ING INSURANCE CO OF AMERICA - 10-Q Quarterly Report

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UNITED STATE
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003

OR

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

For the transition period from to
Commission file number: 333-49581, 033-63657

ING Insurance Company of America
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Florida 06-1286272
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)

Corporate Center One, 2202 North Westshore
Boulevard, #350, Tampa, Florida 33607
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(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (813) 281-3773

- --------------------------------------------------------------------------------
Former name, former address and former 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 ______
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes ______ No __X__

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 25,500 shares of Common Stock
as of November 12, 2003, all of which were directly owned by ING Life Insurance
and Annuity Company.

NOTE: WHEREAS ING INSURANCE COMPANY OF AMERICA MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING FILED WITH
THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)
Form 10-Q for the period ended September 30, 2003

INDEX

2

PART I. FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)

CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

3

ITEM 1. FINANCIAL STATEMENTS (continued)
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)

CONDENSED BALANCE SHEETS
(Millions, except share data)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

4

ITEM 1. FINANCIAL STATEMENTS (continued)

ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(Unaudited)
(Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

5

ITEM 1. FINANCIAL STATEMENTS (continued)
ING INSURANCE COMPANY OF AMERICA
(A wholly-owned subsidiary of ING Life Insurance and Annuity Company)

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

6

ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

ING Insurance Company of America ("IICA", or the "Company"), is a provider
of financial products and services in the United States. The Company is a
wholly-owned subsidiary of ING Life Insurance and Annuity Company ("ILIAC").
ILIAC is a wholly-owned subsidiary of Lion Connecticut Holdings, Inc. ("Lion
Connecticut"). Lion Connecticut's ultimate parent is ING Groep N.V. ("ING"),
a financial services company based in The Netherlands.

The condensed financial statements and notes as of September 30, 2003 and
December 31, 2002 and for the three and nine-month periods ended
September 30, 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 operating segment, U.S.
Financial Services ("USFS"), and revenue reported by the Company is
predominantly 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") Statement of Financial Accounting Standards ("FAS") No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS ("FAS No.142"). 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.

The adoption of this standard resulted in an impairment loss of $101.8
million which was recorded by the Company in the fourth quarter of 2002.
This impairment loss represented 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.

In accordance with FAS No. 142, a transitional impairment loss for goodwill
should be recognized in the first interim period of the year of initial
adoption, regardless of the period in which it was measured. The aggregate
amount of the accounting change should be included in restated net income of
the first interim period, and each subsequent period of that year should be
presented on the restated basis. As such, net income for the nine months
ended September 30, 2002, has been restated to reflect the January 1, 2002
impairment charge, which was recorded in the fourth quarter of 2002.

7

ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (continued)

3. NEW ACCOUNTING PRONOUNCEMENTS

In July 2003, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 03-1, ACCOUNTING AND
REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN NONTRADITIONAL LONG-DURATION
CONTRACTS AND FOR SEPARATE ACCOUNTS, which the Company intends to adopt on
January 1, 2004. The impact on the financial statements is not known at this
time.

The Derivative Implementation Group ("DIG") responsible for issuing guidance
on behalf of the FASB for implementation of FAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES recently issued Statement
Implementation Issue No. B36, EMBEDDED DERIVATIVES: MODIFIED COINSURANCE
ARRANGEMENTS AND DEBT INSTRUMENTS THAT INCORPORATE CREDIT RISK EXPOSURES
THAT ARE UNRELATED OR ONLY PARTIALLY RELATED TO THE CREDIT WORTHINESS OF THE
OBLIGOR UNDER THOSE INSTRUMENTS ("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 embedded derivatives that are
required to be bifurcated. The required date of adoption of DIG B36 for the
Company is October 1, 2003. The Company has completed its evaluation of DIG
B36 and determined that it has no investment or insurance products that are
applicable to require implementation of the guidance, and therefore, the
guidance will have no impact on the Company's financial position, results of
operations or cash flows.

4. 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 No. 60") and FAS No. 97, ACCOUNTING AND REPORTING BY
INSURANCE ENTERPRISES FOR CERTAIN LONG-DURATION CONTRACTS AND REALIZED GAINS
AND LOSSES FROM THE SALE OF INVESTMENTS ("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

8

ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (continued)

4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED (continued)
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 nine months ended September 30, 2003 was as follows:

5. INCOME TAXES

The Company's effective tax rates for the three months ended September 30,
2003 and September 30, 2002 were 24.1% and 37.1%, respectively. The
Company's effective tax rates for the nine months ended September 30, 2003
and 2002 were 22.7% and 36.4%, respectively. The decreases in effective tax
rates resulted primarily from an increase in the deduction allowed for
dividends received.

6. COMMITMENTS AND CONTINGENT LIABILITIES

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 the ING Insurance Company of America ("IICA", or
the "Company") as of September 30, 2003 and December 31, 2002 and for the three
and nine-month periods ended September 30, 2003 and 2002. This review should be
read in conjunction with the condensed 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 offers qualified and nonqualified annuity contracts that include a
variety of funding and payout options for individuals and employer sponsored
retirement plans qualified under Internal Revenue Code Section 403(b), as well
as nonqualified deferred compensation plans. Annuity contracts may be deferred
or immediate (payout annuities). These products also include programs offered to
qualified plans and nonqualified deferred compensation plans that package
administrative and record-keeping services along with a variety of investment
options, including affiliated and nonaffiliated mutual funds and variable and
fixed investment options.

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"). 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.

The adoption of this standard resulted in an impairment loss of $101.8 million,
which was recorded by the Company in the fourth quarter of 2002. This impairment
loss represented 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.

In accordance with FAS No. 142, a transitional impairment loss for goodwill
should be recognized in the first interim period of the year of initial
adoption, regardless of the period in which it was measured. The aggregate
amount of the accounting change should be included in restated net income of the
first interim period, and each subsequent period of that year should be
presented on the restated basis. As such, net income for the nine months ended
September 30, 2002, has been restated to reflect the January 1, 2002 impairment
charge, which was recorded in the fourth quarter of 2002.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2003, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 03-1, ACCOUNTING AND REPORTING BY INSURANCE
ENTERPRISES FOR CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE
ACCOUNTS, which the Company intends to adopt on January 1, 2004. The impact on
the financial statements is not known at this time.

10

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
NEW ACCOUNTING PRONOUNCEMENTS (continued)
The Derivative Implementation Group ("DIG") responsible for issuing guidance on
behalf of the FASB for implementation of FAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES recently issued Statement Implementation
Issue No. B36, EMBEDDED DERIVATIVES: MODIFIED COINSURANCE ARRANGEMENTS AND DEBT
INSTRUMENTS THAT INCORPORATE CREDIT RISK EXPOSURES THAT ARE UNRELATED OR ONLY
PARTIALLY RELATED TO THE CREDIT WORTHINESS OF THE OBLIGOR UNDER THOSE
INSTRUMENTS ("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
embedded derivatives that are required to be bifurcated. The required date of
adoption of DIG B36 for the Company is October 1, 2003. The Company has
completed its evaluation of DIG B36 and determined that it has no investment or
insurance products that are applicable to require implementation of the
guidance, and therefore, the guidance will have no impact on the Company's
financial position, results of operations or cash flows.

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 condensed financial statements and related footnotes. These
estimates and assumptions are evaluated on an on-going basis based on historical
developments, market conditions, industry trends and other information that is
reasonable under the circumstances. There can be no assurance that actual
results will conform to estimates and assumptions, and that reported results of
operations will not be materially adversely affected by the need to make future
accounting adjustments to reflect changes in these estimates and assumptions
from time to time.

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
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
considering the length of the time and the extent to which the fair value has
been less than amortized 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. Based on the facts and
circumstances of each case, management uses judgment 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.

11

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
CRITICAL ACCOUNTING POLICIES (continued)
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 the
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 the 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
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.

12

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
FORWARD-LOOKING INFORMATION/RISK FACTORS (continued)
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 Legislative
Initiatives section below). Some may relate 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

Fee income for the three and nine month periods ended September 30, 2003
decreased by $0.3 million and $2.5 million, respectively, compared to the same
periods in 2002. A substantial portion of the fee income on variable assets is
calculated based on assets under management. The decrease in fee income was
primarily due to a decrease in the variable inforce balance and a decrease in
the Company's average variable assets under management. The decrease in average
variable assets under management resulted from two factors: (1) during the first
three months of 2003 the equity markets suffered a decline compared to the same
period in 2002, the markets started to rebound during the second quarter; and
(2) during the market decline policyholders transferred assets from variable to
fixed options.

Net investment income increased $1.2 million and $1.0 million for the three and
nine months ended September 30, 2003, respectively, compared to the same periods
in 2002. The net investment income increased due to higher asset balances in the
three and nine month periods ended September 30, 2003 versus the comparative
periods in prior year; this increase was partially offset by lower investment
yields.

Net realized capital gains for the quarter ended September 30, 2003 decreased by
$0.3 million compared to the same quarter in 2002. Net realized capital gains
for the nine months ended September 30, 2003 were $4.1 million higher than the
comparative period in 2002. Net realized gains were primarily affected by a
decrease in the 10-year treasury rate between the comparative periods. A
significant variable affecting realized gains and losses is the 10-year treasury
yield. The average rate was 4.2% during the three month periods ended
September 30, 2002 and 2003. The average rate decreased from 4.7% to 3.9% for
the nine month periods ended September 30, 2002 and 2003, respectively. 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.

13

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS (continued)
Interest credited and other benefits to policyholders for the three and nine
months ended September 30, 2003 decreased $0.8 million in contrast to the
comparative periods in 2002. The decrease was primarily due to a decrease in
credited rates to policyholders and a decline in assets under management with
fixed options.

Underwriting, acquisition, and insurance expenses for the three months ended
September 30, 2003 increased by $0.3 million compared to the same period in
2002, the higher expenses are primarily due to an increase in general expenses
and a decrease in policy acquisition costs deferred. A decrease of $0.1 million
in the nine months ended September 30, 2003 compared to the nine months ended
September 30, 2002, was due to a decrease in general expenses and commissions
substantially offset by a decrease in policy acquisition costs deferred. The
reduction in general expenses was a result of lower allocation of expenses from
the Company's parent and from ING's company-wide cost reduction efforts.
Commissions decreased during the periods as a result of decreases in new and
renewal business generated during the three months ended September 30, 2003 as
compared to the same period in 2002.

Amortization of deferred policy acquisition costs and value of business acquired
for the three and nine months ended September 30, 2003, decreased by $5.3
million and $7.5 million, respectively, compared to the same periods in 2002.
Decreased amortization during the three and nine month periods ended
September 30, 2003 was primarily due to improved market and fund performance.
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.

The cumulative effect of the change in accounting principle for the nine months
ended September 30, 2002, was a loss of $101.8 million. As noted in the Recently
Adopted Accounting Standards section, the write down is related to FAS No. 142,
which addresses the value of goodwill and other intangible assets.

Net income, excluding change in accounting principle, increased by $4.4 million
and $7.9 million for the three and nine months ended September 30, 2003, as
compared to the three and nine months ended September 30, 2002. Higher earnings
for the three months ended September 30, 2003 compared to the same period in
2002 are due to higher net investment income and a decrease in amortization of
deferred policy acquisition costs and value of business acquired partially
offset by lower fee income. Higher year to date earnings are primarily the
result of increased net realized gains and net investment income partially
offset by a decrease in fee income.

14

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS (continued)
The Company's annuity deposits and assets under management are as follows:

(1) Excludes net unrealized capital gains of $7.0 million and $8.3 million at
September 30, 2003 and 2002, respectively.
(2) Includes $409.0 million and $390.7 million at September 30, 2003 and 2002,
respectively, of assets invested through the Company's products in
unaffiliated mutual funds.

FINANCIAL CONDITION

INVESTMENTS

FIXED MATURITIES

At September 30, 2003 and December 31, 2002, the Company's carrying value of
available for sale fixed maturities including securities pledged to creditors
(hereinafter referred to as "total fixed maturities") represented 100% of the
total general account invested assets for both periods. For the same periods,
$98.6 million, or 71.3% of total fixed maturities, and $118.2 million, or 91.2%
of total fixed maturities, respectively, supported experience-rated products.
Total fixed maturities reflected net unrealized capital gains of $7.0 million
and $8.0 million at September 30, 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 AA- at September 30, 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.

15

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
INVESTMENTS (continued)
The percentage of total fixed maturities by quality rating category is as
follows:

The percentage of total fixed maturities by market sector is as follows:

(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 fair value has been less than amortized 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 fixed maturity investment will not be collected, an other than temporary
impairment is considered to have occurred.

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.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of the Company to generate sufficient cash flows to
meet the cash requirements of operating, investing, and financing activities.
The Company's principal sources of liquidity are product charges, investment
income and maturing investments. Primary uses of these funds are payments of
commissions and operating expenses, interest credits, investment purchases, as
well as withdrawals and surrenders.

16

ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Management believes that its sources of liquidity are adequate to meet the
Company's short-term cash obligations. The Company has entered into agreements
with ILIAC under which ILIAC has agreed to cause the Company to have sufficient
capital to meet certain capital and surplus levels.

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 INITIATIVES

The Jobs and Growth Tax Relief Reconciliation Act of 2003 which was enacted in
the second quarter may impact the Company. The Act's provisions, which reduce
the tax rates on long-term capital gains and corporate dividends, impact the
relative competitiveness of the Company's products, especially variable
annuities.

Other legislative proposals under consideration include repealing the estate
tax, changing the taxation of products, changing life insurance company taxation
and making 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 cannot be predicted.

ITEM 4. CONTROLS AND PROCEDURES

a) 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 Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) of the
Securities Exchange Act of 1934) as of the end of the period covered by
this report. 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 has not been any change in the internal controls over financial
reporting of the Company that occurred during the period covered by this
report that has materially affected or is reasonably likely to materially
affect these internal controls.

17

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.

As with many financial services companies, affiliates of the Company have
received requests for information from various governmental and self-regulatory
agencies in connection with investigations related to trading in investment
company shares. In each case, full cooperation and responses are being provided.
The Company is also reviewing its policies and procedures in this area.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31.1 Certificate of David A. Wheat pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2 Certificate of Keith Gubbay pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1 Certificate of David A. Wheat pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certificate of Keith Gubbay pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

A Amendment to the Investment Advisory Agreement dated as of August 26,
2003, between ING Insurance Company of America and ING Investment
Management LLC.

(b) Reports on Form 8-K.

None.

18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ING INSURANCE COMPANY OF AMERICA
--------------------------------------------------
(Registrant)

November 12, 2003 By /s/ David A. Wheat
- ------------------- -----------------------
(Date) David A. Wheat
Senior Vice President and Chief
Financial Officer