10-Q 1 a2086714z10-q.txt 10-Q 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 JUNE 30, 2002 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 333-49581, 033-63657 ------------------------------------------- ING INSURANCE COMPANY OF AMERICA -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 06-1286272 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) CORPORATE CENTER ONE, 2202 NORTH WESTSHORE BOULEVARD, #350, TAMPA, FLORIDA 33607 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (860) 273-0123 -------------- -------------------------------------------------------------------------------- Former name, former address and formal fiscal year, if changed since last report Indicate by check /X/ 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: 25,500 shares of Common Stock as of August 12, 2002. 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) TABLE OF CONTENTS

2 PART I. FINANCIAL INFORMATION 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)

See Notes to Condensed Financial Statements. 3 ING INSURANCE COMPANY OF AMERICA (A wholly-owned subsidiary of ING Life Insurance and Annuity Company) CONDENSED BALANCE SHEETS (Unaudited) (millions, except share data)

See Notes to Condensed 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) (millions)

See Notes to Condensed 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) (millions)

See Notes to Condensed Financial Statements. 6 NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION ING Insurance Company of America ("IICA", or the "Company"), formerly known as Aetna Insurance Company of America ("AICA") 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 ING Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly-owned subsidiary of ING Retirement Services, Inc. ("IRSI"), whose ultimate parent is ING Groep N.V. ("ING"), a financial services company based in The Netherlands. Effective January 1, 2002, the board of directors of the Company approved an amendment to the Certificate of Incorporation of the Company to change the name of the corporation to ING Insurance Company of America. The Company has one operating segment and all revenue reported by the Company comes from external customers. The condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and are unaudited. These interim statements necessarily rely on estimates, including assumptions as to annualized tax rates. In the opinion of management, all adjustments necessary for a fair statement of results for the interim periods have been made. All such adjustments are of a normal, recurring nature. Certain reclassifications have been made to the 2001 financial information to conform to the 2002 presentation. The accompanying financial statements should be read in conjunction with the financial statements and related notes as presented in the Company's 2001 Annual Report on Form 10-K. Certain financial information that is normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, but that is not required for interim reporting purposes, has been condensed or omitted. Operating results for the three or six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 2. NEW ACCOUNTING STANDARD ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard ("FAS") No. 142, Accounting for Goodwill and Intangible Assets effective for fiscal years beginning after December 15, 2001. Under the new statement, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the new statement. Other intangible assets will continue to be amortized over their useful lives. 7 The Company adopted the new statement effective January 1, 2002. Application of the nonamortization provisions of the new statement resulted in an increase in net income of $0.7 million and $1.3 million for the three and six months ended June 30, 2002, respectively. The Company performed the first of the required impairment tests for goodwill as of January 1, 2002. The results indicate an impairment of goodwill exists. The required steps for measuring the amount of the impairment will be completed and the resulting impairment loss will be recorded as a change in accounting principle prior to December 31, 2002. The impairment loss recorded will be the difference between the carrying amount and the estimated fair value of goodwill. Had the Company been accounting for its goodwill under FAS 142 for all periods presented, the Company's net income for the three and six months ended June 30, 2001 would have been as follows:

3. ADDITIONAL INFORMATION - ACCUMULATED OTHER COMPREHENSIVE INCOME Changes in accumulated other comprehensive income related to changes in unrealized (losses)gains on securities (excluding those related to experience-rated policyholders) were as follows:

(1) Pretax unrealized holding gains (losses) were $(0.8) million and $1.4 million for the six months ended June 30, 2002 and June 30, 2001, respectively and were $1.1 million and $0.2 million for the three months ended June 30, 2002 and 2001, respectively. (2) Pretax reclassification adjustments for accretion of net investment discounts and gains (losses) included in net income were $(1.0) million and $0.8 million for the six months ended June 30, 2002 and June 30, 2001, respectively and were $(0.9) million and $0.8 million for the three months ended June 30, 2002 and 2001, respectively. 8 4. VALUE OF BUSINESS ACQUIRED Value of business acquired ("VOBA") is an asset and represents the present value of estimated net cash flows embedded in the Company's contracts indirectly acquired by ING. VOBA is amortized in proportion to estimated gross profits and is adjusted to reflect actual gross profits over the life of the contracts (up to 30 years for annuity contracts and pension contracts). Activity for the six months ended June 30, 2002 and 2001 for VOBA was as follows:

5. INCOME TAXES The Company's effective tax rates for the six months ended June 30, 2002 and June 30, 2001 were 35.0% and 46.8%, respectively. This decrease reflects the implementation of FAS 142 (refer to Note 2 which ceased the amortization of goodwill, a nondeductible expense, and an increase in the deduction allowed for dividends received). 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis presents a review of the Company for the three and six month periods ended June 30, 2002 and 2001. This review should be read in conjunction with the financial statements and other data presented herein as well as in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Company's 2001 Annual Report on Form 10-K. OVERVIEW RECENT DEVELOPMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued FAS No. 142, Accounting for Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new statement, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the new statement. Other intangible assets will continue to be amortized over their estimated useful lives. The Company adopted the new statement effective January 1, 2002. Application of the non-amortization provisions of the new statement resulted in an increase in net income of $0.7 million and $1.3 million for the three and the six months ended June 30, 2002, respectively. The Company performed the first of the required impairment tests for goodwill as of January 1, 2002. The results indicate an impairment of goodwill exists. The required steps for measuring the amount of the impairment will be completed and the resulting impairment loss will be recorded as a change in accounting principle prior to December 31, 2002. The impairment loss recorded will be the difference between the carrying amount and the estimated fair value of goodwill. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed consolidated 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 our estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Item 7 of the Company's Annual Report on Form 10-K discusses critical accounting policies that are most sensitive to estimates and judgments and involve a higher degree of judgment and complexity. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS

(1) Excludes net unrealized capital gains of $4.2 million and $3.1 million at June 30, 2002 and June 30, 2001, respectively. (2) Includes $484.5 million and $625.6 million at June 30, 2002 and June 30, 2001, respectively, of assets invested through the Company's products in unaffiliated mutual funds. The Company's net income decreased $2.2 million for the three months ended June 30, 2002 compared to the same period in 2001. Excluding goodwill amortization and net realized capital losses and gains, results for the three months ended June 30, 2002 decreased $1.8 million compared to the same period in 2001. Net income for the six months ended June 30, 2002 decreased by $2.6 million compared to the same period in 2001. Excluding goodwill amortization and net realized capital losses and gains, results for the six months ended June 30, 2002 decreased $2.6 million compared to the same period in 2001. The decreases in net income for the three months and six months ended June 30, 2002 were due primarily to an increase in amortization of deferred acquisition costs and value of business acquired, a decrease in contract and other charges assessed against policyholders and an increase in operating expenses. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Amortization of deferred policy acquisition costs and value of business acquired increased $1.2 million and $1.9 million for the three and six months ended June 30, 2002, respectively, primarily due to a decline in variable assets and revised estimates for future asset growth due to the decline in the stock market. Substantially all of the contract and other charges assessed against policyholders reported by the Company are derived from assets under management. For the quarter ended June 30, 2002, assets under management decreased $205.0 million, or 26%, compared to the same period in 2001 due to a decline in the stock market and withdrawals in excess of deposits. Annuity deposits relate to annuity contracts not containing life contingencies. Deposits decreased by $1.7 million and $10.7 million for the three months and six months ended June 30, 2002, respectively, compared to the same periods in 2001 primarily due to a decrease in group annuity sales. The Company's effective tax rates for the six months ended June 30, 2002 and June 30, 2001 were 35.0% and 46.8%, respectively. This decrease reflects the implementation of FAS 142 (refer to Note 2 of the Notes to Condensed Financial Statements) which ceased the amortization of goodwill, a nondeductible expense, and an increase in the deduction allowed for dividends received. GENERAL ACCOUNT INVESTMENTS The Company's invested assets were comprised of the following:

(1) Includes $4.5 million and $7.8 million of debt securities pledged to creditors at June 30, 2002 and December 31, 2001, respectively. DEBT SECURITIES At June 30, 2002 and December 31, 2001, the Company's carrying value of available for sale debt securities including debt securities pledged to creditors (hereinafter referred to as "total debt securities") represented 100% of the total general account invested assets. For the same periods, debt securities equal to $109.2 million (92% of the total debt securities) and $120.1 million (91% of the total debt securities), respectively, supported experience-rated contracts. Total debt securities reflected net unrealized capital gains of $4.2 million at June 30, 2002 and December 31, 2001. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) It is management's objective that the portfolio of debt securities be of high quality and be well diversified by market sector. The debt securities 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 debt security portfolio was AA- at June 30, 2002 and December 31, 2001. The percentage of total debt securities by quality rating category is as follows:

The percentage of total debt securities by market sector is as follows:

FORWARD-LOOKING INFORMATION/RISK FACTORS The "Forward-Looking Information/Risk Factors" section of IICA's 2001 Annual Report on Form 10-K contains discussions of important risk factors related to the Company's businesses. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not currently involved in any material litigation. ITEM 5. OTHER INFORMATION RATINGS The Company's financial strength ratings at August 7, 2002 are as follows:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None 14 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. ING INSURANCE COMPANY OF AMERICA -------------------------------- (Registrant) August 9, 2002 By /s/ Chris Duane Schreier --------------- ----------------------------------- (Date) Chris Duane Schreier Director and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 15

ING INSURANCE CO OF AMERICA 10-Q