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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to
Commission file number: 333-49581, 033-63657
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ING INSURANCE COMPANY OF AMERICA
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(Exact name of registrant as specified in its charter)
Florida 06-1286272
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(State or other jurisdiction of incorporation or organization) (IRS employer 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
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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 / /
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 May 12, 2005, all of which were directly owned by ING Life Insurance and
Annuity Company.
NOTE: WHEREAS ING INSURANCE COMPANY OF AMERICA MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING FILED WITH
THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
1
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
FORM 10-Q FOR PERIOD ENDED MARCH 31, 2005
INDEX
PAGE
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PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements:
Condensed Statements of Operations 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
12
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits 21
Signatures 23
2
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
PART I. FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions)
THREE MONTHS ENDED MARCH 31,
2005 2004
-------------- --------------
REVENUES:
Net investment income $ 2.2 $ 2.4
Fee income 2.2 2.2
Net realized capital gains - 0.4
-------------- --------------
Total revenue 4.4 5.0
-------------- --------------
BENEFITS AND EXPENSES:
Interest credited and other benefits to contractowners 2.1 1.2
Operating expenses 0.8 0.8
Amortization of value of business acquired 0.7 1.2
-------------- --------------
Total benefits and expenses 3.6 3.2
-------------- --------------
Income before income taxes 0.8 1.8
Income tax expense 0.2 0.5
-------------- --------------
Net income $ 0.6 $ 1.3
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
CONDENSED BALANCE SHEETS
(In millions, except share data)
AS OF AS OF
MARCH 31, DECEMBER 31,
2005 2004
-------------- --------------
(UNAUDITED)
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value
(amortized cost of $157.1 at 2005 and $161.5 at 2004) $ 157.6 $ 165.0
Securities pledged (amortized cost of $28.2 at 2005 and
$20.4 at 2004) 27.4 20.2
-------------- --------------
Total investments 185.0 185.2
-------------- --------------
Cash and cash equivalents 14.2 11.4
Short-term investments under securities loan agreement 28.0 20.8
Value of business acquired 28.0 28.2
Other assets 5.6 4.9
Assets held in separate accounts 506.1 540.3
-------------- --------------
Total assets $ 766.9 $ 790.8
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claim reserves $ 116.6 $ 123.0
Notes payable 6.5 -
Due to affiliates - 0.7
Payables under securities loan agreement 28.0 20.8
Current income taxes 2.2 0.1
Deferred income taxes 7.6 8.0
Other liabilities 4.5 1.6
Liabilities related to separate accounts 506.1 540.3
-------------- --------------
Total liabilities 671.5 694.5
-------------- --------------
Shareholder's equity:
Common stock (35,000 shares authorized; 25,500 issued
and outstanding, $100 per share value) 2.5 2.5
Additional paid-in capital 181.2 181.2
Accumulated other comprehensive loss (1.5) -
Retained earnings (deficit) (86.8) (87.4)
-------------- --------------
Total shareholder's equity 95.4 96.3
-------------- --------------
Total liabilities and shareholder's equity $ 766.9 $ 790.8
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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)
(In millions)
ACCUMULATED
ADDITIONAL OTHER RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE EARNINGS SHAREHOLDER'S
STOCK CAPITAL INCOME (LOSS) (DEFICIT) EQUITY
-------------- -------------- -------------- -------------- --------------
Balance at December 31, 2003 $ 2.5 $ 181.2 $ 2.2 $ (93.3) $ 92.6
Comprehensive income:
Net income - - - 1.3 1.3
Other comprehensive loss, net of tax:
Net unrealized loss on
securities ($(1.3) pretax) - - (1.0) - (1.0)
--------------
Comprehensive income 0.3
-------------- -------------- -------------- -------------- --------------
Balance at March 31, 2004 $ 2.5 $ 181.2 $ 1.2 $ (92.0) $ 92.9
============== ============== ============== ============== ==============
Balance at December 31, 2004 $ 2.5 $ 181.2 $ - $ (87.4) $ 96.3
Comprehensive loss:
Net income - - - 0.6 0.6
Other comprehensive loss, net of tax:
Net unrealized loss on
securities ($(1.9) pretax) - - (1.5) - (1.5)
--------------
Comprehensive loss (0.9)
-------------- -------------- -------------- -------------- --------------
Balance at March 31, 2005 $ 2.5 $ 181.2 $ (1.5) $ (86.8) $ 95.4
============== ============== ============== ============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
THREE MONTHS ENDED MARCH 31,
2005 2004
-------------- --------------
(RESTATED)
Net cash provided by operating activities $ 5.8 $ 7.4
Cash Flows from Investing Activities:
Proceeds from the sale, maturity, or redemption of: 19.2 75.6
Fixed maturities, available-for-sale
Acquisition of:
Fixed maturities, available-for-sale (22.7) (74.2)
-------------- --------------
Net cash (used in) provided by investing activities (3.5) 1.4
Cash Flows from Financing Activities:
Deposits for investment contracts 0.8 0.7
Maturities and withdrawals from investment contracts (6.8) (6.8)
Short-term borrowings 6.5 -
-------------- --------------
Net cash (used in) provided by financing activities 0.5 (6.1)
-------------- --------------
Net increase in cash and cash equivalents 2.8 2.7
Cash and cash equivalents, beginning of period 11.4 4.8
-------------- --------------
Cash and cash equivalents, end of period $ 14.2 $ 7.5
============== ==============
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)
(Dollar amounts in millions, unless otherwise stated)
1. ORGANIZATIONAL AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
ING Insurance Company of America ("IICA" or the "Company"), a stock life
insurance company domiciled in the state of Florida, is a provider of
financial services in the United States. The Company is a wholly-owned
subsidiary of ING Life Insurance and Annuity Company ("ILIAC"). ILIAC is a
direct wholly-owned subsidiary of Lion Connecticut Holdings Inc. ("Lion" or
"Parent"), which in turn is an indirect wholly-owned subsidiary of ING
Groep N.V. ("ING"). ING is a global financial services company based in The
Netherlands, with American Depository Shares listed on the New York Stock
Exchange under the symbol "ING".
The condensed financial statements and notes as of March 31, 2005 and
December 31, 2004 and for the three month periods ended March 31, 2005 and
2004 ("interim periods") have been prepared in accordance with generally
accepted accounting principles in the United States 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 2004
Annual Report on Form 10-K. The results of operations for the interim
periods may not be considered indicative of results to be expected for the
full year.
DESCRIPTION OF BUSINESS
The Company principally offers variable annuity contracts in the retail
market to individuals, in the education market to individuals on a
qualified and non-qualified basis, and to employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, and 408. The
Company's products are generally distributed through a managed network of
broker/dealers and dedicated career agents.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
information to conform to the current year classifications.
7
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in millions, unless otherwise stated)
SIGNIFICANT ACCOUNTING POLICIES
For a description of significant accounting policies, see Note 1 to the
Financial Statements included in the Company's 2004 Annual Report on Form
10-K.
2. VALUE OF BUSINESS ACQUIRED
Value of business acquired ("VOBA") represents the outstanding value of in
force business capitalized and is subject to amortization in purchase
accounting when the Company was acquired. The value is based on the present
value of estimated net cash flows embedded in the Company's contracts.
The amortization methodology used for VOBA varies by product type.
Statement of Financial Accounting Standards ("FAS") No. 97 applies to
universal life and investment-type products, such as fixed and variable
deferred annuities. Under FAS No. 97, VOBA is amortized, with interest,
over the life of the related contracts (usually 25 years) in relation to
the present value of estimated future gross profits from investment,
mortality, and expense margins; asset-based fees, policy administration,
and surrender charges; less policy maintenance fees and non-capitalized
commissions, as well as realized gains and losses on investments.
Activity for the three months ended March 31, 2005 and 2004 within VOBA was
as follows:
2004
--------------
Balance at December 31, 2003 $ 31.6
Adjustment for FAS No. 115 (0.4)
Additions -
Interest accrued at 5% - 9% 0.4
Amortization (1.5)
--------------
Balance at March 31, 2004 $ 30.1
==============
2005
--------------
Balance at December 31, 2004 $ 28.2
Adjustment for FAS No. 115 -
Additions 0.4
Interest accrued at 5% 0.4
Amortization (1.0)
--------------
Balance at March 31, 2005 $ 28.0
==============
Deferred policy acquisition costs ("DAC") represents policy acquisition
costs that have been capitalized and are subject to amortization. Such
costs consist principally of certain commissions, underwriting, contract
issuance, and agency expenses, related to the
8
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in millions, unless otherwise stated)
production of new and renewal business. DAC, in the amount of $1.0 and $0.9
as of March 31, 2005 and December 31, 2004, is included in other assets on
the Balance Sheets and the related amortization is included in VOBA
amortization.
3. INCOME TAXES
The Company's effective tax rates for the three months ended March 31, 2005
and 2004 were 25.0% and 27.8%, respectively. The effective rate differs
from the expected rate primarily due to the benefit from the dividends
received deduction. The decrease in the effective rate is primarily due to
a decrease in the pretax income relative to the amount allowed for the
dividends received relative to the change in pre-tax income.
4. FINANCING AGREEMENTS
The Company maintains a revolving loan agreement with SunTrust Bank ("the
Bank"). Under this agreement, which expires July 30, 2005, the Company can
borrow up to $30.0 from the Bank. Interest on any company borrowing accrues
at an annual rate equal to (1) the cost of funds for the Bank for the
period applicable for the advance plus .225% or (2) a rate quoted by the
Bank to the Company for the borrowing. Under this agreement, the Company
incurred minimal interest expense for the three months ended March 31, 2005
and 2004, respectively. At March 31, 2005, the Company had an outstanding
balance of $6.5 with the Bank and no outstanding balance as of December 31,
2004. The outstanding balance of $6.5 at March 31, 2005 was repaid on April
1, 2005.
5. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
At December 31, 2004 and 2003, the Company had no commitments or contingent
liabilities.
LITIGATION
The Company is a party to threatened or pending lawsuits/arbitrations
arising from the normal conduct of business. Due to the climate in
insurance and business litigation/arbitration, 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/arbitrations, in light of existing insurance, reinsurance,
and established reserves, it is the opinion of management that the
disposition of such lawsuits/arbitrations will not have a materially
adverse effect on the Company's operations or financial position.
9
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in millions, unless otherwise stated)
6. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income (loss) as of March
31, 2005 and 2004, were as follows:
2005 2004
-------------- --------------
Net unrealized capital gains (losses):
Fixed maturities $ (1.8) $ 4.1
Other (0.1) (2.2)
-------------- --------------
Subtotal (1.9) 1.9
Less: deferred income taxes (0.4) 0.7
-------------- --------------
Net accumulated other comprehensive income $ (1.5) $ 1.2
============== ==============
Net unrealized capital gains (losses) allocated to experience-rated
contracts of $1.5 and $5.1, at March 31, 2005 and 2004, respectively, are
reflected on the Condensed Balance Sheets in future policy benefits and
claim reserves and are not included in shareholder's equity.
Changes in accumulated other comprehensive income related to changes in net
unrealized gains (losses) on securities, including securities pledged and
excluding those related to experience-rated contractowners, were as
follows:
THREE MONTHS ENDED MARCH 31,
2005 2004
-------------- --------------
Unrealized holding losses arising during the year (1) $ (1.4) $ (0.5)
Less: reclassification adjustment for gains
and other items included in net income (2) 0.1 0.5
-------------- --------------
Net unrealized losses on securities $ (1.5) $ (1.0)
============== ==============
(1) Pretax unrealized holding (losses) were $(1.8) and $(0.6), for the
three months ended March 31, 2005 and 2004, respectively.
(2) Pretax reclassification adjustments for gains and other items included
in net income were $0.1 and $0.7, for the three months ended March 31,
2005 and 2004, respectively.
10
ING INSURANCE COMPANY OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(Dollar amounts in millions, unless otherwise stated)
7. RECLASSIFICATIONS AND CHANGES TO PRIOR YEAR PRESENTATION
During 2005, certain changes were made to the Statements of Cash Flows for
the three months ended March 31, 2004, to reflect the correct balances,
primarily related to interest credited to contractowners for investment
type contracts. As a result of these adjustments, we have labeled the
Statements of Cash Flows for the three months ended March 31, 2004 as
restated. The following summarizes the adjustments:
PREVIOUSLY
REPORTED ADJUSTMENT RESTATED
---------- ---------- ----------
THREE MONTHS ENDED 3/31/2004
Net cash provided by (used for) operating $ 1.3 $ 6.1 $ 7.4
Net cash provided by (used for) financing activities - (6.1) (6.1)
11
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Dollar amounts in millions, unless otherwise stated)
OVERVIEW
The following narrative analysis of the results of operations presents
a review of ING Insurance Company of America ("IICA" or the "Company")
for the three month periods ended March 31, 2005 and 2004 and
financial condition as of March 31, 2005 and December 31, 2004. This
review should be read in its entirety and in conjunction with the
condensed financial statements and related notes, which can be found
under Part I, Item 1 contained herein, as well as the "Management's
Narrative Analysis of the Results of Operations and Financial
Condition" section contained in the Company's 2004 Annual Report on
Form 10-K.
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 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. 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 litigation,
regulatory action, and risks associated with the Company's investment
portfolio, such as changes in credit quality, price volatility, and
liquidity. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the
SEC. Except as may be required by the federal securities laws, the
Company disclaims any obligation to update forward-looking
information.
12
CRITICAL ACCOUNTING POLICIES
There have been no material changes to the Company's critical
accounting policies since the filing of the Company's 2004 Form 10-K
Annual Report.
RESULTS OF OPERATIONS
NET INCOME: Net income decreased by $0.7 to $0.6 for the three months
ended March 31, 2005, as compared to $1.3 for the three months ended
March 31, 2004. Decreased net income is primarily the result of a
decline in realized capital gains and an increase in interest credited
and other benefits to contractowners, partially offset by lower VOBA
amortization.
NET INVESTMENT INCOME: Net investment income from General Account
assets decreased $0.2 to $2.2 for the three months ended March 31,
2005 from $2.4 for the three months ended March 31, 2004. The decrease
is primarily due to a slight decrease in average fixed annuity account
values.
NET REALIZED CAPITAL GAINS (LOSSES): Net realized capital gains for
the three months ended March 31, 2005 was $0.0 compared to $0.4 for
the three months ended March 31, 2004. The reduction in net realized
capital gains was impacted by the increasing interest rate environment
in 2005 that negatively effected the market value of fixed maturities
and led to lower realized capital gains upon sale.
INTEREST CREDITED AND OTHER BENEFITS TO CONTRACTOWNERS: Interest
credited and other benefits to contractowners for the three months
ended March 31, 2005 increased $0.9 to $2.1 from $1.2 for the three
months ended March 31, 2004. The increase in interest credited and
other benefits to contractowners is primarily driven by a $0.8
decrease to ceded benefit reserves.
AMORTIZATION OF VOBA: Amortization of VOBA for the three months ended
March 31, 2005, decreased by $0.5 to $0.7 from $1.2 for the three
months ended March 31, 2004. Amortization of VOBA for long-duration
products is recorded in proportion to actual and estimated future
gross profits. The decrease in amortization is due to lower actual
gross profits in the current period, resulting primarily from the
decrease in net realized capital gains and increase in death benefit
expense.
INCOME TAX EXPENSE (BENEFIT): Income tax expense decreased by $0.3 to
$0.2 for the three months ended March 31, 2005 from $0.5 for the three
months ended March 31, 2004. The decrease is primarily due to the
decrease in pre-tax income and a decrease in effective rates primarily
resulting from an increase in the deduction allowed for dividends
received relative to the change in pre-tax income.
13
FINANCIAL CONDITION
INVESTMENTS
INVESTMENT STRATEGY
The Company's investment strategy for its General Account investments
involves diversification by asset class, and seeks to add economic
diversification and to reduce the risks of credit, liquidity, and
embedded options within certain investment products, such as convexity
risk on collateralized mortgage obligations and call options. The
investment management function is centralized under ING Investment
Management LLC ("IIM"), an affiliate of the Company, pursuant to an
investment advisory agreement. Separate portfolios are established for
each general type of product within IICA.
PORTFOLIO COMPOSITION
Fixed maturities, including securities pledged, of $185.0 and $185.2
at March 31, 2005 and December 31, 2004, represent 100% of the
investment portfolio.
FIXED MATURITIES
Fixed maturities available-for-sale as of March 31, 2005, were as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- -------------- -------------- --------------
Fixed maturities:
U.S. government and government
agencies and authorities $ 57.9 $ 0.1 $ 1.6 $ 56.4
U.S. corporate securities:
Public utilities 9.8 0.2 0.2 9.8
Other corporate securities 57.0 1.7 0.9 57.8
-------------- -------------- -------------- --------------
Total U.S. corporate securities 66.8 1.9 1.1 67.6
-------------- -------------- -------------- --------------
Foreign securities 6.3 0.4 - 6.7
Residential mortgage-backed securities 31.2 0.1 0.6 30.7
Commercial mortgage-backed securities 9.0 0.4 0.1 9.3
Other asset-backed securities 14.1 0.3 0.1 14.3
-------------- -------------- -------------- --------------
Total fixed maturities including fixed
maturities, pledged to creditors 185.3 3.2 3.5 185.0
Less: fixed maturities pledged 28.2 - 0.8 27.4
-------------- -------------- -------------- --------------
Fixed maturities $ 157.1 $ 3.2 $ 2.7 $ 157.6
============== ============== ============== ==============
14
Fixed maturities available-for-sale as of December 31, 2004, were as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- -------------- -------------- --------------
Fixed maturities:
U.S. government and government
agencies and authorities $ 47.2 $ 0.2 $ 0.4 $ 47.0
U.S. corporate securities:
Public utilities 9.8 0.3 0.1 10.0
Other corporate securities 64.3 2.5 0.3 66.5
-------------- -------------- -------------- --------------
Total U.S. corporate securities 74.1 2.8 0.4 76.5
-------------- -------------- -------------- --------------
Foreign securities 6.6 0.5 - 7.1
Residential mortgage-backed securities 30.6 0.1 0.3 30.4
Commercial mortgage-backed securities 9.2 0.5 0.1 9.6
Other asset-backed securities 14.2 0.4 - 14.6
-------------- -------------- -------------- --------------
Total fixed maturities including fixed
maturities, pledged to creditors 181.9 4.5 1.2 185.2
Less: fixed maturities pledged to creditors 20.4 - 0.2 20.2
-------------- -------------- -------------- --------------
Fixed maturities $ 161.5 $ 4.5 $ 1.0 $ 165.0
============== ============== ============== ==============
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 March 31, 2005 and December 31, 2004. Ratings are calculated
using a rating hierarchy that considers S&P, Moody's, and internal
ratings.
Total fixed maturities by quality rating category, including fixed
maturities pledged to creditors, were as follows at March 31, 2005 and
December 31, 2004:
2005 2004
------------------------------- -------------------------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
-------------- -------------- -------------- --------------
AAA $ 104.0 56.2% $ 99.7 53.8%
AA 5.1 2.8% 5.9 3.2%
A 43.5 23.5% 46.2 24.9%
BBB 28.2 15.2% 29.0 15.7%
BB 4.2 2.3% 4.4 2.4%
-------------- -------------- -------------- --------------
Total $ 185.0 100.0% $ 185.2 100.0%
============== ============== ============== ==============
97.7% and 97.6% of fixed maturities were invested in securities rated
BBB and above (Investment Grade) at March 31, 2005 and December 31,
2004, respectively.
15
Fixed maturities rated BB and below (Below Investment Grade) 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.
Total fixed maturities by market sector, including fixed maturities
pledged to creditors, were as follows, at March 31, 2005 and December
31, 2004:
2005 2004
------------------------------- -------------------------------
FAIR % OF FAIR % OF
VALUE TOTAL VALUE TOTAL
-------------- -------------- -------------- --------------
U.S. Corporate $ 67.6 36.6% $ 76.5 41.3%
Residential Mortgage-backed 30.7 16.6% 30.4 16.4%
U.S. Treasuries/Agencies 56.4 30.5% 47.0 25.4%
Asset-backed 14.3 7.7% 14.6 7.9%
Commercial/Multifamily Mortgage-backed 9.3 5.0% 9.6 5.2%
Foreign(1) 6.7 3.6% 7.1 3.8%
-------------- -------------- -------------- --------------
Total $ 185.0 100.0% $ 185.2 100.0%
============== ============== ============== ==============
(1) Primarily U.S. dollar denominated
The Company did not have any investments in a single issuer, other
than obligations of the U.S. government, with a carrying value in
excess of 10% of the Company's shareholder's equity at March 31, 2005.
UNREALIZED LOSSES
Unrealized losses related to fixed maturities are analyzed in detail
in the following tables.
Fixed maturities, including securities pledged to creditors, in
unrealized loss positions for Investment Grade ("IG") and Below
Investment Grade ("BIG") securities by duration were as follows at
December March 31, 2005 and December 31, 2004:
2005 2004
----------------------------------------- -----------------------------------------
% OF IG % OF IG % OF IG % OF IG
IG AND BIG BIG AND BIG IG AND BIG BIG AND BIG
-------- -------- -------- -------- -------- -------- -------- --------
Less than six months below
amortized cost $ 2.2 62.9% $ - 0.0% $ 0.5 41.7% $ -* 0.0%
More than six months
and less than twelve
months below amortized cost 0.5 14.3% -* 0.0% 0.3 25.0% - 0.0%
More than twelve months
below amortized cost 0.8 22.8% - 0.0% 0.4 33.3% - 0.0%
-------- -------- -------- -------- -------- -------- -------- --------
Total unrealized loss $ 3.5 100.0% $ - 0.0% $ 1.2 100.0% $ - 0.0%
======== ======== ======== ======== ======== ======== ======== ========
* Less than $0.1
16
Unrealized losses at March 31, 2005 were primarily related to interest
rate movement or spread widening for other than credit-related reasons
and to securities under the guidance prescribed by 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". Securities affected by EITF Issue No.
99-20 include U.S. government backed securities, principal protected
securities, and structured securities, which did not have an adverse
change in cash flows. The following table summarizes the unrealized
losses by duration and reason, along with the carrying amount of
securities with unrealized losses at March 31, 2005:
MORE THAN
SIX MONTHS
LESS THAN AND LESS THAN MORE THAN
SIX MONTHS TWELVE MONTHS TWELVE MONTHS
-------------- -------------- --------------
Interest rate or spread widening $ 2.0 $ 0.5 $ 0.1
EITF Issue No. 99-20 0.2 - 0.7
-------------- -------------- --------------
Total unrealized loss $ 2.2 $ 0.5 $ 0.8
============== ============== ==============
Carrying amount $ 12.2 $ 2.0 $ 19.7
============== ============== ==============
Fixed maturities, including securities pledged to creditors, in
unrealized loss positions by market sector and duration were as
follows at March 31, 2005:
COMMERCIAL/
RESIDENTIAL MULTI-FAMILY U.S.
U.S. MORTGAGE- MORTGAGE- TREASURIES/ ASSET-
CORPORATE BACKED BACKED AGENCIES BACKED TOTAL
--------- ------------ ------------ ------------ --------- ---------
Less than six months below
amortized cost $ 0.4 $ 0.2 $ - $ 1.5 $ 0.1 $ 2.2
More than six month and
less than twelve months
below amortized cost 0.5 - - - - 0.5
More than twelve months
below amortized cost 0.1 0.5 0.2 - - 0.8
--------- ------------ ------------ ------------ --------- ---------
Total unrealized loss $ 1.0 $ 0.7 $ 0.2 $ 1.5 $ 0.1 $ 3.5
========= ============ ============ ============ ========= =========
OTHER-THAN-TEMPORARY IMPAIRMENTS
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. 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 an investment will not be collected, an other-than-temporary
impairment is considered to have occurred.
17
In addition, the Company invests in structured securities that meet
the criteria of EITF Issue No. 99-20. 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 amortized
cost 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. The Company had no
other-than-temporary impairments for the three months ended March 31,
2005 and 2004.
NET REALIZED CAPITAL GAINS AND LOSSES
Net realized capital gains (losses) are comprised of the difference
between the carrying value of investments and proceeds from sale,
maturity, and redemption, as well as losses incurred due to the
impairment of investments. There were no net realized capital gains
for the period ending March 31, 2005. Net capital gains of $0.4 (after
tax $0.3) were realized in the period ending March 31, 2004.
Net realized capital gains (losses) allocated to experience-rated
contracts of ($38.5) thousand and $0.3 for the three months ended
March 31, 2005 and 2004, respectively, were deducted from net realized
capital gains and an offsetting amount was reflected in future policy
benefits and claim reserves on the Consolidated Balance Sheets. Net
unamortized realized gains allocated to experience rated
contractowners were $1.2 and $1.4 at March 31, 2005 and December 31,
2004, respectively.
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.
SOURCE AND USES OF LIQUIDITY
The Company's principal sources of liquidity are product charges,
investment income, proceeds from the maturing and sale of investments,
and capital contributions. Primary uses of liquidity are payments of
commissions and operating expenses, interest and premium credits,
investment purchases, contract maturities, 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. 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 contractowner behavior,
and variable separate account performance. Contractowners
18
bear the investment risk related to variable insurance products,
subject, in limited cases, to certain minimum guaranteed rates.
The fixed account liabilities are supported by a portfolio 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 into 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.
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.
Additional sources of liquidity include borrowing facilities to meet
short-term cash requirements. The Company maintains a reciprocal loan
agreement with ING America Insurance Holdings, Inc. ("ING AIH"), an
affiliate of the Company, whereby either party can borrow from the
other up to 0.5% of IICA's statutory admitted assets as of the prior
December 31. IICA also maintains a $30.0 revolving loan agreement with
SunTrust Bank and a $30.0 revolving loan agreement with the Bank of
New York. The Company had an outstanding balance with SunTrust Bank of
$6.5 as of March 31, 2005, which was repaid on April 1, 2005, and no
outstanding balance as of December 31, 2004. Management believes that
these sources of liquidity are adequate to meet the Company's
short-term cash obligations.
CAPITAL CONTRIBUTIONS AND DIVIDENDS
The Company did not pay dividends to its parent or receive capital
contributions from its parent during the three months ended March 31,
2005 and 2004.
LEGISLATIVE INITIATIVES
Legislative proposals which have been or are being considered by
Congress include repealing the estate tax, reducing the taxation on
annuity benefits, changing the tax treatment of insurance products
relative to other financial products, and changing life insurance
company taxation. Some of these proposals, if enacted, could have a
material effect on life insurance, annuity and other retirement
savings product sales. The President has also established an advisory
panel to study reform of the Internal Revenue Code. The panel is
scheduled to report its findings and make recommendations to the
Secretary of Treasury by the end of July, 2005. The recommendations of
this panel, if enacted by Congress, could affect the tax treatment of
insurance companies and products. Legislation to restructure the
Social Security System and expand private pension plan incentives also
may be considered. Prospects for enactment and the ultimate effect of
these proposals are uncertain.
19
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 design and operation 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.
20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to threatened or pending lawsuits/arbitrations
arising from the normal conduct of business. Due to the climate in
insurance and business litigation/arbitrations, 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/arbitrations, in light of
existing insurance, reinsurance and established reserves, it is the
opinion of management that the disposition of such
lawsuits/arbitrations will not have a materially adverse effect on the
Company's operations or financial position.
As with many financial services companies, the Company and its
affiliates have received informal and formal requests for information
from various state and federal governmental agencies and
self-regulatory organizations in connection with inquiries and
investigations of the products and practices of the financial services
industry. In each case, the Company and its affiliates have been and
are providing full cooperation. This discussion should be read in
conjunction with the "Other Regulatory Matters" section of
"Management's Narrative Analysis of the Results of Operations and
Financial Condition" included in the Company's 2004 Form 10-K Annual
Report.
ITEM 6. EXHIBITS
3.(i) Articles of Incorporation, as restated January 1, 2002,
incorporated by reference to the Registrant's Form 10-K, as
filed with the SEC on March 28, 2002 (File No. 33-81010).
(ii) By-Laws, as amended and restated effective January 1, 2005.
4.(a) Instruments Defining the Rights of Security Holders, Including
Indentures (Annuity Contracts)
Incorporated herein by reference to Registration Statement on
Form N-4, File No. 33-80750, as amended and filed with the SEC
on April 23, 1997.
Incorporated herein by reference to Registration Statement on
Form N-4, File No. 33-59749, as filed with the SEC on June 1,
1995.
Incorporated herein by reference to Post-Effective Amendment
No. 4 to Registration Statement on Form N-4, File No. 33-59749,
as filed with the SEC on April 16, 1997.
Incorporated herein by reference to Post-Effective Amendment
No. 6 to Registration Statement on Form N-4, File No. 33-59749,
as filed with the SEC on November 26, 1997.
21
Incorporated herein by reference to Post-Effective Amendment
No. 8 to Registration Statement on Form N-4, File No. 33-59749,
as filed with the SEC on April 17, 1998.
Incorporated herein by reference to Registration Statement on
Form S-2, File No. 33-63657, as filed with the SEC on October
25, 1995.
Incorporated herein by reference to Pre-Effective Amendment No.
3 to the Registration Statement on Form S-2, File No. 33-63657,
as filed with the SEC on January 17, 1996.
Incorporated herein by reference to Post-Effective Amendment
No. 3 to Registration Statement on Form S-2, File No. 33-63657,
as filed with the SEC on November 24, 1997.
31.1 Certificate of David A. Wheat pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certificate of Brian D. Comer 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 Brian D. Comer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
22
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.
ING INSURANCE COMPANY OF AMERICA
--------------------------------
(Registrant)
May 12, 2005 By /s/ David A. Wheat
- ------------- -------------------------------------------------
(Date) David A. Wheat
Director, Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)
23