10-Q 1 form10q_rynoo-09303002.txt UNITED STATES 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: 333-104540 ReliaStar Life Insurance Company of New York -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 53-0242530 -------------------------------------------------------------------------------- (State or other jurisdiction (IRS employer identification no.) of incorporation or organization) 1000 Woodbury Road, Suite 208, Woodbury, New York 11797 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (516) 682-8700 -------------- -------------------------------------------------------------------------------- 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: 1,377,863 shares of Common Stock as of November 12, 2003, all of which were directly owned by Security-Connecticut Life Insurance Company. NOTE: WHEREAS RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10Q, THIS FORM IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2). RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Form 10-Q for the period ended September 30, 2003 INDEX Page ---- PART I. FINANCIAL INFORMATION (Unaudited) Item 1. Financial Statements: Condensed Statements of Income 3 Condensed Balance Sheets 4 Condensed Statements of Changes in Shareholder's Equity 5 Condensed Statements of Cash Flows 6 Notes to Condensed Financial Statements 7 Item 2. Management's Narrative Analysis of the Results of Operations and Financial Condition 12 Item 4. Controls and procedures 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 PART I. FINANCIAL INFORMATION (UNAUDITED) Item 1. Financial Statements RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Condensed Statements of Income (Unaudited) (Millions)

The accompanying notes are an integral part of these financial statements. 3 RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Condensed Balance Sheets (Millions, except share data)

The accompanying notes are an integral part of these financial statements. 4 RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Condensed Statements of Changes in Shareholder's Equity (Unaudited) (Millions)

The accompanying notes are an integral part of these financial statements. 5 RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Condensed Statements of Cash Flows (Unaudited) (Millions)

The accompanying notes are an integral part of these financial statements. 6 RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (A wholly-owned subsidiary of Security-Connecticut Life Insurance Company) Notes to Condensed Financial Statements (Unaudited) -------------------------------------------------------------------------------- 1. Basis of Presentation ReliaStar Life Insurance Company of New York ("RLNY", or the "Company") is a provider of financial products and services in the United States. The Company is a wholly-owned subsidiary of Security-Connecticut Life Insurance Company ("Security-Connecticut"). Security-Connecticut is a wholly-owned subsidiary of ReliaStar Life Insurance Company ("ReliaStar Life"). ReliaStar Life'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 primarily conducts its business through one operating segment, U.S. Financial Services ("USFS"), and all 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 $865.0 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. 7 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 as of January 1, 2002. 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 consolidated 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 8 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"). The Company identified $6.1 million of VOBA that was improperly capitalized during 2000 and 2001. During the third quarter of 2003, the Company has reversed this capitalization which resulted in a reduction to the VOBA asset balance and an increase to VOBA amortization. Under FAS No. 60, acquisition costs for traditional life insurance products, which primarily include whole life and term life insurance contracts, are amortized over the premium payment period in proportion to the premium revenue recognition. Under FAS No. 97, acquisition costs for universal life and investment-type products, which include universal life policies and fixed and variable deferred annuities, are amortized over the life of the blocks of policies (usually 25 years) in relation to the emergence of estimated gross profits from surrender charges, investment margins, mortality and expense margins, asset-based fee income, and actual realized gains (losses) on investments. Amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. VOBA activity for the nine months ended September 30, 2003 was as follows:

5. Investments Impairments During the three months ended September 30, 2003, the Company determined that no fixed maturities had other than temporary impairments. During the three months ended September 30, 2002, the Company determined that six fixed maturities had other than temporary impairments. As a result, for the three months ended September 30, 2002, the Company recognized a pre-tax loss of $4.1 million to reduce the carrying value of the fixed maturities to their fair value at the time of impairment. 9 During the first nine months of 2003, the Company determined that nine fixed maturities had other than temporary impairments. As a result, for the nine months ended September 30, 2003, the Company recognized a pre-tax loss of $4.8 million to reduce the carrying value of the fixed maturities to their fair value at the time of impairment. During the first nine months of 2002, the Company determined that 14 fixed maturities had other than temporary impairments. As a result, for the nine months ended September 30, 2002, the Company recognized a pre-tax loss of $5.7 million to reduce the carrying value of the fixed maturities to their fair value at the time of impairment. The fair value of the remaining impaired fixed maturities at September 30, 2003 and 2002 is $1.9 million and $7.8 million, respectively. 6. Income Taxes The effective tax rates for the three months ended September 30, 2003 and September 30, 2002, were 34.4% and 36.3%, respectively. The Company's effective tax rates for the nine months ended September 30, 2003 and 2002 were 34.8% and 35.2%, respectively. These rates approximate the federal income tax rate of 35.0%. 7. Commitments and Contingent Liabilities Commitments Through the normal course of investment operations, the Company commits to either purchase or sell securities, commercial mortgage loans or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. The Company makes investments in limited partnerships on a subscription basis. At September 30, 2003 and December 31, 2002, the Company had off-balance sheet commitments to purchase investments equal to the fair value of $23.9 million and $26.2 million, respectively. Litigation The Company is a party to threatened or pending lawsuits arising from the normal conduct of business. Due to the climate in insurance and business litigation, suits against the Company sometimes include claims for substantial compensatory, consequential or punitive damages and other types of relief. Moreover, certain claims are asserted as class actions, purporting to represent a group of similarly situated individuals. While it is not possible to forecast the outcome of such lawsuits, in light of existing insurance, reinsurance and established reserves, it is the opinion of management that the disposition of such lawsuits will not have a materially adverse effect on the Company's operations or financial position. 10 8. Subsequent Events Security-Connecticut is a wholly-owned subsidiary of ReliaStar Life. Effective October 1, 2003 Security-Connecticut merged into ReliaStar Life. Therefore, after October 1, 2003 the Company will be a wholly-owned subsidiary of ReliaStar Life as a result of a merger. 11 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 ReliaStar Life Insurance Company of New York ("RLNY", 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 is principally engaged in the business of providing life insurance and related financial services products. The Company provides and distributes individual life insurance and annuities, employee benefit products and services and retirement plans. Recently Adopted Accounting Standards Accounting for Goodwill and Other Intangible Assets During 2002, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("FAS") No. 142, Goodwill and Other Intangible Assets ("FAS No.142"). 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 $865.0 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. 12 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 consolidated 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. 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. 13 Investment Impairment Testing The Company reviews the general account investments for impairments by considering the length of 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 market 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. 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, mortality margins and surrender charges less policy maintenance costs. 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. 14 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. 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 Premiums increased by $4.7 million for the three months ended September 30, 2003, compared to the same period in 2002. Premiums increased by $10.8 for the nine months ended September 30, 2003, compared to the same period in 2002. Premium income was primarily attributed to an increase in employee benefit products as the payroll deduct cancer product is not being reinsured in 2003. This product was 95% reinsured in 2002. Fee income for the three and nine months ended September 30, 2003 decreased by $3.0 million and $2.7 million, respectively, compared to the same periods in 2002. The variance is primarily due to decreases in fee income on variable annuity assets which decreased as a result of market declines. 15 Net investment income for the three and nine months ended September 30, 2003 decreased by $4.1 million and $9.2 million, respectively, compared to the same periods in 2002. The variance is due primarily to the decrease in yield caused by declining interest rates in the market partially offset by an increase in assets. Net realized capital gains for the three months ended September 30, 2003 decreased by $4.8 million compared to the same period in 2002, primarily due to an increasing treasury rate during the three months ended September 30, 2003, versus a decreasing treasury rate during the same period in 2002. The 10-year treasury yield (constant maturities) decreased from 4.8% to 3.6% during the three months ended September 30, 2002 and increased from 3.5% to 3.9% during the three months ended September 30, 2003. Net realized capital gains for the nine months ended September 30, 2003 increased by $9.4 million, respectively, compared to the same period in 2002, primarily due to a decrease in the treasury rate. The average 10-year treasury yield (constant maturities) was 4.7% at September 30, 2002, and 3.9% at September 30, 2003. In a declining rate environment, the market value of fixed maturities held in the Company's portfolio increases assuming no credit deterioration. The increase in net realized gains reflects the impact of this variable on the overall sale of fixed maturities and the trend in realized gain is consistent with the interest rate environment. Other income for the three months ended September 30, 2003, decreased by $1.3 million and $2.5 million, respectively, compared to the same periods in 2002. This decrease is due to the deferral of policy loans. Interest credited and other benefits to the policyholders for the three and nine months ended September 30, 2003 decreased by $9.2 million and $10.4 million, respectively, compared to the same periods in 2002. This decrease is the result of a decrease in interest credited rates. General expenses for the three and nine months ended September 30, 2003 increased by $3.5 million and $2.6 million, respectively, compared to the same period in 2002. The increase is due to higher premium tax and an increase in general expenses due to business growth. Amortization of deferred policy acquisition costs and value of business acquired for the three and nine months ended September 30, 2003, increased by $0.8 million and $3.9 million compared to the same period in 2002. Amortization of long-duration products is recorded in proportion to actual and estimated future gross profits. Estimated gross profits are computed based on underlying assumptions related to the underlying contracts, including but not limited to interest margins, mortality, lapse, premium persistency, expenses, and asset growth. The decrease in the amortization of deferred policy acquisition costs and value of insurance acquired reflects the impact of these variables on the overall book of business. 16 The cumulative effect of the change in accounting principle for the nine months ended September 30, 2002, was $865.0 million. As noted in the Recently adopted accounting standards section, this write down is related to FAS No. 142, which addresses the value of goodwill and other intangible assets. Net income decreased by $2.0 million for the three months ended September 30, 2003, compared to the three months ended September 30, 2002 due primarily to decreased net realized capital gains during third quarter 2003. Net income increased by $871.5 million for the nine months ended September 30, 2003, compared to the nine months ended September 30, 2002. Improved earnings of $6.3 million were primarily the result of a decrease in net realized gain. In addition, the earnings for the nine months ended September 30, 2002, were reduced by $865.0 million as a result of a cumulative effect of a change in accounting principle resulting from the write off of goodwill in accordance with FAS No. 142. 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 80% of the total general account invested assets for both periods. Total fixed maturities reflected net unrealized capital gains of $90.3 million and $78.5 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 A+ at September 30, 2003 and December 31, 2002, respectively. 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. 17 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 market 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. In addition, the Company invests in structured securities that meet the criteria of Emerging Issues Task Force ("EITF") Issue No. 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." Under EITF Issue No. 99-20, a determination of the required impairment is based on credit risk and the possibility of significant prepayment risk that restricts the Company's ability to recover the investment. An impairment is recognized if the fair value of the security is less than book value and there has been an adverse change in cash flow since the last remeasurement date. When a decline in fair value is determined to be other than temporary, the individual security is written down to fair value and the loss accounted for as a realized loss. 18 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. The Company's liquidity position is managed by maintaining adequate levels of liquid assets, such as cash or cash equivalents and short-term investments. Additional sources of liquidity include borrowing facilities to meet short-term requirements. The Company maintains two $30.0 million revolving note facilities with different national banks. Management believes that these sources of liquidity are adequate to meet the Company's short-term cash obligations. In April, 2002, the Company received $31.1 million additional paid in capital due to the merger with First Golden American Life Insurance Company of New York. 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. Subsequent Events Security-Connecticut is a wholly-owned subsidiary of ReliaStar Life. Effective October 1, 2003 Security-Connecticut merged into ReliaStar Life. Therefore, after October 1, 2003 the Company will be a wholly-owned subsidiary of ReliaStar Life as a result of a merger. 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 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 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 James R. Gelder 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 James R. Gelder pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. 21 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. RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK (Registrant) November 12, 2003 By /s/ David A. Wheat ----------------- ------------------------------------------------- (Date) David A. Wheat Senior Vice President and Chief Financial Officer 22 Exhibit 31.1 CERTIFICATION I, David A. Wheat, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life Insurance Company of New York; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 ----------------- By /s/ David A. Wheat -------------------------------------------------------- David A. Wheat Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Exhibit 31.2 CERTIFICATION I, James R. Gelder, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ReliaStar Life Insurance Company of New York; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date November 12, 2003 ----------------- By /s/ James R. Gelder -------------------------------------------------------- James R. Gelder President (Duly Authorized Officer and Principal Executive Officer)

RELIASTAR LIFE INSURANCE CO OF NEW YORK 10-Q