10-Q 1 a2141790z10-q.txt 10-Q 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 June 30, 2004 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 identification no.) incorporation or organization) 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 (813) 281-3773 -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes / / No /X/ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 25,500 shares of Common Stock as of August 12, 2004, 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 THE PERIOD ENDED JUNE 30, 2004 INDEX

2 ING INSURANCE COMPANY OF AMERICA (A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY) FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2004 PART I. FINANCIAL INFORMATION (UNAUDITED) ITEM 1. FINANCIAL STATEMENTS CONDENSED STATEMENTS OF INCOME (Unaudited) (Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 CONDENSED BALANCE SHEETS (Millions, except share data)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited) (Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 5 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Millions)

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 6 ING INSURANCE COMPANY OF AMERICA (A WHOLLY-OWNED SUBSIDIARY OF ING LIFE INSURANCE AND ANNUITY COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION ING Insurance Company of America ("IICA" or the "Company"), is a provider of financial products and services in the United States. The Company is a wholly-owned subsidiary of ING Life Insurance and Annuity Company ("ILIAC"). ILIAC is a wholly-owned subsidiary of Lion Connecticut Holdings, Inc. ("Lion Connecticut"). Lion Connecticut's ultimate parent is ING Groep N.V. ("ING"), a financial services company based in The Netherlands. The condensed financial statements and notes as of June 30, 2004 and December 31, 2003 and for the three and six months ended June 30, 2004 and 2003 ("interim periods") have been prepared in accordance with U.S. generally accepted accounting principles 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 2003 Annual Report on Form 10-K. The results of operations for the interim periods should not be indicative of results to be expected for the full year. The Company has one operating segment, U.S. Financial Services ("USFS"), and all revenue reported by the Company comes from external customers. 2. RECENTLY ADOPTED ACCOUNTING STANDARDS ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS The Company adopted Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts," on January 1, 2004. SOP 03-1 establishes several new accounting and disclosure requirements for certain nontraditional long-duration contracts and for separate accounts including, among other things, a requirement that assets and liabilities of separate account arrangements that do not meet certain criteria be accounted for as general account assets and liabilities, and that revenues and expenses related to such arrangements be consolidated with the respective revenue and expense lines in the Condensed Statement of Operations. In addition, the SOP requires additional liabilities be established for certain guaranteed death and other benefits and for Universal Life products with certain patterns of cost of insurance charges, and that sales inducements provided to contractholders be recognized on the balance sheet separately from deferred acquisition costs and amortized as a component of benefits expense using methodology and assumptions consistent with those used for amortization of deferred policy acquisition costs. 7 The Company evaluated all requirements of SOP 03-1 and determined that it is affected by the SOP's requirements to account for certain separate account arrangements as general account arrangements and to defer, amortize and recognize separately sales inducements to contractholders. Requirements to establish additional liabilities for minimum guarantee benefits are applicable to the Company, however, the Company's policies on policy liabilities have historically been, and continue to be, in conformity with the requirements newly established. Requirements for recognition of additional liabilities for Universal Life products with certain patterns of cost of insurance charges are not applicable to the Company. The adoption of SOP 03-1 did not have a significant effect on the Company's results of operations, and had no impact on the Company's net income. THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments," adopting a three-step impairment model for securities within its scope. The three-step model is to be applied on a security-by-security basis as follows: Step 1: Determine whether an investment is impaired. An investment is impaired if its fair value of the investment is less than its cost basis. Step 2: Evaluate whether an impairment is other-than-temporary. Step 3: If the impairment is other-than-temporary, recognize an impairment loss equal to the difference between the investment's cost and its fair value. The Company included this three-step model in the impairment evaluation for the quarter ended June 30, 2004. This guidance resulted in no additional impairments for the Company. Earlier consensus reached by the EITF on this issue required that certain quantitative and qualitative disclosures be made for unrealized losses on debt and equity securities that have not been recognized as other-than-temporary impairments. These disclosures were adopted by the Company, effective December 31, 2003, and included in the Investments footnote of the Notes to Financial Statements included in the Company's 2003 Form 10-K. In addition to the disclosure requirements adopted by the Company effective December 31, 2003, the final consensus of EITF 03-01 reached in March 2004 included additional disclosure requirements that are effective for fiscal years ended after June 15, 2004. In 2003, 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" 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 Company adopted DIG B36 on October 1, 2003. The Company has no investment or insurance products that are applicable to the guidance and, therefore, the guidance has no impact on the Company's financial position, results of operations or cash flows. 3. NEW ACCOUNTING PRONOUNCEMENTS The implementation of the American Institute of Certified Public Accountants ("AICPA") SOP 03-01, "Accounting and Reporting by Insurance Enterprises for certain Nontraditional Long-Duration Contracts and for Separate Accounts," has raised questions regarding the interpretation of the requirements of SFAS No. 97, concerning when it is appropriate to record an unearned revenue liability related to the insurance benefit function. To clarify its position, in June of 2004 the Financial Accounting Standards Board ("FASB") issued FSP FAS 97-1, "Situations in which paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require Accrual of an Unearned Revenue Liability." FSP FAS 97-1 outlines that SFAS No. 97 is clear in its intent and language, and requires the recognition of an unearned revenue liability for amounts that have been assessed to compensate insurers for services provided over future periods. The requirement of SOP 03-01 is not intended to amend or limit the requirement of SFAS No. 97 to recognize a liability for unearned revenue only to those situations where profits are expected to be 8 followed by a loss. The guidance contained in FSP FAS 97-1 is effective for financial statements with fiscal periods beginning subsequent to July 18, 2004. The Company is currently evaluating the impact of FSP FAS 97-1 and related accounting guidance and anticipates a potential increase in the (net) liability established under SOP 03-01 in future accounting periods. 4. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED Deferred Policy Acquisition Costs ("DAC") is an asset, which represents certain costs of acquiring certain insurance business, which are deferred and amortized. These costs, all of which vary with and are primarily related to the production of new and renewal business, consist principally of commissions, certain underwriting and contract issuance expenses, and certain agency expenses. Value of business acquired ("VOBA") is an asset, which represents the present value of estimated net cash flows embedded in the Company's contracts, which existed at the time the Company was acquired by ING. DAC and VOBA are evaluated for recoverability at each balance sheet date and these assets would be reduced to the extent that gross profits are inadequate to recover the asset. The amortization methodology varies by product type based upon two accounting standards: F AS No. 60, "Accounting and Reporting by Insurance Enterprises" ("FAS No. 60") and FAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the Sale of Investments" ("FAS No. 97"). Under FAS No. 60, acquisition costs for traditional life insurance products, which primarily include whole life and term life insurance contracts, are amortized over the premium payment period in proportion to the premium revenue recognition. Under FAS No. 97, acquisition costs for universal life and investment-type products, which include universal life policies and fixed and variable deferred annuities, are amortized over the 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. 9 VOBA activity for the six month periods ended June 30, 2004 and 2003 was as follows:

5. SEPARATE ACCOUNTS Separate Account assets and liabilities generally represent funds maintained to meet specific investment objectives of contractholders who bear the investment risk, subject, in limited cases, to minimum guaranteed rates. Investment income and investment gains and losses generally accrue directly to such contractholders. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Separate Account assets supporting variable options under universal life and annuity contracts are invested, as designated by the policyholder or participant (who bears the investment risk subject, in limited cases, to minimum guaranteed rates) under a contract in shares of mutual funds which are managed by the Company, or in other selected mutual funds not managed by the Company. Separate Account assets and liabilities are carried at fair value and shown as separate captions in the Condensed Balance Sheets. Deposits, investment income and net realized and unrealized capital gains and losses of the Separate Accounts are not reflected in the Condensed Financial Statements (with the exception of realized and unrealized capital gains and losses on the assets supporting the guaranteed interest option). The Condensed Statements of Cash Flows do not reflect investment activity of the Separate Accounts. Assets and liabilities of separate account arrangements that do not meet the criteria in SOP 03-1 for separate presentation in the Condensed Balance Sheets (those arrangements supporting the guaranteed interest option), and revenues and expenses related to such arrangements, were reclassified to the general account on January 1, 2004, in accordance with the SOP requirements. 6. ADDITIONAL INSURANCE BENEFITS AND MINIMUM GUARANTEES Under SOP 03-1, the Company calculates an additional liability (the "SOP reserve") for certain guaranteed benefits in order to recognize the expected value of death benefits in 10 excess of the projected account balance over the accumulation period based on total expected assessments. The SOP reserve calculated is the minimum guaranteed death benefits ("MGDB") reserve and is determined each period by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used to adjust the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The following assumptions and methodology were used to determine the MGDB SOP reserve at June 30, 2004:

As of June 30, 2004, the separate account liability subject to SOP 03-1 for minimum guaranteed benefits and the additional liability recognized related to minimum guarantees is $532.0 million and $0.2 million, respectively. During the six months ended June 30, 2004, there were no incurred guaranteed benefits and paid guaranteed benefits. The net amount at risk (net of reinsurance) and the weighted average attained age of contractholders is $7.2 million and 72, respectively, as of June 30, 2004. The aggregate fair value of equity securities (including mutual funds) supporting separate accounts with additional insurance benefits and minimum investment return guarantees as of June 30, 2004 is $532.0 million. 7. INCOME TAXES The Company's effective tax rates for the three months ended June 30, 2004 and 2003 were 33.3% and 17.9%, respectively. Effective tax rates for the six months ended June 30, 2004 and 2003 were 30.0% and 16.7%, respectively. The year over year increase in the effective tax rates is attributable to a current year decrease in the deduction allowed for dividends received and a non-recurring prior year refinement of the deferred tax balance. 11 8. COMMITMENTS AND 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, 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. RECLASSIFICATION AND CHANGES TO PRIOR YEAR PRESENTATION Certain reclassifications have been made to prior year financial information to conform to the current year classifications. During 2003, certain changes were made to the classification of MGDB excess claims, which previously were included as a reduction to fee income period. These changes had no impact on net income or shareholder's equity of the Company. The following summarizes the change in classification to each financial statement line item (in millions):

13 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 ING Insurance Company of America ("IICA", or the "Company") as of June 30, 2004 and December 31, 2003 and for the three and six month periods ended June 30, 2004 and 2003. 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 2003 Annual Report on Form 10-K. NATURE OF BUSINESS The Company and principally offers annuity contracts to individuals on a qualified and nonqualified basis and to employer sponsored retirementb plans qualified under Internal Revenue Code Sections 401, 403, and 408. The Company's products are offered primarily to individuals and employer-sponsored groups in the education market. The Company's products are generally sold through a managed network of broker/dealers and dedicated career agents. RECENTLY ADOPTED ACCOUNTING STANDARDS ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN NONTRADITIONAL LON-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS The Company adopted Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts," on January 1, 2004. SOP 03-1 establishes several new accounting and disclosure requirements for certain nontraditional long-duration contracts and for separate accounts including, among other things, a requirement that assets and liabilities of separate account arrangements that do not meet certain criteria be accounted for as general account assets and liabilities, and that revenues and expenses related to such arrangements, be consolidated with the respective revenue and expense lines in the Condensed Statement of Operations. In addition, the SOP requires additional liabilities be established for certain guaranteed death and other benefits and for Universal Life products with certain patterns of cost of insurance charges, and that sales inducements provided to contractholders be recognized on the balance sheet separately from deferred acquisition costs and amortized as a component of benefits expense using methodology and assumptions consistent with those used for amortization of deferred policy acquisition costs. The Company evaluated all requirements of SOP 03-1 and determined that it is affected by the SOP's requirements to account for certain separate account arrangements as general account arrangements and to defer, amortize and recognize separate sales inducements to contractholders. Requirements to establish additional liabilities for minimum guarantee benefits are applicable to the Company, however, the Company's policies on policy liabilities have historically been, and continue to be, in conformity with the requirements newly established. Requirements for recognition 14 of additional liabilities for Universal Life products with certain patterns of cost of insurance charges are not applicable to the Company. The adoption of SOP 03-1 did not have a significant effect on the Company's results of operations, and had no impact on the Company's net income. THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments," adopting a three-step impairment model for securities within its scope. The three-step model is to be applied on a security-by-security basis as follows: Step 1: Determine whether an investment is impaired. An investment is impaired if its fair value of the investment is less than its cost basis. Step 2: Evaluate whether an impairment is other-than-temporary. Step 3: If the impairment is other-than-temporary, recognize an impairment loss equal to the difference between the investment's cost and its fair value. The Company included this three-step model in the impairment evaluation for the quarter ended June 30, 2004. This guidance resulted in no additional impairments for the Company. Earlier consensus reached by the EITF on this issue required that certain quantitative and qualitative disclosures be made for unrealized losses on debt and equity securities that have not been recognized as other-than-temporary impairments. These disclosures were adopted by the Company, effective December 31, 2003, and included in the Investments footnote of the Notes to Financial Statements included in the Company's 2003 Form 10-K. In addition to the disclosure requirements adopted by the Company effective December 31, 2003, the final consensus of EITF 03-01 reached in March 2004 included additional disclosure requirements that are effective for fiscal years ended after June 15, 2004. In 2003, 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" 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 Company adopted DIG B36 on October 1,2003. The Company has no investment or insurance products that are applicable to the guidance and, therefore, the guidance has no impact on the Company's financial position, results of operations or cash flows. NEW ACCOUNTING PRONOUNCEMENTS The implementation of the American Institute of Certified Public Accountants ("AICPA") SOP 03-01, "Accounting and Reporting by Insurance Enterprises for certain Nontraditional Long-Duration Contracts and for Separate Accounts," has raised questions regarding the interpretation of the requirements of SFAS No. 97, concerning when it is appropriate to record an unearned revenue liability related to the insurance benefit function. To clarify its position, in June of 2004 the Financial Accounting Standards Board ("FASB") issued FSP FAS 97-1, "Situations in which paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require Accrual of an Unearned Revenue Liability." FSP FAS 97-1 outlines that SFAS No. 97 is clear in its intent and language, and requires the recognition of an unearned revenue liability for amounts that have been assessed to compensate insurers for services provided over future periods. The requirement of SOP 03-01 is not intended to amend or limit the requirement of SFAS No. 97 to recognize a liability for unearned revenue only to those situations where profits are expected to be followed by a loss. The guidance contained in FSP FAS 97-1 is effective for financial statements with fiscal periods beginning subsequent to July 18, 2004. The Company is currently evaluating the impact of FSP FAS 97-1 and related accounting guidance and anticipates a potential increase in the (net) liability established under SOP 03-01 in future accounting periods. CRITICAL ACCOUNTING POLICIES GENERAL 15 The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions in certain circumstances that affect amounts reported in the accompanying condensed financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information that is reasonable under the circumstances. There can be no assurance that actual results will conform to estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time. The Company has identified the following estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability. In developing these estimates management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Although variability is inherent in these estimates, management believes the amounts provided are appropriate based upon the facts available upon compilation of the condensed financial statements. INVESTMENT IMPAIRMENT TESTING The Company reviews the general account investments for impairments by considering the length of the time and the extent to which the fair value has been less than amortized cost; the financial condition and near-term prospects of the issuer; future economic conditions and market forecasts; and the Company's intent and ability to retain the investment in the issuer for a period of time sufficient to allow for recovery in fair value. Based on the facts and circumstances of each case, management uses judgment in deciding whether any calculated impairments are temporary or other than temporary. For those impairments judged to be other than temporary, the Company reduces the carrying value of those investments to the current fair value and records impairment losses for the difference. AMORTIZATION OF DEFERRED ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED Deferred policy acquisition costs ("DAC") and value of business acquired ("VOBA") are amortized with interest over the life of the contracts (usually 25 years) in relation to the present value of estimated gross profits from projected interest margins, asset-based fees, policy administration and surrender charges less policy maintenance fees. Changes in assumptions can have a significant impact on the calculation of DAC/VOBA and its related amortization patterns. Due to the relative size of the DAC/VOBA balance and the sensitivity of the calculation to minor changes in the underlying assumptions and the related volatility that could result in the reported DAC/VOBA balance, the Company performs a quarterly analysis of DAC/VOBA. At each balance sheet date, actual historical gross profits are reflected and expected future gross profits and related assumptions are evaluated for continued reasonableness. 16 Any adjustment in estimated profit requires that the amortization rate be revised retroactively to the date of policy or contract issuance ("unlocking"), which could be significant. The cumulative difference related to prior periods is recognized as a component of the current period's amortization, along with amortization associated with the actual gross profits of the period. In general, increases in estimated returns result in increased expected future profitability and may lower the rate of amortization, while increases in lapse/surrender and mortality assumptions or decreases in returns reduce the expected future profitability of the underlying business and may increase the rate of amortization. One of the most significant assumptions involved in the estimation of future gross profits for variable universal life and deferred annuity products is the assumed return associated with future separate account performance. To reflect the near-term and long-term volatility in the equity markets this assumption involves a combination of near-term expectations and a long-term assumption about market performance. The overall return generated by the separate account is dependent on several factors, including the relative mix of the underlying sub-accounts among bond funds and equity funds as well as equity sector weightings. FORWARD-LOOKING INFORMATION/RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions readers regarding certain forward-looking statements contained in this report and in any other statements made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission ("SEC"). Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Statements using verbs such as "expect," "anticipate," "believe" or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future levels of sales and redemptions of the Company's products, investment spreads and yields, or the earnings and profitability of the Company's activities. 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 17 risks and uncertainties discussed in documents filed by the Company with the SEC. The Company disclaims any obligation to update forward-looking information. RESULTS OF OPERATIONS Fee income for the three and six month periods ended June 30, 2004 decreased by $0.5 million compared to the same periods in 2003. The decrease in fee income during the comparative periods was primarily due to lower single premium immediate annuity sales in 2004 versus 2003. Net investment income decreased by $0.1 and $0.2 for the three and six month periods ended June 30, 2004, respectively, compared to the same periods in 2003. The decrease is primarily due to lower investment yields and a decrease in average assets under management with fixed options. Net realized capital gains decreased by $0.9 million and $0.8 million for the three and six month periods ended June 30, 2004, respectively, compared to the same periods in 2003. Net realized gains result from sales of fixed maturities having a fair value greater than book value and are dependent on the volume of trades in the current interest rate environment. The 10-year treasury yield has risen from an average of 3.77% in the first half of 2003 to 4.31 % in the first half of 2004, an increase of 54 basis points. In a rising rate environment, the market value of fixed maturities held in the Company's portfolio decreases. The decrease in net realized gains reflects the impact of this variable on the overall sale of fixed maturities. Interest credited and other benefits to contractholders for the three months ended June 30, 2004 in contrast to the comparative period in 2003, increased by $0.1 million. A decrease of $0.8 million between the six months ended June 30, 2004 and six months ended June 30, 2003, was primarily due to a decrease in credited rates to contractholders and a decline in average assets under management with fixed options. Underwriting, acquisition, and insurance expenses for the three and six month periods ended June 30, 2004 compared to the same periods in 2003 remained relatively stable. Amortization of DAC and VOBA for the three and six months ended June 30, 2004, increased by $0.2 million and decreased by $0.5 million, respectively, compared to the same periods in 2003. 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 increase in the amortization of deferred policy acquisition costs and value of insurance acquired reflects the impact of these variables on the overall book of business. Net income decreased by $1.5 million and $0.4 million for the three and six months ended June 30, 2004, respectively, compared to the same periods in 2003. The decline in earnings is primarily the result of decreased net realized gains in addition to an increase in total benefits, expenses and amortization of long-duration products. 18 The Company's annuity deposits and assets under management are as follows:

(1) Excludes net unrealized capital gains of $2.5 million and $9.3 million at June 30, 2004 and 2003, respectively. (2) Includes $412.0 million and $408.5 million at June 30, 2004 and 2003, respectively, of assets invested through the Company's products in unaffiliated mutual funds. FINANCIAL CONDITION INVESTMENTS FIXED MATURITIES At June 30, 2004 and December 31, 2003, the Company's carrying value of available for sale fixed maturities including securities pledged under securities lending agreement (hereinafter referred to as "total fixed maturities") represented 100.0% of the total general account for 2004 and 2003. For the same periods, $78.7 million, or 40.7% of total fixed maturities, and $92.3 million, or 69.3% of total fixed maturities, respectively, supported experience-rated products. Total fixed maturities reflected net unrealized capital gains of $2.5 million and $5.2 million at June 30, 2004 and December 31, 2003, respectively. It is management's objective that the portfolio of fixed maturities be of high quality and be well diversified by market sector. The fixed maturities in the Company's portfolio are generally rated by external rating agencies and, if not externally rated, are rated by the Company on a basis believed to be similar to that used by the rating agencies. The average quality rating of the Company's fixed maturities portfolio was AA- at June 30, 2004 and 2003. 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. 19 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 F AS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Management considers the length of the time and the extent to which the fair value has been less than amortized cost; the financial condition and near-term prospects of the issuer; future economic conditions and market forecasts; and the Company's intent and ability to retain the investment in the issuer for a period of time sufficient to allow for recovery in fair value. If it is probable that all amounts due according to the contractual terms of a fixed maturity investment will not be collected, an other than temporary impairment is considered to have occurred. When a decline in fair value is determined to be other than temporary, the individual security is written down to fair value and the loss accounted for as a realized loss. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of the Company to generate sufficient cash flows to meet the cash requirements of operating, investing, and financing activities. The Company's principal sources of liquidity are product charges, investment income and maturing investments. Primary uses of these funds are payments of commissions and operating expenses, interest credits, investment purchases, as well as withdrawals and surrenders. 20 Management believes that its sources of liquidity are adequate to meet the Company's short-term cash obligations. The Company has entered into agreements with ILIAC under which ILIAC has agreed to cause the Company to have sufficient capital to meet certain capital and surplus levels. The National Association of Insurance Commissioners' ("NAIC") risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. These requirements are intended to allow insurance regulators to monitor the capitalization of insurance companies based upon the type and mixture of risks inherent in a Company's operations. The formula includes components for asset risk, liability risk, interest rate exposure, and other factors. The Company has complied with the NAIC's risk-based capital reporting requirements. Amounts reported indicate that the Company has total adjusted capital above all required capital levels. LEGISLATIVE INITIATIVES The Jobs and Growth Tax Relief Reconciliation Act of 2003 which was enacted in the second quarter of 2003 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 tax position of the Company's products cannot be predicted. 21 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. 22 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 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. (b) Reports on Form 8-K. None. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ING INSURANCE COMPANY OF AMERICA -------------------------------- (Registrant) August 12, 2004 By/s/ David A. Wheat ---------------- ------------------------------------------ (Date) David A. Wheat Director, Senior Vice President, and Chief Financial Officer 24

ING INSURANCE CO OF AMERICA 10-Q