UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-104539, 333-104546, 333-104547, 333-104548,
333-57212
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
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(Exact name of registrant as specified in its charter)
New York 53-0242530
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1000 Woodbury Road, Suite 102, Woodbury, NY 11797
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (516) 682-8700
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Former name, former address and formal fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 1,377,863 shares of Common
Stock as of May 12, 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 H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING
FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
1
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
Form 10Q for period ended March 31, 2003
INDEX
PAGE
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PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements:
Condensed Statements of Income.......................................................... 3
Condensed Balance Sheets................................................................ 4
Condensed Statements of Changes in Shareholder's Equity................................. 5
Condensed Statements of Cash Flows...................................................... 6
Notes to Condensed Financial Statements................................................. 7
Item 2. Management's Narrative Analysis of the Results of Operations and
Financial Condition....................................................................... 10
Item 4. Controls and Procedures.................................................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 16
Item 6. Exhibits and Reports on Form 8-K........................................................... 16
Signatures ........................................................................................... 17
Certifications .......................................................................................... 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Millions)
Three months ended March 31,
2003 2002
---------------- ----------------
Revenues:
Premiums $ 19.9 $ 14.2
Fee income 24.9 24.1
Net investment income 28.6 28.8
Net realized capital losses (0.2) (6.0)
Other income 2.0 2.1
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Total revenue 75.2 63.2
---------------- ----------------
Benefits, losses and expenses:
Benefits:
Interest credited and other benefits to policyholders 43.8 35.6
Underwriting, acquisition, and insurance expenses:
General expenses 10.4 16.8
Amortization deferred policy acquisition costs and value of
business acquired 4.0 16.6
---------------- ----------------
Total benefits, losses and expenses 58.2 69.0
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Income (loss) before income taxes 17.0 (5.8)
Income tax expense (benefit) 5.9 (2.0)
---------------- ----------------
Net income (loss) $ 11.1 $ (3.8)
================ ================
See Notes to Condensed Financial Statements.
3
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED BALANCE SHEETS
(Millions, except share data)
March 31,
2003 December 31,
(Unaudited) 2002
---------------- ----------------
Assets
- ------
Investments:
Fixed maturities, available for sale, at fair value (amortized cost of
$1,462.9 at 2003 and $1,523.0 at 2002) $ 1,551.3 $ 1,601.5
Equity securities, at fair value (cost of $4.5 at 2003 and $4.4 at
2002) 4.5 4.4
Mortgage loans on real estate 238.5 243.6
Policy loans 85.0 85.2
Short-term investments 161.2 55.6
Other investments 12.3 11.9
Securities pledged to creditors (amortized cost of $145.9 at 2003 and
$0.9 at 2002) 146.1 0.9
---------------- ----------------
Total investments 2,198.9 2,003.1
Cash and cash equivalents 26.7 2.4
Accrued investment income 19.3 19.3
Accounts and notes receivable - 6.9
Reinsurance recoverable 58.0 54.6
Deferred policy acquisition costs 66.9 61.3
Value of business acquired 50.5 48.2
Deferred income taxes 21.4 26.1
Other assets 6.7 5.2
Assets held in separate accounts 403.7 429.4
---------------- ----------------
Total assets $ 2,852.1 $ 2,656.5
================ ================
Liabilities and Shareholder's Equity
- -------------------------------------
Policy liabilities and accruals:
Future policy benefits and claims reserves $ 1,586.1 $ 1,595.6
Unearned premiums 0.3 0.2
Other policy claims and benefits payable 44.7 26.6
Other policyholder's funds 24.9 23.3
---------------- ----------------
Total policy liabilities and accruals 1,656.0 1,645.7
Note payable 8.3 -
Current income taxes 10.3 12.3
Other borrowed money 248.1 74.2
Other liabilities 85.9 69.1
Liabilities related to separate accounts 403.7 429.4
---------------- ----------------
Total liabilities 2,412.3 2,230.7
---------------- ----------------
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 1,219.6 1,225.6
Accumulated other comprehensive income 44.3 35.4
Retained deficit (826.9) (838.0)
---------------- ----------------
Total shareholder's equity 439.8 425.8
---------------- ----------------
Total liabilities and shareholder's equity $ 2,852.1 $ 2,656.5
================ ================
See Notes to Condensed Financial Statements.
4
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Unaudited)
(Millions)
Three Months Ended March 31,
2003 2002
---------------- ----------------
Shareholder's equity, beginning of period $ 425.8 $ 1,212.7
Comprehensive income
Net income (loss) 11.1 (3.8)
Other comprehensive income net of tax: Unrealized gain on securities
($13.7 and $22.8, pretax year to date) 8.9 14.8
---------------- ----------------
Total comprehensive income 20.0 11.0
Additional paid in capital - 31.1
Dividend (6.0) (3.6)
---------------- ----------------
Shareholder's equity, end of period $ 439.8 $ 1,251.2
================ ================
See Notes to Condensed Financial Statements.
5
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A wholly-owned subsidiary of Security-Connecticut Life Insurance Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)
Three months ended March 31,
2003 2002
-------------------- --------------------
Net cash provided by operating activities $ 47.3 $ 12.3
Cash Flows from Investing Activities:
Proceeds from the sale of:
Fixed maturities available for sale 733.1 483.1
Equity securities - 1.1
Investment maturities and collections of:
Mortgage loans 5.1 (4.0)
Acquisition of investments:
Fixed maturities available for sale (818.3) (502.5)
Equity securities (0.1) -
Short-term investments (105.6) (73.0)
Decrease in policy loans 0.2 0.6
Other, net (1.4) (1.8)
-------------------- --------------------
Net cash used for investing activities (187.0) (96.5)
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 37.9 34.3
Maturities and withdrawals from insurance and investment
contracts (41.8) (10.7)
Increase in borrowed money 173.9 77.7
Dividends to shareholder (6.0) (3.6)
-------------------- --------------------
Net cash provided by financing activities 164.0 97.7
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Net increase in cash and cash equivalents 24.3 13.5
Cash received from First Golden - 5.8
Cash and cash equivalents, beginning of period 2.4 (17.5)
-------------------- --------------------
Cash and cash equivalents, end of period $ 26.7 $ 1.8
==================== ====================
See Notes to Condensed Financial Statements.
6
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY-OWNED SUBSIDIARY OF SECURITY-CONNECTICUT LIFE INSURANCE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
ReliaStar Life Insurance Company of New York ("RLNY" or the "Company") is a
wholly-owned subsidiary of Security-Connecticut Life Insurance Company
("Security-Connecticut") which is a wholly-owned subsidiary of ReliaStar Life
Insurance Company ("ReliaStar Life") who is ultimately owned by ING Groep, N.V.
("ING"), a financial services company based in the Netherlands.
The condensed financial statements and notes as of March 31, 2003 and December
31, 2002 and for the three-month periods ended March 31, 2003 and 2002 ("interim
periods") have been prepared in accordance with accounting principles generally
accepted in the United States of America and are unaudited. The condensed
financial statements reflect all adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary for the
fair presentation of the financial position, results of operations and cash
flows for the interim periods. These condensed financial statements and notes
should be read in conjunction with the financial statements and related notes as
presented in the Company's 2002 Annual Report on Form 10-K. The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year. Certain reclassifications have been
made to 2002 financial information to conform to the 2003 presentation.
The Company conducts its business through one reporting segment, U.S. Financial
Services ("USFS"), and all revenue reported by the Company is derived from
external customers.
2. RECENTLY ADOPTED ACCOUNTING STANDARDS
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
During 2002, the Company adopted Financial Accounting Standards Board ("FASB")
No. 142, "Goodwill and Other Intangible Assets," ("FAS No.142"). The adoption of
this standard resulted in an impairment loss of $865.0 million which was
recorded by the Company in the fourth quarter of 2002. This impairment loss
represents the entire carrying amount of goodwill, net of accumulated
amortization. This impairment charge was shown as a change in accounting
principle on the December 31, 2002 Income Statement. Effective January 1, 2002,
the Company applied the non-amortization provision of the new standard,
therefore, the Company's net income is comparable for all periods presented.
3. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Deferred Policy Acquisition Costs ("DAC") is an asset, which represents certain
costs of acquiring certain insurance business, which are deferred and amortized.
These costs, all of which vary with and are primarily related to the production
of new and renewal business, consist principally of commissions, certain
underwriting and contract issuance expenses, and certain agency expenses. Value
of Business Acquired ("VOBA") is an asset, which represents the present value of
estimated net cash flows embedded in the Company's contracts, which existed at
the time the Company was acquired by ING. DAC and VOBA are evaluated for
recoverability at each balance sheet date and these assets are reduced to the
extent that gross profits are inadequate to recover the asset.
7
The amortization methodology varies by product type based upon two accounting
standards: FAS No. 60, "Accounting and Reporting by Insurance Enterprises" ("FAS
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.
VOBA activity for the three months ended March 31, 2003 was as follows:
(Millions)
- --------------------------------------------------- ----------------------
Balance at December 31, 2002 $ 48.2
Adjustment for FAS No. 115 2.7
Additions 1.0
Interest accrued at 7% 0.6
Amortization (2.0)
- --------------------------------------------------- ----------------------
Balance at March 31, 2003 $ 50.5
=================================================== ======================
4. INVESTMENTS
IMPAIRMENTS
During the first three months of 2003, the Company determined that seven fixed
maturities had other than temporary impairments. As a result, at March 31, 2003,
The Company recognized a total pre-tax loss of $4.6 million to reduce the
carrying value of the fixed maturities to their combined fair value of $6.5
million at the time of impairment. During the first three months of 2002, the
Company determined that two fixed maturities had other than temporary
impairments. As a result, at March 31, 2002, The Company recognized a total
pre-tax loss of $0.9 million to reduce the carrying value of the fixed
maturities to their combined fair value of $0.9 million.
5. Income Taxes
The Company's effective tax rate was 34.7% and 34.5% for the three months ended
March 31, 2003 and March 31, 2002, respectively, which approximates the federal
income tax rate of 35.0%.
8
6. COMMITMENTS AND CONTINGENT LIABILITIES
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 March 31, 2003
and December 31, 2002, the Company had off-balance sheet commitments to purchase
investments equal to their fair value of $48.9 million and $26.2 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.
9
ITEM 2. 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 ReliaStar Life Insurance Company of New York
("RLNY" or the "Company") as of March 31, 2003 and December 31, 2002 and for the
three month periods ended March 31, 2003 and 2002. This review should be read in
conjunction with the condensed consolidated financial statements and other data
presented herein, as well as the "Management's Narrative Analysis of the Results
of Operations and Financial Condition" section contained in the Company's 2002
Annual Report on Form 10-K.
NATURE OF BUSINESS
The Company is principally engaged in the business of providing life insurance
and related financial services products. The Company provides and distributes
individual life insurance and annuities, employee benefit products and services
and retirement plans.
RECENTLY ADOPTED ACCOUNTING STANDARDS
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
During 2002, the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other
Intangible Assets," ("FAS No.142"). The adoption of this standard resulted in an
impairment loss of $865.0 million which was recorded by the Company in the
fourth quarter of 2002. This impairment loss represents the entire carrying
amount of goodwill, net of accumulated amortization. This impairment charge was
shown as a change in accounting principle on the December 31, 2002 Income
Statement. Effective January 1, 2002, the Company applied the non-amortization
provision of the new standard, therefore, the Company's net income is comparable
for all periods presented.
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. In developing these estimates management makes subjective and
complex judgments that are inherently uncertain and subject to material change
10
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 condensed financial statements.
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, the Company reduces the
carrying value of those investments to the current fair value and records
impairment losses for the difference.
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
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.
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
11
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission ("SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemptions of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Whether or not actual results differ materially from forward-looking statements
may depend on numerous foreseeable and unforeseeable developments. Some may be
national in scope, such as general economic conditions, changes in tax law and
changes in interest rates (for additional information, see the Legal Initiatives
section below). 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.
RESULTS OF OPERATIONS
Premiums for the three months ended March 31, 2003, increased by $5.7 million
compared to the same period in 2002. The growth of premiums is attributed to
growth in the Company's life insurance products.
Fee income and other income for the three months ended March 31, 2003, increased
by $0.7 million compared to the same period in 2002. The variance is primarily
due to the increase due to growth in the life insurance products being offset by
decreases in fee income on variable annuity assets which decreased as a result
of market declines.
Net investment income for the three months ended March 31, 2003, decreased by
$0.2 million compared to the same period in 2002. The variance is due primarily
to the decrease in yield and declining interest rates partially offset by an
increase in assets.
Net realized capital gains for the three months ended March 31, 2003 increased
by $5.8 million compared to the same period in 2002, primarily due to a decrease
in the treasury rate. The 10 year treasury yield (constant maturities) was 4.03%
at December 31, 2002 and 3.81% at March 31, 2003. In a declining rate
environment, the market value of fixed maturities held in the Company's
portfolio increases assuming no credit deterioration. The increase in net
realized gains reflects the impact of this variable on the overall sale of fixed
maturities and the trend in realized gain is consistent with the interest rate
environment.
12
Interest credited and other benefits to policyholders for the three months ended
March 31, 2003, increased by $8.2 million compared to the same period in 2002.
This increase is the result of higher future policy benefits and claim reserves.
General expenses for the three months ended March 31, 2003, decreased by $6.4
million compared to the same period in 2002. 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, due to increased
efficiencies gained from ING's company-wide cost reduction efforts.
Amortization of deferred policy acquisition costs and value of business acquired
for the three months ended March 31, 2003, decreased by $12.6 million compared
to the same period in 2002. Amortization of long-duration products is recorded
in proportion to actual and estimated future gross profits. Estimated 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 decrease in the
amortization of deferred policy acquisition costs and value of insurance
acquired reflects the impact of these variables on the overall book of business.
Net income increased by $14.9 million for the three months ended March 31, 2003,
as compared to the year ended December 31, 2002, primarily due to a decrease in
DAC amortization and a lower allocation of corporate and service charges from
the Company's parent and other affiliates who provide services to the Company
and a decrease in realized capital losses.
FINANCIAL CONDITION
INVESTMENTS
FIXED MATURITIES
At March 31, 2003 and December 31, 2002, the Company's carrying value of
available for sale fixed maturities including fixed maturities pledged to
creditors (hereinafter referred to as "total fixed maturities") represented
77.2% and 80.0%, respectively, of the total general account invested assets.
Total fixed maturities including securities pledged to creditors reflected net
unrealized capital gains of $88.6 million and $78.5 million at March 31, 2003
and December 31, 2002, 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 March 31, 2003 and December 31, 2002.
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.
13
March 31, 2003 December 31, 2002
- -------------------------------------------------------------------------------
AAA 42.2% 44.9%
AA 5.9 4.7
A 22.6 20.6
BBB 22.8 23.6
BB 4.9 4.2
B and Below 1.6 2.0
- -------------------------------------------------------------------------------
Total 100.0% 100.0%
===============================================================================
The percentage of total fixed maturities by market sector is as follows:
March 31, 2003 December 31, 2002
- -------------------------------------------------------------------------------
U.S. Corporate 51.5% 54.0%
Residential Mortgage-backed 21.7 23.4
Commercial/Multifamily Mortgage-backed 6.6 7.0
Foreign (1) 6.1 0.2
U.S. Treasuries/Agencies 6.7 6.1
Asset-backed 7.4 9.3
- -------------------------------------------------------------------------------
Total 100.0% 100.0%
===============================================================================
(1) Primarily U.S. dollar denominated
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.
14
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 perpetual $30 million revolving note
facility with a National Bank and a $30.0 million revolving note facility with a
National 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 National Association of Insurance Commissioners' ("NAIC") risk-based capital
requirements require insurance companies to calculate and report information
under a risk-based capital formula. These requirements are intended to allow
insurance regulators to monitor the capitalization of insurance companies based
upon the type and mixture of risks inherent in a Company's operations. The
formula includes components for asset risk, liability risk, interest rate
exposure, and other factors. The Company has complied with the NAIC's risk-based
capital reporting requirements. Amounts reported indicate that the Company has
total adjusted capital above all required capital levels.
LEGISLATIVE INITATIVES
During 2003, the Bush Administration introduced a budget proposing changes to
federal income taxes, which Congress is now considering. The main item is the
elimination of the double taxation of corporate dividends. Other legislative
proposals under consideration would repeal the estate tax permanently and make
changes to nonqualified deferred compensation arrangements.
Some of these proposals, if enacted, could have a material effect on life
insurance, annuity and other retirement savings product sales. The impact on the
Company's tax position and products is uncertain at this time.
ITEM 4. CONTROLS AND PROCEDURES
(a) Within the 90-day period prior to the filing of this report, the
Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14 of the Securities Exchange Act of 1934). Based
on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Company's current disclosure
controls and procedures are effective in ensuring that material
information relating to the Company required to be disclosed in the
Company's periodic SEC filings is made known to them in a timely
manner.
(b) There have not been any significant changes in the internal controls
of the Company or other factors that could significantly affect these
internal controls subsequent to the date the Company carried out its
evaluation.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
--------------------------------------------
(Registrant)
May 12, 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)
17
CERTIFICATION
I, Cheryl L. Price, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life
Insurance Company of New York.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies, defenses
and material weaknesses.
Date May 12, 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)
18
CERTIFICATION
I, James R.Gelder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life
Insurance Company of New York.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies, defenses
and material weaknesses.
Date May 12, 2003
------------
By /s/ James R. Gelder
---------------------------------------------------
James R. Gelder
President
(Duly Authorized Officer and Chief Executive Officer)
19