are also
made available by mutual funds, banks and other financial intermediaries, many
of which have greater resources than the Company. The products are not generally
eligible for legal protection from being copied by others, and capital is the
most significant barrier to entry by new competitors.
Group life insurance is a homogeneous product sold in a highly competitive
market. The Company's competitors include all of the largest insurers doing
business in the United States.
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REGULATION
Insurance companies are subject to regulation and supervision by the
jurisdictions in which they are domiciled and transact business. The Company is
domiciled in New York. The laws of the state of New York establishes supervisory
agencies with broad administrative and supervisory powers relative to granting
and revoking licenses to transact business, regulating trade practices,
licensing agents, approving policy forms, filing certain premium rates, setting
insurance liability and investment reserve requirements, determining the form
and content of required financial statements, determining the reasonableness and
adequacy of capital and surplus and prescribing the types, amounts and
concentrations of investments permitted. The Company is subject to periodic
examinations by the regulatory agencies, including market conduct examinations
of sales practices. A number of states require insurance companies to
participate in assigned risk or other pools providing insurance for people who
cannot qualify in the regular markets.
The state of New York imposes National Association of Insurance Commissioners
("NAIC") developed minimum risk-based capital requirements on insurance
enterprises. The formulas for determining the amount of risk-based capital
specify various weighting factors that are applied to financial balances and
various levels of activity, based upon the nature and perceived degree of risk
associated with such balances and levels of activity. Regulatory compliance is
measured by a company's risk-based capital ratio, which is calculated as a
company's regulatory total adjusted capital, as defined, divided by its
authorized control level risk-based capital, as defined. Companies with ratios
below specific trigger points are classified within certain regulatory action
levels, each of which requires specified corrective action. The risk-based
capital ratio of the Company exceeds the ratio at which regulatory corrective
action would be required.
In addition to state insurance laws, the Company is also subject to general
business and corporation laws, federal and state securities laws, the Employee
Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of
1986, as amended, consumer protection laws, fair credit reporting acts and other
laws.
Some annuities and insurance policies issued by the Company are funded by
separate accounts, the interests in which are registered under the Securities
Act of 1933, as amended, and subject to review by the SEC. These laws and
regulations are primarily intended to protect investors in the securities
markets and generally grant supervisory agencies broad administrative power,
including the power to limit or restrict the conduct of business for failure to
comply with such laws and regulations.
GEOGRAPHIC DISTRIBUTION
The Company operates primarily in the United States and is authorized to conduct
business in all 50 states and the District of Columbia.
ITEM 2. PROPERTIES
The Company's home office is located at 1000 Woodbury Road, Suite 208, Woodbury,
NY 11797. All Company office space is leased or subleased by the Company or its
other affiliates. The Company pays substantially all expenses associated with
its leased and subleased office properties. Expenses not paid directly by the
Company are paid for by an affiliate and allocated back to the Company.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to threatened or pending lawsuits arising from the normal
conduct of business. Due to the climate in insurance and business litigation,
suits against the Company sometimes include claims for substantial compensatory,
consequential or punitive damages and other types of relief. Moreover, certain
claims are asserted as class actions, purporting to represent a group of
similarly situated individuals. While it is not possible to forecast the outcome
of such lawsuits, in light of existing insurance, reinsurance and established
reserves, it is the opinion of management that the disposition of such lawsuits
will not have materially adverse effect on the Company's operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the Company's outstanding shares are owned by Security-Connecticut Life
Insurance Company, which is a wholly-owned subsidiary of ReliaStar Life
Insurance Company whose ultimate parent is ING.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The following narrative analysis of the results of operations and financial
condition presents a review of the Company for the twelve month periods ended
December 31, 2002 versus 2001. This review should be read in conjunction with
the financial statements and other data presented herein.
CHANGE IN ACCOUNTING PRINCIPLE
In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS No.
142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under FAS No. 142, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests. Other intangible assets are still amortized over
their estimated useful lives. The Company adopted the new standard effective
January 1, 2002.
As required under FAS No. 142, the Company completed the first of the required
impairment tests as of January 1, 2002. Step one of the impairment test was a
screen for potential impairment, while step two measured the amount of the
impairment. All of the Company's operations fall under one reporting unit, USFS,
due to the consolidated nature of the Company's operations. Step one of the
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impairment test required the Company to estimate the fair value of the reporting
unit and compare the estimated fair value to its carrying value. The Company
determined the estimated fair value utilizing a discounted cash flow approach
and applying a discount rate equivalent to the Company's weighted average cost
of capital. Fair value was determined to be less than carrying value which
required the Company to complete step two of the test. In step two, the Company
allocated the fair value of the reporting unit determined in step one to the
assets and liabilities of the reporting unit resulting in an implied fair value
of goodwill of zero.
The comparison of the fair value amount allocated to goodwill and the carrying
value of goodwill resulted in an impairment loss upon adoption of $865.0
million, which represents the entire carrying amount of goodwill, net of
accumulated amortization. This impairment charge is shown as a change in
accounting principle on the Income Statement.
RESULTS OF OPERATIONS
Premiums for the year ended December 31, 2002, increased by $6.0 million
compared to the same period in 2001. The growth of premiums is attributed to
growth in the Company's life insurance products.
Fee income and other income for the year ended December 31, 2002, increased by
$8.0 million compared to the same period in 2001. The increase is due to growth
in life insurance products, partially offset by decreases in fee income on
variable annuity assets which decreased as a result of market declines.
Net investment income for the year ended December 31, 2002, decreased by $11.5
million compared to the same period in 2001. The decrease in net investment
income was due to the decrease in yield and declining interest rates, partially
offset by a slight increase in assets.
Net realized capital gains (losses) for the year ended December 31, 2002,
decreased by $13.3 million compared to the same period in 2001. The increase in
capital losses are due to higher impairments of certain fixed maturities
compared to 2001(refer to Note 2 of Notes to Financial Statements).
Interest credited and other benefits to policyholders for the year ended
December 31, 2002, increased by $22.5 million compared to the same period in
2001. This increase is the result of higher future policy benefits and claim
reserves.
General expenses for the year ended December 31, 2002, decreased by $15.3
million compared to the same period in 2001. This reduction is attributed to a
lower allocation of corporate and service charges from the Company's parent and
other affiliates who provide services to the Company.
Amortization of deferred policy acquisition costs and value of business acquired
for the year ended December 31, 2002, increased by $6.1 million compared to the
same period in 2001. Amortization of long-duration products 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 interest margins, mortality lapse,
premium persistency, expenses, and asset growth. The increase in the
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amortization of deferred policy acquisition costs and value of insurance
acquired reflects the impact of these variables on the overall book of business.
The cumulative effect of the change in accounting principle for the year ended
December 31, 2002, was ($865.0) million. As noted in the Change in Accounting
Principle section, this write down is related to FAS No. 142, which addresses
the value of goodwill and other intangible assets.
Earnings, excluding goodwill amortization, change in accounting principle and
net realized capital gains and losses (net of taxes), decreased by $7.1 million
for the year ended December 31, 2002, as compared to the year ended December 31,
2001. The decrease in net earnings is the result of investment income decreases
due to lower investment income yields.
FINANCIAL CONDITION
INVESTMENTS
FIXED MATURITIES
Total fixed maturities reflected net unrealized capital gains of $95.2 million
and $61.5 million at December 31, 2002 and 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 December 31, 2002 and 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:
December 31, 2002 December 31, 2001
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AAA 44.9% 35.6%
AA 4.7 6.8
A 20.6 18.0
BBB 23.6 31.8
BB 4.2 4.4
B and Below 2.0 3.4
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Total 100.0% 100.0%
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The percentage of total fixed maturities by market sector is as follows:
December 31, 2002 December 31, 2001
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U.S. Corporate 54.0% 59.2%
Residential Mortgage-backed 23.4 20.2
Commercial/Multifamily
Mortgage-backed 7.0 7.7
Foreign (1) 0.2 -
U.S. Treasuries/Agencies 6.1 0.4
Asset-backed 9.3 12.5
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Total 100.0% 100.0%
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(1) Primarily U.S. dollar denominated
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The Company analyzes the general account investments to determine whether there
has been an other than temporary decline in fair value below the amortized cost
basis in accordance with FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management considers the length of the time and the
extent to which the market value has been less than cost; the financial
condition and near-term prospects of the issuer; future economic conditions and
market forecasts; and the Company's intent and ability to retain the investment
in the issuer for a period of time sufficient to allow for recovery in market
value. If it is probable that all amounts due according to the contractual terms
of a debt security will not be collected, an other than temporary impairment is
considered to have occurred.
In addition, the Company invests in structured securities that meet the criteria
of Emerging Issues Task Force ("EITF") Issue No. 99-20 "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets." Under EITF Issue No. 99-20, a determination of
the required impairment is based on credit risk and the possibility of
significant prepayment risk that restricts the Company's ability to recover the
investment. An impairment is recognized if the market value of the security is
less than book value and there has been an adverse change in cash flow since the
last remeasurement date.
When a decline in fair value is determined to be other than temporary, the
individual security is written down to fair value and the loss is accounted for
as a realized loss.
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 premiums, 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 America Insurance Holdings, Inc. ("ING AIH"), a perpetual $30
million revolving note facility with Bank of New York and a $30.0 million
revolving note facility with SunTrust Bank, which expires on July 30, 2003.
Management believes that these sources of liquidity are adequate to meet the
Company's short-term cash obligations.
The 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.
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CRITICAL ACCOUNTING POLICIES
GENERAL
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 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.
The Company has identified the following estimates as critical in that they
involve a higher degree of judgment and are subject to a significant degree of
variability; goodwill impairment testing, investment impairment testing and
amortization of deferred acquisition costs and value of business acquired. In
developing these estimates management makes subjective and complex judgments
that are inherently uncertain and subject to material change as facts and
circumstances develop. Although variability is inherent in these estimates,
management believes the amounts provided are appropriate based upon the facts
available upon compilation of the consolidated financial statements.
GOODWILL IMPAIRMENT TESTING
The Company tested goodwill as of January 1, 2002 for impairment using fair
value calculations based on the present value of estimated future cash flows
from business currently in force and business that we estimate we will add in
the future. These calculations require management to make estimates on the
amount of future revenues and the appropriate discount rate. The calculated fair
value of goodwill and the resulting impairment loss recorded is based on these
estimates, which require a significant amount of management judgment. Refer to
Note 1 of the Financial Statements for a discussion of the results of the
Company's goodwill testing procedures and to Management's Narrative Analysis of
the Results of Operations for the impact these procedures had on the Company's
income.
INVESTMENT IMPAIRMENT TESTING
The Company reviews the general account investments for impairments by analyzing
the amount and length of time amortized cost has exceeded fair value, and by
making certain estimates and assumptions regarding the issuing companies'
business prospects, future economic conditions and market forecasts. Based on
the facts and circumstances of each case, management uses judgement in deciding
whether any calculated impairments are temporary or other than temporary. For
those impairments judged to be other than temporary, we reduce the carrying
value of those investments to the current fair value and record impairment
losses for the difference (refer to Note 2 of the Financial Statements).
AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Deferred policy acquisition costs ("DAC") and value of business acquired
("VOBA") are amortized with interest over the life of the contracts (usually 25
years) in relation to the present value of estimated gross profits from
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projected interest margins, asset-based fees, policy administration and
surrender charges less policy maintenance fees.
Changes in assumptions can have a significant impact on the calculation of
DAC/VOBA and its related amortization patterns. Due to the relative size of
DAC/VOBA balance and the sensitivity of the calculation to minor changes in the
underlying assumptions and the related volatility that could result in the
reported DAC/VOBA balance, the Company performs a quarterly analysis of
DAC/VOBA. At each balance sheet date, actual historical gross profits are
reflected and expected future gross profits and related assumptions are
evaluated for continued reasonableness. Any adjustment in estimated profit
requires that the amortization rate be revised retroactively to the date of
policy or contract issuance ("unlocking"), which could be significant. The
cumulative difference related to prior periods is recognized as a component of
current period's amortization, along with amortization associated with the
actual gross profits of the period. In general, increases in estimated returns
result in increased expected future profitability and may lower the rate of
amortization, while increases in lapse/surrender and mortality assumptions or
decreases in returns reduce the expected future profitability of the underlying
business and may increase the rate of amortization.
One of the most significant assumptions involved in the estimation of future
gross profits for variable universal life and deferred annuity products is the
assumed return associated with future separate account performance. To reflect
the near-term and long-term volatility in the equity markets this assumption
involves a combination of near-term expectations and a long-term assumption
about market performance. The overall return generated by the separate account
is dependent on several factors, including the relative mix of the underlying
sub-accounts among bond funds and equity funds as well as equity sector
weightings.
As part of the regular analysis of DAC/VOBA, at the end of third quarter of
2002, the Company unlocked its assumptions by resetting its near-term and
long-term assumptions for the separate account returns to 9% (gross before fund
management fees and mortality and expense and other policy charges), reflecting
a blended return of equity and other sub-accounts. This unlocking adjustment was
primarily driven by the sustained downturn in the equity markets and revised
expectations for future returns. For the year ended December 31, 2002, the
Company recorded an acceleration of DAC/VOBA amortization totaling $1.5 million
before tax, or $1.0 million, net of $0.5 million of federal income tax benefit.
FORWARD-LOOKING INFORMATION/RISK FACTORS
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
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
12
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Asset/liability management is integrated into many aspects of the Company's
operations, including investment decisions, product development, and
determination of crediting rates. As part of the risk management process,
different economic scenarios are modeled, including cash flow testing required
for insurance regulatory purposes, to determine that existing assets are
adequate to meet projected liability cash flows. Key variables in the modeling
process include interest rates, anticipated contractholder behavior and variable
separate account performance. Contractholders bear the majority of the
investment risk related to variable insurance products.
The fixed account liabilities are supported by a portfolio principally composed
of fixed rate investments that can generate predictable, steady rates of return.
The portfolio management strategy for the fixed account considers the assets
available for sale. This enables the Company to respond to changes in market
interest rates, changes in prepayment risk, changes in relative values of asset
sectors and individual securities and loans, changes in credit quality outlook,
and other relevant factors. The objective of portfolio management is to maximize
returns, taking in to account interest rate and credit risk, as well as other
risks. The Company's asset/liability management discipline includes strategies
to minimize exposure to loss as interest rates and economic and market
conditions change.
Term life products for employee benefits are short term in nature, with some
longer term claim reserves. Cash flow testing and additional sensitivity testing
(with varying mortality, morbidity and expense levels) provides assurance that
the existing assets are adequate to meet projected liability cash flows.
For universal life products, cash flow testing of higher mortality, surrender
and expense levels than expected indicate that solvency is not impaired by
reasonable variations in these risks. There is currently a gap between the
charges that are made to the policies for cost of insurance and expenses and the
guaranteed maximums, allowing some margin for adverse experience. Crediting
rates are also changed regularly to reflect changes in the portfolio.
On the basis of these analyses, management believes there is currently no
material solvency risk to the Company.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Auditors ......................................................................... 15
Financial Statements:
Income Statements for the years ended December 31, 2002 and 2001, four months
ended December 31, 2000 and eight months ended August 31, 2000.......................................... 16
Balance Sheets as of December 31, 2002 and 2001......................................................... 17
Statements of Changes in Shareholder's Equity for the years ended December 31, 2002
and 2001, four months ended December 31, 2000 and eight months ended August 31, 2000.................... 18
Statements of Cash Flows for the years ended December 31, 2002 and 2001, four months
ended December 31, 2000 and eights months ended August 31, 2000......................................... 19
Notes to Financial Statements........................................................................... 20
14
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
ReliaStar Life Insurance Company of New York
We have audited the accompanying balance sheets of ReliaStar Life Insurance
Company of New York as of December 31, 2002 and 2001 ("Successor Company"), and
the related income statements, statements of changes in shareholder's equity,
and statements of cash flows for the years ended December 31, 2002 and 2001, and
for the period from September 1, 2000 to December 31, 2000 ("Successor
Company"), and for the period from January 1, 2000 to August 31, 2000
("Preacquisition Company"). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the Successor Company's financial statements referred to above
present fairly, in all material respects, the financial position of ReliaStar
Life Insurance Company of New York at December 31, 2002 and 2001, and the
results of its operations and its cash flows for the years then ended, and for
the period from September 1, 2000 to December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Further, in our
opinion, the Preacquisition Company's financial statements referred to above
present fairly, in all material respects, the result of its operations and its
cash flows for the period from January 1, 2000 to August 31, 2000, in conformity
with accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, effective September 1, 2000,
ING America Insurance Holdings Inc. acquired all of the outstanding stock of
ReliaStar Financial Corp., ReliaStar Life Insurance Company of New York's
indirect parent and sole shareholder in a business combination accounted for as
a purchase. As a result of the acquisition, the financial information for the
periods after the acquisition is presented on a different cost basis than that
for the periods before the acquisition and, therefore, is not comparable.
As discussed in Note 1 to the financial statements, the Company changed the
accounting principle for goodwill and other intangible assets effective January
1, 2002.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 21, 2003
15
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
INCOME STATEMENTS
(Millions)
Preacquisition
----------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
2002 2001 2000 2000
--------------- -------------- ---------------- ----------------
Revenues:
Premiums $66.2 $60.2 $19.8 $28.1
Fee income 94.3 90.4 31.8 63.3
Net investment income 130.8 142.3 48.3 97.7
Net realized capital gains (losses) (2.7) 10.6 0.5 1.3
Other income 11.7 7.6 1.7 5.9
--------------- -------------- ---------------- ----------------
Total revenue 300.3 311.1 102.1 196.3
--------------- -------------- ---------------- ----------------
Benefits, losses and expenses:
Benefits:
Interest credited and other benefits to
policyholders 181.1 158.6 59.1 101.8
Underwriting, acquisition, and insurance expenses:
General expenses 36.2 51.5 15.7 32.4
Amortization:
Deferred policy acquisition costs and
value of business acquired 32.6 26.5 10.1 21.5
Goodwill - 22.6 2.8 5.8
--------------- -------------- ---------------- ----------------
Total benefits, losses and expenses 249.9 259.2 87.7 161.5
--------------- -------------- ---------------- ----------------
Income before income taxes 50.4 51.9 14.4 34.8
Income tax expense 17.8 26.1 7.4 12.0
--------------- -------------- ---------------- ----------------
Income before cumulative effect of change in 32.6 25.8 7.0 22.8
accounting principle
Cumulative effect of change in accounting principle (865.0) - - -
--------------- -------------- ---------------- ----------------
Net income (loss) $(832.4) $25.8 $7.0 $22.8
=============== ============== ================ ================
See Notes to Financial Statements
16
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
BALANCE SHEETS
(Millions, except share data)
December 31, December 31,
2002 2001
----------------- ---------------
Assets
- ------
Investments:
Fixed maturities, available for sale, at fair value
(amortized cost of $1,523.0 at 2002 and $1,441.3 at 2001) $1,601.5 $1,486.2
Equity securities, at fair value (cost of $4.4 at 2002 and
$3.6 at 2001) 4.4 6.0
Mortgage loans on real estate 243.6 265.5
Policy loans 85.2 85.0
Short-term investments 55.6 5.4
Other investments 11.9 6.8
Securities pledged to creditors (amortized cost of $0.9 at
2002 and $13.9 at 2001) 0.9 13.9
----------------- ---------------
Total investments 2,003.1 1,868.8
Cash and cash equivalents 2.4 (17.5)
Short term investments under securities loan agreement - 15.1
Accrued investment income 19.3 21.9
Accounts and notes receivable 6.9 7.7
Reciprocal loan with affiliate - 47.1
Reinsurance recoverable 54.6 51.6
Deferred policy acquisition costs 61.3 26.0
Value of business acquired 48.2 64.7
Goodwill (net of accumulated amortization of $31.2 at 2001) - 865.0
Deferred income taxes 26.1 46.5
Other assets 5.2 3.6
Assets held in separate accounts 429.4 487.4
----------------- ---------------
Total assets $2,656.5 $3,487.9
================= ===============
Liabilities and Shareholder's Equity
- ------------------------------------
Policy liabilities and accruals:
Future policy benefits and claims reserves $ 1,595.6 $1,550.5
Unearned premiums 0.2 0.9
Other policy claims and benefits payable 26.6 40.7
Other policyholder's funds 23.3 17.3
----------------- ---------------
Total policy liabilities and accruals 1,645.7 1,609.4
Payables under securities loan agreement - 15.1
Current income taxes 12.3 -
Other borrowed money 74.2 75.4
Other liabilities 69.1 87.9
Liabilities related to separate accounts 429.4 487.4
----------------- ---------------
Total liabilities 2,230.7 2,275.2
----------------- ---------------
Shareholder's equity:
Common stock (1,377,863 shares authorized, issued and
outstanding; $2.00 per share par value) 2.8 2.8
Additional paid-in capital 1,225.6 1,194.6
Accumulated other comprehensive income 35.4 6.5
Retained earnings (deficit) (838.0) 8.8
----------------- ---------------
Total shareholder's equity 425.8 1,212.7
----------------- ---------------
Total liabilities and shareholder's equity $2,656.5 $3,487.9
================= ===============
See Notes to Financial Statements
17
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Millions)
Accumulated
Other Retained Total
Common Additional Comprehensive Earnings Shareholder's
Stock Paid-in-Capital Income (Loss) (Deficit) Equity
- ----------------------------------------------- ------------ ------------- -------------- ------------- --------------
Balance at December 31, 1999 $ 2.8 $ 235.2 $ (9.4) $ 213.0 $ 441.6
Dividends to Shareholder - - - (6.0) (6.0)
Comprehensive income:
Net income - - - 22.8 22.8
Other comprehensive income net of tax:
Unrealized (loss) on securities
($(1.6) pretax) - - (1.0) - (1.0)
--------------
Comprehensive income 21.8
------------ ------------- -------------- ------------- --------------
Balance at August 31, 2000 2.8 235.2 (10.4) 229.8 457.4
Purchase Accounting Adjustment - 959.4 10.4 (229.8) 740.0
Dividends to Shareholder - - - (6.0) (6.0)
Comprehensive income:
Net income - - - 7.0 7.0
Other comprehensive income net of tax:
Unrealized gain on securities
($14.5 pretax) - - 9.4 - 9.4
--------------
Comprehensive income 16.4
------------ ------------- -------------- ------------- --------------
Balance at December 31, 2000 2.8 1,194.6 9.4 1.0 1,207.8
Dividends to Shareholder - - - (18.0) (18.0)
Comprehensive income:
Net income - - - 25.8 25.8
Other comprehensive income net of tax:
Unrealized (loss) on securities
($(4.5) pretax) - - (2.9) - (2.9)
--------------
Comprehensive income 22.9
------------ ------------- -------------- ------------- --------------
Balance at December 31, 2001 2.8 1,194.6 6.5 8.8 1,212.7
Capital contribution - 31.4 - - 31.4
Other - (0.4) - - (0.4)
Dividends to Shareholder - - - (14.4) (14.4)
Comprehensive income:
Net loss - - - (832.4) (832.4)
Other comprehensive income net of tax:
Unrealized gain on securities
($45.1 pretax) - - 28.9 - 28.9
--------------
Comprehensive (loss) (803.5)
------------ ------------- -------------- ------------- --------------
Balance at December 31, 2002 $ 2.8 $ 1,225.6 $ 35.4 $ (838.0) $ 425.8
============ ============= ============== ============= ==============
See Notes to Financial Statements
18
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
STATEMENTS OF CASH FLOWS
(Millions)
Preacquisition
-----------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
2002 2001 2000 2000
-------------- -------------- --------------- -----------------
Cash Flows from Operating Activities:
Net income (loss) $ (832.4) $ 25.8 $ 7.0 $ 22.8
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to insurance 45.5 43.0 21.1 44.5
Future policy benefits (75.3) (77.9) (35.9) (81.5)
Net realized capital (gains) losses 2.7 (10.6) (0.5) (1.3)
Increase (decrease) in receivables and payables (29.1) 28.9 12.5 24.1
(Increase) decrease in deferred policy acquisition costs (19.7) (34.1) (14.8) (18.5)
(Increase) decrease in value of business acquired 16.7 26.5 10.1 21.5
Amounts due to related parties 49.9 (58.4) (4.0) 12.7
Provision for deferred income taxes 3.5 2.4 12.8 (2.4)
Impairment of goodwill 865.0 - - -
Amortization of goodwill - 22.6 2.8 5.8
Other (1.6) (30.9) (8.9) 4.6
-------------- -------------- --------------- -----------------
Net cash provided by (used for) operating activities 25.2 (62.7) 2.2 32.3
-------------- -------------- --------------- -----------------
Cash Flows from Investing Activities:
Proceeds from the sale of:
Fixed maturities available for sale 2,248.5 1,277.5 74.7 113.7
Equity securities - 1.0 - -
Mortgages - - 52.0 19.2
Investment maturities and collections of:
Fixed maturities available for sale - 77.0 154.5 69.4
Short-term investments - - - 3.8
Mortgage loans 21.9 10.2 - -
Acquisition of investments:
Fixed maturities available for sale (2,290.5) (1,371.2) (251.6) (169.4)
Equity securities (0.8) - - -
Short-term investments (35.1) (2.1) (13.0) -
Mortgages - (29.5) (1.4) -
Increase (decrease) in policy loans (0.2) (0.6) (0.6) -
Other, net (5.1) (1.8) 4.0 (1.4)
-------------- -------------- --------------- -----------------
Net cash provided by (used for) investing activities (61.3) (39.5) 18.6 35.3
-------------- -------------- --------------- -----------------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 149.0 145.2 49.2 88.8
Maturities and withdrawals from insurance contracts (83.2) (130.9) (60.9) (156.5)
Increase in borrowed money (1.2) - - -
Dividends to shareholder (14.4) (18.0) (6.0) (6.0)
Increase in borrowed money - 90.5 - -
-------------- -------------- --------------- -----------------
Net cash provided by (used for) financing activities 50.2 86.8 (17.7) (73.7)
-------------- -------------- --------------- -----------------
Net increase (decrease) in cash and cash equivalents 14.1 (15.4) 3.1 (6.1)
Cash received from first Golden 5.8 - - -
-------------- -------------- --------------- -----------------
Cash and cash equivalents, beginning of period (17.5) (2.1) (5.2) 0.9
-------------- -------------- --------------- -----------------
Cash and cash equivalents, end of period $ 2.4 $ (17.5) $ (2.1) $ (5.2)
============== ============== =============== =================
See Notes to Financial Statements
19
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
ReliaStar Life Insurance Company of New York ("RLNY" or the "Company") is a
wholly-owned subsidiary of Security-Connecticut Life Insurance Company
("Security-Connecticut") which is a wholly-owned subsidiary of ReliaStar Life
Insurance Company ("ReliaStar Life") ultimately owned by ING Groep, N.V.
("ING").
On September 1, 2000, ING America Insurance Holdings, Inc., ("ING AIH") an
indirect wholly-owned subsidiary of ING, acquired ReliaStar, of which the
Company is part for approximately $6 billion. The purchase price was comprised
of approximately $5.1 billion in cash and the assumption of $917 million of
outstanding debt and other net liabilities.
For accounting purposes, the acquisition was accounted for using the purchase
method. The application of the purchase method, including the recognition of
goodwill, is being pushed down and reflected on the financial statements of
ReliaStar's subsidiaries, including the Company. The Balance Sheet changes
related to accounting for this acquisition were non-cash in nature and
accordingly have been excluded from the preacquisition statement of cash flows.
The purchase price was allocated to assets and liabilities based on their
respective fair values. This revaluation resulted in a net decrease to assets
before allocation of goodwill. The net decrease to assets reflects the write off
of deferred policy acquisition costs ("DPAC") of $166.1 million, which was the
balance as of August 31, 2000, the establishment of present value of future
profits ("PVFP") of $112.4 million and a net increase of other assets of $5.0
million. Goodwill resulting from the transaction attributable to the Company was
approximately $896.2 million and was amortized over 40 years prior to January 1,
2002. PVFP resulting from the transaction is being amortized over the years that
it is anticipated such profits will be received.
Unaudited pro forma income from continuing operations and net income of the
Company for the period from January 1, 2000 to August 31, 2000, assuming that
the acquisition of the Company occurred at the beginning of the period, would
have been approximately $8.5 million. The pro forma adjustments, which do no
affect revenues, reflect primarily goodwill amortization.
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 at GAAP book value. Security-Connecticut
contributed First Golden to RLNY and First Golden was dissolved into RLNY at
GAAP book value. The contribution of First Golden to RLNY was recorded as an
increase to stockholder's equity of $31.4 million which equaled First Golden's
April 1, 2002 GAAP book value. Approval for the merger was obtained from the
Insurance Departments of the States of New York and Delaware.
Statement of Financial Accounting Standards ("FAS") No. 141 "Business
Combinations" excludes transfers of net assets or exchanges of shares between
entities under common control and is therefore covered by Accounting Principles
Board ("APB") Opinion No. 16 "Business Combinations." In accordance with Opinion
20
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
No. 16, the statement of financial position and other financial information is
presented as of the beginning of the period ended December 31, 2002, as though
the assets and liabilities had been transferred at January 1, 2002 on a combined
basis. Prior year information was not restated due to the immateriality of the
First Golden amounts to the prior periods.
DESCRIPTION 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 benefit products and services
and retirement plans. The Company operates primarily in the United States and is
authorized to conduct business in all 50 states and the District of Columbia.
NEW ACCOUNTING STANDARDS
ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS 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.
As required under FAS No. 142, the Company completed the first of the required
impairment tests as of January 1, 2002. Step one of the impairment test was a
screen for potential impairment, while step two measured the amount of the
impairment. All of the Company's operations fall under one reporting unit, USFS,
due to the consolidated nature of the Company's operations. Step one of the
impairment test required the Company to estimate the fair value of the reporting
unit and compare the estimated fair value to its carrying value. The Company
determined the estimated fair value utilizing a discounted cash flow approach
and applying a discount rate equivalent to the Company's weighted average cost
of capital. Fair value was determined to be less than carrying value which
required the Company to complete step two of the test. In step two, the Company
allocated the fair value of the reporting unit determined in step one to the
assets and liabilities of the reporting unit resulting in an implied fair value
of goodwill of zero.
The comparison of the fair value amount allocated to goodwill and the carrying
value of goodwill resulted in an impairment loss upon adoption of $865.0
million, which represents the entire carrying amount of goodwill, net of
accumulated amortization. This impairment charge is shown as a change in
accounting principle on the Income Statement.
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 $22.6 million for the year ended December 31, 2002. The Company
performed the first of the required impairment tests for goodwill as of January
1, 2002.
21
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Had the Company been accounting for its goodwill under FAS No.142 for all
periods presented, the Company's net income for the year ended December 31,
2001, four months ended December 31, 2000 and eight months ended August 31, 2000
would have been as follows:
Preacquisition
---------------------
Year ended Four months ended Eight months ended
(Millions) December 31, 2001 December 31, 2000 August 31, 2000
------------------------------------------------------------------------------------------------------------
Reported net income $ 25.8 $ 7.0 $ 22.8
Add back goodwill amortization 22.6 2.8 5.8
------------------------------------------------------------------------------------------------------------
Adjusted net income $ 48.4 $ 9.8 $ 28.6
============================================================================================================
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended and interpreted by FAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities" - Deferral of the
Effective Date of FASB Statement 133, FAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of FAS No.
133, and certain FAS No.133 implementation issues." This Standard, as amended,
requires companies to record all derivatives on the balance sheet as either
assets or liabilities and measure those instruments at fair value. The manner in
which companies are to record gains or losses resulting from changes in the fair
values of those derivatives depends on the use of the derivative and whether it
qualifies for hedge accounting. FAS No. 133 was effective for the Company's
financial statements beginning January 1, 2001. Adoption of FAS No. 133 did not
have a material effect on the Company's financial position or results of
operations given the Company's limited derivative and embedded derivative
holdings.
The Company occasionally purchases a financial instrument that contains a
derivative that is "embedded" in the instrument. In addition, the Company's
insurance products are reviewed to determine whether they contain an embedded
derivative. The Company assesses whether the economic characteristics of the
embedded derivative are clearly and closely related to the economic
characteristics of the remaining component of the financial instrument or
insurance product (i.e., the host contract) and whether a separate instrument
with the same terms as the embedded instrument would meet the definition of a
derivative instrument. When it is determined that the embedded derivative
possesses economic characteristics that are not clearly and closely related to
the economic characteristics of the host contract and that a separate instrument
with the same terms would qualify as a derivative instrument, the embedded
derivative is separated from the host contract and carried at fair value.
However, in cases where the host contract is measured at fair value, with
changes in fair value reported in current period earnings or the Company is
unable to reliably identify and measure the embedded derivative for separation
from its host contracts, the entire contract is carried on the balance sheet at
fair value and is not designated as a hedging instrument. The Company did not
have embedded derivatives at December 31, 2002 or 2001.
22
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FUTURE ACCOUNTING STANDARDS
GUARANTEES
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," to clarify accounting and disclosure
requirements relating to a guarantor's issuance of certain types of guarantees.
FIN 45 requires entities to disclose additional information about certain
guarantees, or groups of similar guarantees, even if the likelihood of the
guarantor's having to make any payments under the guarantee is remote. The
disclosure provisions are effective for financial statements for fiscal years
ended after December 15, 2002. For certain guarantees, the interpretation also
requires that guarantors recognize a liability equal to the fair value of the
guarantee upon its issuance. This initial recognition and measurement provision
is to be applied only on a prospective basis to guarantees issued or modified
after December 31, 2002. The Company has performed an assessment of it
guarantees and believes that all of its significant guarantees are excluded from
the scope of this interpretation.
EMBEDDED DERIVATIVES
The FASB issued FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities in 1998 and continues to issue guidance for implementation through
its Derivative Implementation Group ("DIG"). DIG recently released a draft of
FASB Statement No. 133 Implementation Issue B36, "Embedded Derivatives:
Bifurcation of a Debt Instrument That Incorporates Both Interest Rate Risk and
Credit Risk Exposures That are Unrelated or Only Partially Related to the
Creditworthiness of the Issuer of That Instrument" ("DIG B36"). Under this
interpretation, modified coinsurance and coinsurance with funds withheld
reinsurance agreements as well as other types of receivables and payables where
interest is determined by reference to a pool of fixed maturity assets or total
return debt index may be determined to contain bifurcatable embedded
derivatives. The required date of adoption of DIG B36 has not been determined.
If the guidance is finalized in its current form, the Company has determined
that certain of its existing reinsurance receivables (payables), investments or
insurance products contain embedded derivatives that may require bifurcation.
The Company has not yet completed its evaluation of the potential impact, if
any, on its financial positions, results of operations, or cash flows.
VARIABLE INTEREST ENTITIES
In January 2003, FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities" ("VIE"), an interpretation of Accounting Research
Bulletin ("ARB") No. 51. This Interpretation addresses consolidation by business
enterprises of variable interest entities, which have one or both of the
following characteristics: a) insufficient equity investment at risk, or b)
insufficient control by equity investors. This guidance is effective for VIEs
created after January 31, 2003 and for existing VIEs as of July 1, 2003. An
entity with variable interests in VIEs created before February 1, 2003 shall
apply the guidance no later than the beginning of the first interim or annual
reporting period beginning after June 15, 2003.
23
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In conjunction with the issuance of this guidance, the Company conducted a
review of its involvement with VIEs. The Company does have an investment in P&F
Loan Trust ("P&F") in the amount of $5 million as of December 31, 2002. P&F is a
private CDO issued in 1997, to invest in a total return swap on a $299 million
pool of leveraged loans. ING, through its affiliates, owns $55 million of the
P&F securities, which represents ING's maximum exposure to loss. ING has been
determined by management to be the primary beneficiary. Since all of the ING
entities owning the P&F are insurance entities and none of their operations are
more closely related to the operations of P&F ; the affiliated entity owing the
most significant portion will consolidate this VIE. Security Life of Denver
("SLD"), an affiliate, will be the primary beneficiary and consolidator of P&F
Loan Trust.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial information to
conform to the current year classifications.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from reported
results using those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
INVESTMENTS
All of the Company's fixed maturity and equity securities are currently
designated as available-for-sale. Available-for-sale securities are reported at
fair value and unrealized gains and losses on these securities are included
directly in shareholder's equity, after adjustment for related charges in
deferred policy acquisition costs, value of business acquired, and deferred
income taxes.
The Company analyzes the general account investments to determine whether there
has been an other than temporary decline in fair value below the amortized cost
basis in accordance with FAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management considers the length of the time and the
extent to which the fair value has been less than cost; the financial condition
and near-term prospects of the issuer; future economic conditions and market
forecasts; and the Company's intent and ability to retain the investment in the
issuer for a period of time sufficient to allow for recovery in fair value. If
it is probable that all amounts due according to the contractual terms of a debt
security will not be collected, an other than temporary impairment is considered
to have occurred.
24
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In addition, the Company invests in structured securities that meet the criteria
of Emerging Issues Task Force ("EITF") Issue No. 99-20 "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets." Under EITF Issue No. 99-20, a determination of
the required impairment is based on credit risk and the possibility of
significant prepayment risk that restricts the Company's ability to recover the
investment. An impairment is recognized if the fair value of the security is
less than book value and there has been an adverse change in cash flow since the
last remeasurement date.
When a decline in fair value is determined to be other than temporary, the
individual security is written down to fair value and the loss accounted for as
a realized loss.
Realized capital gains and losses on investments are reflected on the Company's
results of operations. Unrealized capital gains and losses on investments are
reflected in shareholder's equity, net of related income taxes.
Purchases and sales of fixed maturities and equity securities (excluding private
placements) are recorded on the trade date. Purchases and sales of private
placements and mortgage loans are recorded on the closing date.
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value of
the loaned domestic securities. The collateral is deposited by the borrower with
a lending agent, and retained and invested by the lending agent according to the
Company's guidelines to generate additional income.
The market value of the loaned securities is monitored on a daily basis with
additional collateral obtained or refunded as the fair value of the loaned
securities fluctuates.
In accordance with FAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," general account securities
on loan are reflected on the Balance Sheets as "securities pledged to
creditors", which includes the following:
Gross Gross
December 31, 2002 Amortized Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------
Total securities pledged to creditors $ 0.9 $ - $ - $ 0.9
===========================================================================================================
Gross Gross
December 31, 2001 Amortized Unrealize d Unrealized Fair
(Millions) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------
Total securities pledged to creditors $ 13.9 $ - $ - $ 13.9
===========================================================================================================
25
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Total securities pledged to creditors at December 31, 2002 and 2001 consisted
entirely of fixed maturity securities.
Reverse dollar repurchase agreement and reverse repurchase agreement
transactions are accounted for as collateralized borrowings, where the amount
borrowed is equal to the sales price of the underlying securities. These
transactions are reported in "Other Liabilities."
Mortgage loans on real estate are reported at amortized cost less impairment
writedowns. If the value of any mortgage loan is determined to be impaired
(i.e., when it is probable the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement), the carrying value of
the mortgage loan is reduced to the present value of expected cash flows from
the loan, discounted at the loan's effective interest rate, or to the loan's
observable market price, or the fair value of the underlying collateral. The
carrying value of the impaired loans is reduced by establishing a permanent
writedown charged to realized loss
Policy loans are carried at unpaid principal balances, net of impairment
reserves.
Short-term investments, consisting primarily of money market instruments and
other fixed maturity issues purchased with an original maturity of 91 days to
one year, are considered available for sale and are carried at fair value, which
approximates amortized cost.
The Company's use of derivatives is limited to hedging purposes. The Company
enters into interest rate and currency contracts, including swaps, caps, and
floors to reduce and manage risks associated with changes in value, yield,
price, cash flow or exchange rates of assets or liabilities held or intended to
be held. Changes in the fair value of open derivative contracts are recorded in
net realized capital gains and losses.
On occasion, the Company sells call options written on underlying securities
that are carried at fair value. Changes in fair value of these options are
recorded in net realized capital gains or losses.
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: FAS No. 60, "Accounting and Reporting by Insurance Enterprises" ("FAS
26
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
No. 60") and FAS No. 97, "Accounting and Reporting by Insurance enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investment" ("FAS No. 97").
Under FAS No. 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 FAS No. 97, acquisition costs for universal life and investment-type
products, which include universal life policies and fixed and variable deferred
annuities, are amortized over the life of the blocks of policies (usually 25
years) in relation to the emergence of estimated gross profits from surrender
charges, investment margins, mortality and expense margins, asset-based fee
income, and actual realized gains (losses) on investments. Amortization is
adjusted retrospectively when estimates of current or future gross profits to be
realized from a group of products are revised.
Activity for the year-ended December 31, 2002 within VOBA was as follows:
(Millions)
-----------------------------------------------------------------
Balance at December 31,2001 $ 64.7
Adjustment for FAS No. 115 (4.0)
Additions 4.5
Interest accrued at 7% 1.1
Amortization (18.1)
-----------------------------------------------------------------
Balance at December 31,2002 $ 48.2
=================================================================
The estimated amount of VOBA to be amortized, net of interest, over the next
five years is $13.2 million, $7.6 million, $6.0 million, $5.1 million and $4.9
million for the years 2003, 2004, 2005, 2006 and 2007, respectively. Actual
amortization incurred during these years may vary as assumptions are modified to
incorporate actual results.
As part of the regular analysis of DAC/VOBA, at the end of third quarter 2002,
the Company unlocked its assumptions by resetting its near-term and long-term
assumptions for the separate account returns to 9% (gross before fund management
fees and mortality and expense and other policy charges), reflecting a blended
return of equity and other sub-accounts. This unlocking adjustment was primarily
driven by the sustained downturn in the equity markets and revised expectations
for future returns. For the year ended December 31, 2002, the Company recorded
an acceleration of DAC/VOBA amortization totaling $1.5 million before tax, or
$1.0 million, net of $0.5 million of federal income tax benefit.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits include reserves for universal life, immediate annuities
with life contingent payouts and traditional life insurance contracts. Reserves
for universal life products are equal to cumulative deposits less withdrawals
and charges plus credited interest thereon. Reserves for traditional life
insurance contracts represent the present value of future benefits to be paid to
or on behalf of policyholders and related expenses less the present value of
future net premiums.
27
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Reserves for immediate annuities with life contingent payout contracts are
computed on the basis of assumed investment yield, mortality, and expenses,
including a margin for adverse deviations. Such assumptions generally vary by
plan, year of issue and policy duration. Reserve interest rates range from 5.0%
to 7.5% for all years presented. Investment yield is based on the Company's
experience.
Mortality and withdrawal rate assumptions are based on relevant Company
experience and are periodically reviewed against both industry standards and
experience.
Other policyholders' funds include reserves for deferred annuity investment
contracts and immediate annuities without life contingent payouts. Reserves on
such contracts are equal to cumulative deposits less charges and withdrawals
plus credited interest thereon (rates range from 3.0% to 7.5% for all years
presented) net of adjustments for investment experience that the Company is
entitled to reflect in future credited interest.
REVENUE RECOGNITION
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender, expenses and other
fees are recorded as revenue as charges are assessed against policyholders.
Other amounts received for these contracts are reflected as deposits and are not
recorded as revenue. Related policy benefits are recorded in relation to the
associated premiums or gross profit so that profits are recognized over the
expected lives of the contracts. When annuity payments with life contingencies
begin under contracts that were initially investment contracts, the accumulated
balance in the account is treated as a single premium for the purchase of an
annuity and reflected as an offsetting amount in both premiums and current and
future benefits in the Income Statement.
SEPARATE ACCOUNTS
Separate Account assets and liabilities generally represent funds maintained to
meet specific investment objectives of policyholders or contractholders who bear
the investment risk, subject, in some cases, to minimum guaranteed rates.
Investment income and investment gains and losses generally accrue directly to
such policyholders or contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other business of
the Company.
Separate Account assets supporting variable options under universal life
policies and annuity contracts are invested, as designated by the contractholder
or policyholder (who bears the investment risk subject, in limited cases, to
minimum guaranteed rates) in shares of mutual funds which are managed by the
Company, or other selected mutual funds not managed by the Company.
28
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Separate Account assets are carried at fair value. At December 31, 2002 and
2001, unrealized gains of $0.1 million and of $0.0 million, respectively, after
taxes, on assets supporting a guaranteed interest option are reflected in
shareholder's equity.
Separate Account assets and liabilities are shown as separate captions in the
Balance Sheets. Deposits, investment income and net realized and unrealized
capital gains and losses of the Separate Accounts are not reflected in the
Financial Statements (with the exception of realized and unrealized capital
gains and losses on the assets supporting the guaranteed interest option). The
Statements of Cash Flows do not reflect investment activity of the Separate
Accounts.
REINSURANCE
The Company utilizes reinsurance agreements to reduce its exposure to large
losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverable balances deemed probable of recovery are reflected as
assets on the Company's Balance Sheets.
INCOME TAXES
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax
expenses/benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
29
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS
Fixed maturities available for sale as of December 31 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
2002 (Millions) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------
U.S. government and government agencies and
authorities $ 96.6 $ 1.8 $ - $ 98.4
States, municipalities and political subdivisions 1.7 0.1 - 1.8
U.S. corporate securities:
Public utilities 104.3 8.0 1.1 111.2
Other corporate securities 805.3 67.7 10.5 862.5
-----------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 909.6 75.7 11.6 973.7
-----------------------------------------------------------------------------------------------------------
Foreign securities:
Government 3.4 0.4 - 3.8
-----------------------------------------------------------------------------------------------------------
Total foreign securities 3.4 0.4 - 3.8
-----------------------------------------------------------------------------------------------------------
Mortgage-backed securities 367.4 8.2 0.1 375.5
Other asset-backed securities 145.2 9.0 5.0 149.2
-----------------------------------------------------------------------------------------------------------
Total fixed maturities, including fixed
maturities pledged to creditors 1,523.9 95.2 16.7 1,602.4
Less: Fixed maturities pledged to creditors 0.9 - - 0.9
-----------------------------------------------------------------------------------------------------------
Fixed maturities $ 1,523.0 $ 95.2 $ 16.7 $ 1,601.5
===========================================================================================================
30
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Gross Gross
Amortized Unrealized Unrealized Fair
2001 (Millions) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------------------
U.S. government and government agencies and
authorities $ 5.8 $ 0.1 $ - $ 5.9
States, municipalities and political subdivisions 4.3 0.3 - 4.6
U.S. corporate securities:
Public utilities 67.0 3.0 0.4 69.6
Other corporate securities 785.3 37.5 8.7 814.1
-----------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 852.3 40.5 9.1 883.7
-----------------------------------------------------------------------------------------------------------
Foreign securities:
Government 0.1 - - 0.1
-----------------------------------------------------------------------------------------------------------
Total foreign securities 0.1 - - 0.1
-----------------------------------------------------------------------------------------------------------
Mortgage-backed securities 296.6 7.0 0.1 303.5
Other asset-backed securities 296.1 13.6 7.4 302.3
-----------------------------------------------------------------------------------------------------------
Total fixed maturities, including fixed
maturities pledged to creditors 1,455.2 61.5 16.6 1,500.1
Less: Fixed maturities pledged to creditors 13.9 - - 13.9
-----------------------------------------------------------------------------------------------------------
Fixed maturities $ 1,441.3 $ 61.5 $ 16.6 $1,486.2
===========================================================================================================
The amortized cost and fair value of total fixed maturities for the year-ended
December 31, 2002 are shown below by contractual maturity. Actual maturities may
differ from contractual maturities because securities may be restructured,
called, or prepaid.
(Millions) Amortized Cost Fair Value
--------------------------------------------------------------------------------------
Due to mature:
One year or less $ - $ -
After one year through five years 223.2 237.1
After five years through ten years 457.8 490.4
After ten years 330.3 350.3
Mortgage-backed securities 367.4 375.4
Other asset-backed securities 145.2 149.2
Less: Fixed maturities securities pledged to
creditor 0.9 0.9
--------------------------------------------------------------------------------------
Fixed maturities $ 1,523.0 $ 1,601.5
======================================================================================
At December 31, 2002 and 2001, fixed maturities with fair values of $5.7 million
and $5.0 million, respectively, were on deposit as required by regulatory
authorities.
Beginning in April 2001, the Company entered into reverse dollar repurchase
agreement and reverse repurchase agreement transactions to increase its return
on investments and improve liquidity. These transactions involve a sale of
securities and an agreement to repurchase substantially the same securities as
those sold. The dollar rolls and reverse repurchase agreements are accounted for
31
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
as short-term collateralized financings and the repurchase obligation is
reported as a component of other borrowed money on the Balance Sheets.
The repurchase obligation totaled $73.1 million and $77.5 million at December
31, 2002 and 2001, respectively. The primary risk associated with short-term
collateralized borrowings is that the counterparty will be unable to perform
under the terms of the contract. The Company's exposure is limited to the excess
of the net replacement cost of the securities over the value of the short-term
investments, an amount that was not material at December 31, 2002 or 2001. The
Company believes the counterparties to the dollar roll and reverse repurchase
agreements are financially responsible and that the counterparty risk is
immaterial.
During 2002, the Company determined that twenty two fixed maturities had other
than temporary impairments. As a result, at December 31, 2002, the Company
recognized a pre-tax loss of $11.4 million to reduce the carrying value of the
fixed maturities to their combined fair value of $25.9 million. During 2001, the
Company determined that ten fixed maturities had other than temporary
impairments. As a result, at December 31, 2001, the Company recognized a pre-tax
loss of $0.9 million to reduce the carrying value of the fixed maturities to
their fair value of $11.4 million.
3. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE
The following disclosures are made in accordance with the requirements of FAS
No. 107, "Disclosures about Fair Value of Financial Instruments." FAS No. 107
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates, in many cases, could not be realized in immediate
settlement of the instrument.
FAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
FIXED MATURITIES: The fair values for the actively traded marketable bonds are
determined based upon the quoted market prices. The fair values for marketable
bonds without an active market are obtained through several commercial pricing
services which provide the estimated fair values. Fair values of privately
placed bonds are determined using a matrix-based pricing model. The model
considers the current level of risk-free interest rates, current corporate
spreads, the credit quality of the issuer and cash flow characteristics of the
security. Using this data, the model generates estimated market values which the
32
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Company considers reflective of the fair value of each privately placed bond.
Fair values for privately placed bonds are determined through consideration of
factors such as the net worth of the borrower, the value of collateral, the
capital structure of the borrower, the presence of guarantees and the Company's
evaluation of the borrower's ability to compete in their relevant market.
EQUITY SECURITIES: Fair values of these securities are based upon quoted market
value. For equity securities not actively traded, estimated fair values are
based upon values of issues of comparable yield and quality or conversion value
where applicable.
MORTGAGE LOANS ON REAL ESTATE: The fair values for mortgage loans on real estate
are estimated using discounted cash flow analyses and rates currently being
offered in the marketplace for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of the
calculations.
CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amounts for these
assets approximate the assets' fair values.
ASSETS HELD IN SEPARATE ACCOUNTS: Assets held in separate accounts are reported
at the quoted fair values of the individual securities in the separate accounts.
OTHER FINANCIAL INSTRUMENTS REPORTED AS ASSETS: The carrying amounts for these
financial instruments (primarily premiums and other accounts receivable and
accrued investment income) approximate those assets' fair values.
INVESTMENT CONTRACT LIABILITIES: The fair values for deferred annuities are
estimated to be the amount payable on demand at the reporting date, as those
investment contracts have no defined maturity and are similar to a deposit
liability. The amount payable at the reporting date was calculated as the
account balance less applicable surrender charges.
The fair values for supplementary contracts without life contingencies and
immediate annuities were estimated using discounted cash flow analyses. The
discount rate was based upon treasury rates plus a pricing margin.
The carrying amounts reported for other investment contracts, which includes
retirement plan deposits, approximate those liabilities' fair value.
CLAIM AND OTHER DEPOSIT FUNDS: The carrying amounts for claim and other deposit
funds approximate the liabilities' fair values.
OTHER FINANCIAL INSTRUMENTS REPORTED AS LIABILITIES: The carrying amounts for
other financial instruments (primarily normal payables of a short-term nature)
approximate those liabilities' fair values.
33
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 2002 and 2001 were as follows:
2002 2001
-----------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
-----------------------------------------------------------------------------------------------------
Assets:
Fixed maturities $ 1,601.5 $ 1,601.5 $ 1,486.2 $ 1,486.2
Equity securities 4.4 4.4 6.0 6.0
Mortgage loans on real estate 243.6 275.6 265.5 280.2
Policy loans 85.2 85.2 85.0 85.0
Cash and short-term investments 58.0 58.0 3.0 3.0
Assets held in separate accounts 429.4 429.4 487.4 487.4
Liabilities:
Investment contract liabilities:
Deferred annuities (411.3) (409.6) (420.7) (417.5)
Supplementary contracts and
immediate annuities (13.1) (13.1) (21.8) (22.7)
Liabilities related to separate
accounts (429.4) (429.4) (487.4) (487.4)
-----------------------------------------------------------------------------------------------------
Fair value estimates are made at a specific point in time, based on available
market information and judgments about various financial instruments, such as
estimates of timing and amounts of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison to
independent markets, nor can the disclosed value be realized in immediate
settlement of the instruments. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
Preacquisition
---------------
Four months Eight months
Year-ended Year-ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------
Fixed maturities $108.7 $116.2 $36.2 $78.6
Equity securities - 0.1 - 0.4
Mortgage loans 20.7 21.4 7.5 16.3
Policy loans 5.9 6.4 2.0 3.8
Short term investments and
cash equivalents 0.3 1.4 1.5 0.1
Other (0.7) 1.2 0.7 0.3
------------------------------------------------------------------------------------------------------
Gross investment income 134.9 146.7 47.9 99.5
Less: investment (expenses) income (4.1) (4.4) 0.4 (1.8)
------------------------------------------------------------------------------------------------------
Net investment income $130.8 $142.3 $48.3 $97.7
======================================================================================================
34
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The Company paid $14.4 million and $18.0 million in cash dividends to its Parent
in 2002 and 2001, respectively. Of the $14.4 million paid in 2002, $0.0 million
was accrued for in 2001.
The Company did receive capital contributions in 2002. In 2002, the amount
contributed ($31.4 million) from Security-Connecticut related to the First
Golden merger (refer to Note 1).
The Company's ability to pay cash dividends to its parent is restricted by law
or subject to approval of the insurance regulatory authorities of the State of
New York. These authorities recognize only statutory accounting practices for
determining the ability of an insurer to pay dividends to its shareholders.
Under New York insurance law regulating the payment of dividends by the Company,
any such payment must be paid solely from the earned surplus of the Company.
Earned surplus means the earned surplus as determined in accordance with
statutory accounting practices (unassigned funds), less the amount of such
earned surplus which is attributable to unrealized capital gains. Further,
without approval of the Superintendent, the Company may not pay in any calendar
year any dividend which, when combined with other dividends paid within the
preceding 12 months, exceeds the lesser of (i) 10% of the Company's statutory
surplus at the prior year end or (ii) 100% of the Company's statutory net
investment income for the prior calendar year.
The underlying statutory capital and surplus of the Company was $267.0 million
and $214.6 million at December 31, 2002 and 2001, respectively. Statutory net
income was $18.0 million, $11.0 million and $6.1 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
As of December 31, 2002, the Company does not utilize any statutory accounting
practices, which are not prescribed by state regulatory authorities that,
individually or in the aggregate, materially affect statutory capital and
surplus.
For 2001, the Company was required to implement statutory accounting changes
("Codification") ratified by the National Association of Insurance Commissioners
("NAIC") and state insurance departments. The cumulative effect of Codification
to the Company's statutory surplus as of January 1, 2001 was a decrease of $11.9
million.
The Company maintains a $97.4 million reciprocal loan agreement with ING AIH
(refer to Note 10), a perpetual $30.0 million revolving note facility with Bank
of New York and a $30.0 million revolving note facility with SunTrust Bank which
expires on July 30, 2003.
35
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
6. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold. Net realized capital (losses)
gains on investments were as follows:
Preacquisition
---------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------------
Fixed maturities $ (2.5) $ 11.8 $ 0.5 $ 1.3
Equity securities 0.2 (0.4) - -
Other investments (0.4) (0.8) - -
------------------------------------------------------------------------------------------------------------------
Pretax realized capital gains (losses) $ (2.7) $ 10.6 $ 0.5 $ 1.3
==================================================================================================================
After-tax realized capital gains (losses) $ (1.8) $ 6.9 $ 0.3 $ 0.9
==================================================================================================================
Proceeds from the sale of total fixed maturities and the related gross gains and
losses were as follows:
Preacquisition
---------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------------
Proceeds on sales $ 2,248.5 $ 1,277.5 $ 74.7 $ 113.7
Gross gains 39.7 24.8 1.2 2.4
Gross losses 42.2 13.0 0.7 1.1
------------------------------------------------------------------------------------------------------------------
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities
including securities pledged to creditors) were as follows:
Preacquisition
---------------
As of As of As of As of
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------------
Fixed maturities $ 33.6 $ 15.7 $ 47.9 $ (3.7)
Equity securities 0.1 0.1 (0.4) -
Other investments 11.4 (20.3) (17.1) 2.1
------------------------------------------------------------------------------------------------------------------
45.1 (4.5) 30.4 (1.6)
Less: Increase (decrease) in deferred
income taxes 16.2 (1.6) 10.6 (0.6)
------------------------------------------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive income (loss) $ 28.9 $ (2.9) $ 19.8 $ (1.0)
==================================================================================================================
36
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Shareholder's equity included the following accumulated other comprehensive
income (loss), at December 31:
Preacquistion
------------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------------
Net unrealized capital gains (losses):
Fixed maturities $ 78.5 $ 44.9 $ 29.2 $ (18.7)
Equity securities - (0.1) (0.2) 0.2
Other (23.5) (34.9) (14.6) 2.5
------------------------------------------------------------------------------------------------------------------
55.0 9.9 14.4 (16.0)
Less: Deferred income taxes 19.6 3.4 5.0 (5.6)
------------------------------------------------------------------------------------------------------------------
Net accumulated other comprehensive
income (loss) $ 35.4 $ 6.5 $ 9.4 $ (10.4)
==================================================================================================================
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities, including securities pledged to
creditors were as follows:
Preacquisition
-------------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 30,
(Millions) 2002 2001 2000 2000
- --------------------------------------------------------------------------------------------------------------------
Unrealized holding gains (losses) arising
the year (1) $ 30.6 $ (9.7) $ 20.4 $ 0.7
Less: reclassification adjustment for gains
(losses) and other items included in net
income (2) (1.7) 6.8 0.6 1.7
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $ 28.9 $ (2.9) $ 19.8 $ (1.0)
===================================================================================================================
(1) Pretax unrealized holding gains (losses) arising during the year were
$47.1 million, $(14.9) million, $31.4 million and $1.1 million for the
years ended December 31, 2002 and 2001, the four months ended December
31, 2000 and the eight months ended August 30, 2000, respectively.
(2) Pretax reclassification adjustments for gains (losses) and other items
included in net income were $2.6 million, $10.5 million, $0.9 and $2.6
million for the years ended December 31, 2002 and 2001, the four months
ended December 31, 2000 and the eight months ended August 30, 2000,
respectively.
37
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. UNPAID ACCIDENT AND HEALTH CLAIMS
The change in the liability for unpaid accident and health claims and claim
adjustment epenses is summarized as follows:
(Millions) 2002 2001 2000
----------------------------------------------------------------------------------------
Balance at January 1 $ 14.5 $ 14.1 $ 15.8
Less reinsurance recoverables 13.4 11.1 10.9
----------------------------------------------------------------------------------------
Net balance at January 1 1.1 3.0 4.9
Incurred related to:
Current year 1.1 0.6 1.0
Prior years 1.2 0.5 (0.8)
----------------------------------------------------------------------------------------
Total incurred 2.3 1.1 0.2
Paid related to:
Current year (0.2) 0.5 0.4
Prior years 0.3 2.5 1.7
----------------------------------------------------------------------------------------
Total Paid 0.1 3.0 2.1
----------------------------------------------------------------------------------------
Net balance at December 31 3.3 1.1 3.0
Plus reinsurance recoverables 14.2 13.4 11.1
----------------------------------------------------------------------------------------
Balance at December 31 $ 17.5 $ 14.5 $ 14.1
----------------------------------------------------------------------------------------
8. INCOME TAXES
The Company files a consolidated federal income tax return with ReliaStar Life
Insurance Company, Northern Life Insurance Company and Security-Connecticut Life
Insurance Company. The Company is allocated an amount approximating the tax the
member would have incurred were it not a member of a consolidated group and
shall receive benefit for the use of its tax saving attributes used in the
consolidated return.
Income taxes from continuing operations consist of the following:
Preacquisition
--------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------
Current taxes (benefits):
Federal $ 14.3 $ 23.7 $ (5.4) $ 14.4
------------------------------------------------------------------------------------------------------------
Total current taxes (benefits) 14.3 23.7 (5.4) 14.4
------------------------------------------------------------------------------------------------------------
Deferred taxes (benefits):
Federal 3.5 2.4 12.8 (2.4)
------------------------------------------------------------------------------------------------------------
Total deferred taxes (benefits) 3.5 2.4 12.8 (2.4)
------------------------------------------------------------------------------------------------------------
Total $ 17.8 $ 26.1 $ 7.4 $ 12.0
============================================================================================================
38
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Income taxes were different from the amount computed by applying the federal
income tax rate to income from continuing operations before income taxes for the
following reasons:
Preacquisition
--------------
Four months Eights months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
--------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes $ 50.4 $ 51.9 $ 14.4 $ 34.8
Tax rate 35% 35% 35% 35%
--------------------------------------------------------------------------------------------------------------
Application of the tax rate 17.6 18.2 5.0 12.2
Tax effect of:
Goodwill amortization - 7.9 2.6 0.2
Other 0.2 - (0.2) (0.4)
--------------------------------------------------------------------------------------------------------------
Income taxes $ 17.8 $ 26.1 $ 7.4 $ 12.0
--------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
(Millions) 2002 2001
--------------------------------------------------------------------------------------------
Deferred tax assets:
Deferred policy acquisition costs $ 4.8 $ 12.2
Insurance reserves 53.9 25.2
Investment losses 3.7 12.7
Legal reserve 5.3 10.9
Other 4.6 18.7
--------------------------------------------------------------------------------------------
Total gross assets 72.3 79.7
--------------------------------------------------------------------------------------------
Deferred tax liabilities:
Present value of future profits (24.9) (24.7)
Net unrealized capital gains (19.6) (3.4)
Other (1.7) (5.1)
--------------------------------------------------------------------------------------------
Total gross liabilities (46.2) (33.2)
--------------------------------------------------------------------------------------------
Net deferred tax asset $ 26.1 $ 46.5
============================================================================================
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. As of December 31, 2002 and 2001, no valuation allowance
was required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $11.3 million at December 31, 2002. This amount would be taxed
only under certain conditions. No income taxes have been provided on this amount
since management believes under current tax law the conditions under which such
taxes would become payable are remote.
39
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Internal Revenue Service (the "Service") has completed examinations of the
federal income tax returns of the Company for all years through 1999. There were
no material adjustments made as a result of the examinations. The Service has
commenced its examinations for the years 2000 and 2001.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
Prior to December 31, 2001, the Company's employees were covered by the ING
Retirement Plan for Employees of Reliastar Financial Corporation and its
Subsidiaries ("Reliastar Plan"), a qualified, defined contribution pension plan.
The Companies were allocated their share of the pension liability associated
with their employees. Costs charged to expense for the Reliastar Plan for the
year ended December 31, 2001, four months ended December 31, 2000 and eight
months ended August 31, 2000 were $0.6 million, $0.08 million, and $0.02
million, respectively.
As of December 31, 2001, the qualified pension benefit plans of certain United
States subsidiaries of ING AIH, including the Reliastar Plan, were merged into
the ING Americas Retirement Plan. Each subsidiary transferred its pension
liabilities to the Parent at that date. In exchange for these liabilities, the
subsidiaries capital contributions, net of taxes, from the Parent. The costs
allocated to the Company for its members' participation in the ING Pension Plan
were $0.5 million for 2002.
ING SAVINGS PLAN AND ESOP
Substantially all employees of the Company are eligible to participate in The
ING Savings Plan and ESOP, a qualified profit sharing and stock bonus plan. The
ING Savings Plan allows designated contributions, which are matched up to 5% of
compensation by ING, to be invested in a variety of financial instruments.
Pretax charges of operations of the Company for the ING Savings plan were $0.3
million, in 2002; $0.4 million in 2001 for charges from the ING Savings Plan and
the predecessor plan, and $0.16 million and $0.04 million for the four months
ended December 31, 2000 and eight months ended August 31, 2000, respectively,
for charges from the predecessor plan.
OTHER POSTRETIREMENT BENEFITS
Through a plan sponsored by an affiliate, the Company provides certain health
care and life insurance benefits to retired employees and their eligible
dependents ("Postretirement Plan"). The postretirement health care plan is
contributory, with retiree contribution levels adjusted annually; the life
insurance plan provides a flat amount of noncontributory coverage and optional
contributory coverage.
A credit totaling $105,000, $26,000, $11,000, and $21,000 were allocated to the
Company for its portion of the cost of the Postretirement Plan for the period
ended December 31, 2002 and 2001, the four months ended December 31, 2000, and
eight months ended August 31, 2000, respectively.
40
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
STOCK INCENTIVE PLAN
Prior to the acquisition by ING of the Company's then ultimate parent company,
ReliaStar Financial Corp., on September 1, 2000, officers and key employees of
the Company participated in the stock incentive plans of ReliaStar Life
Insurance Company. No compensation expense for stock-based compensation plans
has been allocated to the Company.
10. RELATED PARTY TRANSACTIONS
INVESTMENT ADVISORY
The Company entered into an asset management agreement with ING Investment
Management, LLC ("IIM"), an affiliate, January 1, 2001, under which IIM provides
asset management and accounting services. Under the agreement, the Company
records a fee based on the value of the assets under management. The fee is
payable quarterly. For the years ended December 31, 2002 and 2001, the Company
incurred fees of $2.2 million and 2.1 million, respectively, under this
agreement.
RECIPROCAL LOAN AGREEMENT
RLNY maintains a reciprocal loan agreement with ING AIH, a Delaware corporation
and affiliate, to facilitate the handling of unusual and/or unanticipated
short-term cash requirements. Under this agreement, which expires January 27,
2003, RNLY and ING AIH can borrow up to $97.4 million from one another.
Interest on any RNLY borrowings is charged at the rate of ING AIH's cost of
funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is
charged at a rate based on the prevailing interest rate of U.S. commercial paper
available for purchase with a similar duration. Under this agreement, which
commenced in 2002, RNLY incurred interest expense of $0.05 million and interest
income of $0.3 million for the period ended December 31, 2002.
11. REINSURANCE
The Company utilizes excess or quota share treaties to reduce its exposure to
large losses. The Company will only retain amounts not exceeding the Company's
retention limits as stated below.
At December 31, 2002, RLNY had reinsurance treaties with fifty-four unaffiliated
reinsurers and three affiliated reinsurers covering a significant portion of the
mortality risks and guaranteed death and living benefits under its contracts.
The Company remains liable to the extent its reinsurers do not meet their
obligations under the reinsurance agreements.
The Company's retention limit is $300,000 per insurable life for individual
retail coverage. For group coverage and individual payroll deduction coverage,
the retention is $300,000 (prior to July 1, 2002) or $500,000 (after July 1,
2002) per life with per occurrence limitations, subject to certain maximums.
Reinsurance premiums, commissions and expense reimbursements related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Reserves are based on the terms of the reinsurance contracts and are
41
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
consistent with the risk assumed. RLNY obtained letters of credit in the amounts
of $3.0 million from Fleet Bank, $0.8 million from U.S. Bank, $3.8 million from
Bank One and $0.5 from Mellon Bank.
The effect of reinsurance on premiums and recoveries was as follows:
Preacquisition
--------------
Four months Eight months
Year ended Year ended ended ended
December 31, December 31, December 31, August 31,
(Millions) 2002 2001 2000 2000
------------------------------------------------------------------------------------------------------------
Direct Premiums $ 100.6 $ 87.3 $ 30.9 $ 54.5
Federal
Reinsurance assumed 4.0 3.3 1.3 1.6
Reinsurance ceded (38.4) (30.4) (12.4) (28.0)
------------------------------------------------------------------------------------------------------------
Net Premiums 66.2 60.2 19.8 28.1
------------------------------------------------------------------------------------------------------------
Reinsurance Recoveries $ 21.3 $ 29.2 $ 3.0 $ 15.4
============================================================================================================
12. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
For the year ended December 31, 2002, rent expense for leases was $0.3 million.
The future net minimum payments under noncancelable leases for the years ended
December 31, 2003 through 2007 are estimated to be $0.2 million, $0.1 million,
$0.1 million, $0.1 million and $0.1 million, respectively, and $0.0 million,
thereafter. The Company pays substantially all expenses associated with its
leased and subleased office properties. Expenses not paid directly by the
Company are paid for by an affiliate and allocated back to the Company.
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities, commercial mortgage loans or money market
instruments at a specified future date and at a specified price or yield. The
inability of counterparties to honor these commitments may result in either
higher or lower replacement cost. Also, there is likely to be a change in the
value of the securities underlying the commitments. The Company makes
investments in limited partnerships on a subscription basis. At December 31,
2002 and 2001, the Company had to fund subscriptions of $26.2 million and $17.6
million, respectively.
LITIGATION
The Company is a party to threatened or pending lawsuits arising from the normal
conduct of business. Due to the climate in insurance and business litigation,
suits against the Company sometimes include claims for substantial compensatory,
consequential or punitive damages and other types of relief. Moreover, certain
claims are asserted as class actions, purporting to represent a group of
similarly situated individuals. While it is not possible to forecast the outcome
of such lawsuits, in light of existing insurance, reinsurance and established
reserves, it is the opinion of management that the disposition of such lawsuits
will not have a materially adverse effect on the Company's operations or
financial position.
42
QUARTERLY DATA (UNAUDITED)
2002 (Millions) First Second Third Fourth
----------------------------------------------------------------------------------------------------
Total Revenue $ 63.1 $ 82.0 $ 84.7 $ 70.5
----------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1.7) 30.3 19.0 2.8
Less: Income tax expense (benefit) (0.8) 10.6 6.9 1.1
----------------------------------------------------------------------------------------------------
Income (loss) before cumulative
effect of change in accounting (0.9) 19.7 12.1 1.7
principle
Cumulative effect of change in
accounting principle - - - (865.0)
----------------------------------------------------------------------------------------------------
Net income (loss) $ (0.9) $ 19.7 $ 12.1 $ (863.3)
====================================================================================================
2001 (Millions) First Second Third Fourth
----------------------------------------------------------------------------------------------------
Total Revenue $ 78.0 $ 77.2 $ 78.1 $ 77.8
----------------------------------------------------------------------------------------------------
Income before income taxes 7.5 11.6 3.9 28.9
Less: Income tax expense 4.6 6.0 3.3 12.2
----------------------------------------------------------------------------------------------------
Net income $ 2.9 $ 5.6 $ 0.6 $ 16.7
====================================================================================================
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction I(2) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I(2) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction I(2) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I(2) of Form 10-K.
ITEM 14. 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.
44
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements. See Item 8 on Page 14.
2. Financial statement schedules. See Index to Financial Statement
Schedules on Page 49.
EXHIBITS:
1. Underwriting Agreement Between ReliaStar Life Insurance Company of New
York and Directed Services, Inc (incorporated by reference from
Exhibit 1 to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
3. (i) Articles of Incorporation of ReliaStar Life Insurance Company of New
York (incorporated by reference from Exhibit 3 (a) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(ii) By-laws of ReliaStar Life Insurance Company of New York (incorporated
by reference from Exhibit 3(b) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
4. (a) Individual Deferred Combination Variable and Fixed Annuity
Contract(incorporated by reference from Exhibit 4(a) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(b) Deferred Combination Variable and Fixed Annuity Group Master Contract
(incorporated by reference from Exhibit 4(b) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(c) Individual Retirement Annuity Rider Page (incorporated by reference
from Exhibit 4(c) to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
(d) Schedule Page to the DVA Plus NY Contract featuring The Galaxy VIP
Fund (incorporated by reference from Exhibit 4(d) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(e) Section 72 Rider Fund (incorporated by reference from Exhibit 4(e) to
a Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
45
(f) Change of Name Endorsement Fund (incorporated by reference from
Exhibit 4(f) to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
(g) Deferred Combination Variable and Fixed Annuity Certificate (Group)
Fund (incorporated by reference from Exhibit 4(g) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(h) Section 72 Rider (Group) Fund (incorporated by reference from Exhibit
4(h) to a Pre-Effective Amendment No. 1 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 1, 2002
(File No. 333-75938)
(i) Individual Retirement Annuity Rider (Group) Fund (incorporated by
reference from Exhibit 4(i) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
(j) Simple Individual Retirement Annuity Rider (Group) Fund (incorporated
by reference from Exhibit 4(j) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
(k) 403(b) Rider (Group) Fund (incorporated by reference from Exhibit 4(k)
to a Pre-Effective Amendment No. 1 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 1, 2002
(File No. 333-75938)
(l) Roth Individual Retirement Annuity Rider (Group) Fund (incorporated by
reference from Exhibit 4(l) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
(m) Deferred Combination Variable and Fixed Annuity Contract (Individual)
Fund (incorporated by reference from Exhibit 4(m) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(n) Section 72 Rider (Individual) Fund (incorporated by reference from
Exhibit 4(n) to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
(o) Individual Retirement Annuity Rider (Individual) Fund (incorporated by
reference from Exhibit 4(o) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
(p) Simple Individual Retirement Annuity Rider (Individual) Fund
(incorporated by reference from Exhibit 4(p) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
46
(q) 403(b) Rider (Individual) Fund (incorporated by reference from Exhibit
4(q) to a Pre-Effective Amendment No. 1 of Registrant's Registration
Statement on Form S-1 filed with the SEC on or about April 1, 2002
(File No. 333-75938)
(r) Roth Individual Retirement Annuity Rider (Individual) Fund
(incorporated by reference from Exhibit 4(r) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
(s) Individual Deferred Combination Variable and Fixed Annuity Application
(Old) Fund (incorporated by reference from Exhibit 4(s) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(t) Individual Deferred Combination Variable and Fixed Annuity Application
(PE) Fund (incorporated by reference from Exhibit 4(t) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(u) Individual Deferred Combination Variable and Fixed Annuity Application
(New) Fund (incorporated by reference from Exhibit 4(u) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(v) Enrollment Form Fund (incorporated by reference from Exhibit 4(v) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
10. (a) Form of Services Agreement between Directed Services, Inc. and
ReliaStar Life Insurance Company of New York Fund (incorporated by
reference from Exhibit 10(a) to a Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form S-1 filed with the SEC on
or about April 1, 2002 (File No. 333-75938)
(b) Form of Administrative Services Agreement between ReliaStar Life
Insurance Company of New York and Golden American Life Insurance
Company Fund (incorporated by reference from Exhibit 10(b) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(c) Form of Administrative Services Agreement between ReliaStar Life
Insurance Company of New York and Equitable Life Insurance Company of
Iowa Fund (incorporated by reference from Exhibit 10(c) to a
Pre-Effective Amendment No. 1 of Registrant's Registration Statement
on Form S-1 filed with the SEC on or about April 1, 2002 (File No.
333-75938)
(d) Form of Asset Management Agreement between ReliaStar Life Insurance
Company of New York and ING Investment Management LLC Fund
(incorporated by reference from Exhibit 10(i) to a Pre-Effective
Amendment No. 1 of Registrant's Registration Statement on Form S-1
filed with the SEC on or about April 1, 2002 (File No. 333-75938)
47
(e) Form of Participation between ReliaStar Life Insurance Company of New
York and ING Variable Insurance Trust Fund (incorporated by reference
from Exhibit 10(k) to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
(f) Form of Participation between ReliaStar Life Insurance Company of New
York and ING Variable Insurance Trust Fund (incorporated by reference
from Exhibit 10(l) to a Pre-Effective Amendment No. 1 of Registrant's
Registration Statement on Form S-1 filed with the SEC on or about
April 1, 2002 (File No. 333-75938)
(g) Federal Tax Sharing Agreement by and between ReliaStar Life Insurance
Company of New York, ReliaStar Life Insurance Company and ReliaStar
Financial Corp., effective 5/1/02.
(h) Management Services Agreement by and between ReliaStar Life Insurance
Company of New York and ReliaStar Financial Corp., effective 1/1/98.
(i) Management Services Agreement by and between ReliaStar Life Insurance
Company of New York and ReliaStar Life Insurance Company, effective
6/1/99.
(j) Intercompany Credit Agreement by and between ReliaStar Life Insurance
Company of New York and affiliated companies of RLNY, effective
2/1/00.
(k) Management Services Agreement by and between ReliaStar Life Insurance
Company of New York and Security-Connecticut Life Insurance Company,
effective 6/1/99.
First Amendment to Management Services Agreement by and between
ReliaStar Life Insurance Company of New York and
Security-Connecticut Life Insurance Company, effective 2/5/01
(b) Reports on form 8-K.
None.
48
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
-------
Report of Independent Auditors........................................ 50
I. Summary of Investments - Other than Investments in Affiliates
as of December 31, 2002.......................................... 51
IV. Reinsurance as of and for the years ended December 31, 2002,
2001 and 2000.................................................... 52
Schedules other than those listed above are omitted because they are not
required or not applicable.
49
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
ReliaStar Life Insurance Company of New York
We have audited the financial statements of ReliaStar Life Insurance Company of
New York as of December 31, 2002 and 2001 ("Successor Company"), and for the
years then ended, and for the period from September 1, 2000 to December 31, 2000
("Successor Company"), and for the period from January 1, 2000 to August 31,
2000 ("Preacquisition Company"), and have issued our report thereon dated March
21, 2003. Our audits also included the financial statement schedules listed in
Item 15. These schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 21, 2003
50
SCHEDULE I
Summary of Investments - Other than Investments in Affiliates
As of December 31, 2002
(Millions)
Amount
shown on
Type of Investment Cost Value* Balance Sheet
- -------------------------------------------------------------------------------------------------------------------
Fixed maturities:
U.S. government and government agencies and authorities $ 96.6 $ 98.4 $ 98.4
States, municipalities and political subdivisions 1.7 1.8 1.8
U.S. corporate securities 909.6 973.7 973.7
Foreign securities (1) 3.4 3.8 3.8
Mortgage-backed securities 367.4 375.5 375.5
Other asset-backed securities 145.2 149.2 149.2
Less: Fixed maturities pledged to creditors 0.9 0.9 0.9
-----------------------------------------------
Total fixed maturities securities 1,523.0 1,601.5 1,601.5
-----------------------------------------------
Equity securities:
-----------------------------------------------
Total equity securities 4.4 4.4 4.4
-----------------------------------------------
Short term investments 55.6 55.6 55.6
Mortgage loans 243.6 275.6 243.6
Policy loans 85.2 85.2 85.2
Other investments 11.9 11.9 11.9
Securities pledged to creditors 0.9 0.9 0.9
-----------------------------------------------
Total investments $ 1,924.6 $ 2,035.1 $ 2,003.1
===================================================================================================================
* See Notes 2 and 3 of Notes to Financial Statements.
(1) The term "foreign" includes foreign governments, foreign political
subdivisions, foreign public utilities and all other bonds of foreign
issuers. Substantially all of the Company's foreign securities are
denominated in U.S. dollars.
51
SCHEDULE IV
Reinsurance Information
As of and for the years ended December 31, 2002, 2001 and 2000
(Millions)
Percentage of
(Millions) Gross Ceded Assumed Net assumed to net
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002
Life insurance in Force $ 40.6 $ 12.7 $ 4.2 $ 32.1 13.2 %
Premiums:
Life insurance 221.1 36.2 4.0 188.9
Accident and health insurance 20.4 15.0 - 5.4
Annuities 6.6 0.1 - 6.5
------------------------------------------------------
Total Premiums $ 248.1 $ 51.3 $ 4.0 $ 200.8
======================================================
YEAR ENDED DECEMBER 31, 2001
Life insurance in Force $ 38.4 $ 10.7 $ 4.3 $ 31.9 13.3 %
Premiums:
Life insurance 217.1 32.2 3.3 188.2
Accident and health insurance 16.6 12.4 - 4.2
Annuities 4.2 - - 4.2
------------------------------------------------------
Total Premiums $ 237.9 $ 44.6 $ 3.3 $ 196.6
======================================================
YEAR ENDED DECEMBER 31, 2000
Life insurance in Force $ 36.1 $ 9.1 $ 2.9 $ 30.0 10.0 %
Premiums:
Life insurance 204.0 28.8 2.9 178.1
Accident and health insurance 14.7 11.6 - 3.1
Annuities 9.1 - - 9.1
------------------------------------------------------
Total Premiums $ 227.8 $ 40.4 $ 2.9 $ 190.3
======================================================
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
March 24, 2003 By /s/ Cheryl L. Price
- --------------- ----------------------------------------
(Date) Cheryl L. Price
Vice President, Chief Financial Officer
and Chief Accounting Officer
(Duly Authorized Officer and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on or before March 27, 2003
SIGNATURES TITLE
/s/ Cheryl L. Price Vice President,
- ----------------------------- Chief Financial Officer
Cheryl L. Price and Chief Accounting Officer
/s/ James R. Gelder Director, President
- ----------------------------- & Chief Executive Officer
James R. Gelder
/s/ Allan Baker Director and
- ----------------------------- Senior Vice President
Allan Baker
/s/ R. Michael Conley Director
- -----------------------------
R. Michael Conley
/s/ Robert W. Crispin Director
- -----------------------------
Robert W. Crispin
/s/ Keith Gubbay Director
- -----------------------------
Keith Gubbay
/s/ Ulric Haynes, Jr. Director
- -----------------------------
Ulric Haynes, Jr.
53
SIGNATURES TITLE
/s/ P. Randall Lowery Director
- ------------------------------
P. Randall Lowery
/s/ Fioravante G. Perrotta Director
- ------------------------------
Fioravante G. Perrotta
/s/ Stephen J. Preston Director and
- ------------------------------ Senior Vice President
Stephen J. Preston
/s/ Mark A. Tullis Director
- ------------------------------
Mark A. Tullis
/s/ Charles B. Updike Director
- ------------------------------
Charles B. Updike
/s/ Ross M. Weale Director
- ------------------------------
Ross M. Weale
54
CERTIFICATION
I, Cheryl L. Price, certify that:
1. I have reviewed this annual report on Form 10-K of ReliaStar of New York.
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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: March 24, 2003
--------------
By /s/ Cheryl L. Price
-------------------------------------
Cheryl L. Price
Vice President, Chief Financial Officer and Chief Accounting Officer
(Duly Authorized Officer and Principal Financial Officer)
55
CERTIFICATION
I, James R. Gelder, certify that:
1. I have reviewed this annual report on Form 10-K of ReliaStar Life Insurance
Company of New York;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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
annual 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 March 24, 2003
--------------
By /s/ James R. Gelder
------------------------------------
James R. Gelder
Chief Executive Officer
56