<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)of the Securities Exchange Act of 1934
(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, 1997
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 33-28976
IDS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0823832
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
IDS TOWER 10, MINNEAPOLIS, MINNESOTA 55440-0010
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (612) 671-1257
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
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
PERMITTED ABBREVIATED NARRATIVE DISCLOSURE.
<PAGE>
IDS LIFE INSURANCE COMPANY
FORM 10-Q
For the Quarter Ended September 30, 1997
Table of Contents
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 (unaudited) and
December 31, 1996 3 - 4
Consolidated Statements of Income for the
three months ended September 30, 1997 and 1996
(unaudited) 5
Consolidated Statements of Income for the
nine months ended September 30, 1997 and 1996
(unaudited) 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1996
(unaudited) 7 - 8
Notes to Consolidated Financial Statements
(unaudited) 9 - 10
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 11 - 12
PART II - OTHER INFORMATION 13
SIGNATURES 14
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amount)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
----------------- -------------
(unaudited)
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1997, $9,905,788; 1996, $10,521,650) ......... $ 9,537,884 $10,236,379
Available for sale, at fair value (Amortized cost:
1997, $12,172,758; 1996, $11,008,622) ........ 12,472,475 11,146,845
----------- -----------
22,010,359 21,383,224
Mortgage loans on real estate ........................ 3,605,715 3,493,364
Policy loans ......................................... 489,596 459,902
Other investments .................................... 295,985 251,465
----------- -----------
Total investments ................... 26,401,655 25,587,955
Cash and cash equivalents ................................ 239,039 224,603
Amounts recoverable from reinsurers ...................... 191,116 157,722
Amounts due from brokers ................................. 10,000 11,047
Other accounts receivable ................................ 40,507 44,089
Accrued investment income ................................ 349,656 343,313
Deferred policy acquisition costs ........................ 2,435,719 2,330,805
Deferred income taxes .................................... -- 33,923
Other assets ............................................. 34,033 37,364
Separate account assets .................................. 23,222,925 18,535,160
----------- -----------
Total assets ........................ $52,924,650 $47,305,981
=========== ===========
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amount)
(continued)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
------------------ ------------
(unaudited)
<S> <C> <C>
Liabilities:
Future policy benefits:
Fixed annuities ................................. $22,109,704 $21,838,008
Universal life-type insurance ................... 3,256,855 3,177,149
Traditional life insurance ...................... 212,310 209,685
Disability income and
long-term care insurance .................... 500,227 424,200
Policy claims and other
policyholders' funds ............................ 71,830 83,634
Amounts due to brokers .............................. 412,690 261,987
Deferred income taxes ............................... 36,668 --
Other liabilities ................................... 321,793 332,078
Separate account liabilities ........................ 23,222,925 18,535,160
----------- -----------
Total liabilities .................. 50,145,002 44,861,901
----------- -----------
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized, issued and outstanding 3,000 3,000
Additional paid-in capital .......................... 290,847 283,615
Net unrealized gain on investments .................. 186,817 86,102
Retained earnings ................................... 2,298,984 2,071,363
----------- -----------
Total stockholder's equity ......... 2,779,648 2,444,080
----------- -----------
Total liabilities and stockholder's equity .............. $52,924,650 $47,305,981
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
($ thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996
------------- ---------
<S> <C> <C>
Revenues:
Premiums:
Traditional life insurance .................................... $ 13,046 $ 12,692
Disability income and
long-term care insurance .................................... 37,922 33,342
--------- ---------
Total premiums ................................... 50,968 46,034
Policyholder and contractholder charges ........................... 85,137 77,047
Management and other fees ......................................... 91,438 68,539
Net investment income ............................................. 478,852 486,051
Net realized gain (loss) on investments ........................... 4,460 (1,687)
--------- ---------
Total revenues ................................... 710,855 675,984
--------- ---------
Benefits and expenses:
Death and other benefits:
Traditional life insurance .................................... 7,593 6,460
Universal life-type insurance
and investment contracts .................................. 23,453 19,864
Disability income and
long-term care insurance .................................. 5,344 5,599
Increase in liabilities for
future policy benefits:
Traditional life insurance ................................ 1,006 436
Disability income and
long-term care insurance ............................. 16,407 12,923
Interest credited on universal life-type
insurance and investment contracts ............................ 349,274 343,875
Amortization of deferred policy
acquisition costs ............................................. 80,481 69,066
Other insurance and operating expenses ............................ 49,378 62,397
--------- ---------
Total benefits and expenses ...................... 532,936 520,620
--------- ---------
Income before income taxes ............................................ 177,919 155,364
Income taxes .......................................................... 53,003 49,118
--------- ---------
Net income ............................................................ $ 124,916 $ 106,246
========= =========
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
($ thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
------------ ----------
<S> <C> <C>
Revenues:
Premiums:
Traditional life insurance .................................... $ 39,470 $ 38,074
Disability income and
long-term care insurance .................................... 111,940 96,717
---------- ----------
Total premiums ................................... 151,410 134,791
Policyholder and contractholder charges ........................... 252,092 223,388
Management and other fees ......................................... 248,891 195,701
Net investment income ............................................. 1,483,508 1,467,482
Net realized gain on investments .................................. 1,785 1,117
---------- ----------
Total revenues ................................... 2,137,686 2,022,479
---------- ----------
Benefits and expenses:
Death and other benefits:
Traditional life insurance .................................... 22,241 21,289
Universal life-type insurance
and investment contracts .................................. 69,755 63,281
Disability income and
long-term care insurance .................................. 16,168 13,356
Increase in liabilities for
future policy benefits:
Traditional life insurance ................................ 2,351 545
Disability income and
long-term care insurance ............................. 44,412 42,351
Interest credited on universal life-type
insurance and investment contracts ............................ 1,041,749 1,019,826
Amortization of deferred policy
acquisition costs ............................................. 234,793 205,780
Other insurance and operating expenses ............................ 186,389 187,619
---------- ----------
Total benefits and expenses ...................... 1,617,858 1,554,047
---------- ----------
Income before income taxes ............................................ 519,828 468,432
Income taxes .......................................................... 157,207 156,976
---------- ----------
Net income ............................................................ $ 362,621 $ 311,456
========== ==========
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 362,621 $ 311,456
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy loans, excluding universal
life-type insurance:
Issuance ....................................... (42,190) (37,373)
Repayment ...................................... 33,619 30,482
Change in reinsurance recoverable .................... (33,394) (30,154)
Change in other accounts receivable .................. 3,582 (2,790)
Change in accrued investment income .................. (6,343) 7,885
Change in deferred policy
acquisition costs, net ............................ (111,434) (187,144)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance .......................... 78,652 72,176
Change in policy claims and other
policyholders' funds .............................. (11,804) 36,907
Change in deferred income taxes ...................... 16,361 (57,411)
Change in other liabilities .......................... (10,285) (39,511)
Accretion of discount, net ........................... (7,960) (7,046)
Net realized gain on investments ..................... (1,785) (1,117)
Policyholder and contractholder charges,
non-cash .......................................... (118,737) (114,156)
Other, net ........................................... (5,138) 4,217
--------- ---------
Net cash provided by (used in) operating activities $ 145,765 ($ 13,579)
--------- ---------
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ thousands)
(unaudited)
(continued)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1997 1996
--------------- ---------
<S> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases ....................................................... ($ 1,011) ($ 41,724)
Maturities, sinking fund payments and calls ..................... 548,185 548,298
Sales ........................................................... 168,671 115,832
Fixed maturities available for sale:
Purchases ....................................................... (2,394,019) (1,396,732)
Maturities, sinking fund payments and calls ..................... 804,215 995,666
Sales ........................................................... 452,315 177,253
Other investments, excluding policy loans:
Purchases ....................................................... (413,096) (753,578)
Sales ........................................................... 237,645 157,985
Change in amounts due from broker ................................... 1,047 (19,313)
Change in amounts due to broker ..................................... 150,703 16,012
----------- -----------
Net cash used in investing activities .................... (445,345) (200,301)
----------- -----------
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received ......................................... 2,176,376 2,693,055
Surrenders and death benefits ................................... (2,747,986) (3,304,238)
Interest credited to account balances ........................... 1,041,749 1,019,826
Universal life-type insurance policy loans:
Issuance ........................................................ (71,654) (65,179)
Repayment ....................................................... 50,531 43,403
Cash dividends to parent ............................................ (135,000) (125,000)
----------- -----------
Net cash provided by financing activities ................ 314,016 261,867
----------- -----------
Net increase in cash and cash equivalents ............................... 14,436 47,987
Cash and cash equivalents at beginning of period ........................ 224,603 72,147
----------- -----------
Cash and cash equivalents at end of period .............................. $ 239,039 $ 120,134
=========== ===========
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
($ thousands)
(unaudited)
1. General
In the opinion of the management of IDS Life Insurance Company (the
Company), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly its balance sheet as of September 30, 1997,
statements of income for the three and nine months ended September 30,
1997 and 1996 and statements of cash flows for the nine months ended
September 30, 1997 and 1996.
The Company is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American
Express Company. The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries,
IDS Life Insurance Company of New York, American Enterprise Life
Insurance Company, American Centurion Life Assurance Company, American
Partners Life Insurance Company and American Express Corporation. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Purchased and written index options are carried at market value and
included in other investments. Gains or losses on index options are
recognized currently and included in insurance and other operating
expenses.
2. Nature of business
The Company is engaged in the life insurance and annuity business. The
Company sells various forms of fixed and variable individual life
insurance, group life insurance, individual and group disability income
insurance, long-term care insurance, and single and installment premium
fixed and variable annuities.
3. Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
market value.
Cash paid for interest on borrowings totaled $5,726 and $3,610 for the
nine months ended September 30, 1997 and 1996, respectively. Cash paid
for income taxes totaled $113,939 and $274,418 for the nine months ended
September 30, 1997 and 1996, respectively.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
(unaudited)
(continued)
4. Commitments and contingencies
At September 30, 1997, the Company had commitments to purchase
affordable housing limited partnership investments of $18,840, which are
included in other liabilities. Commitments for purchases of investments
in the ordinary course of business at September 30, 1997 aggregated
$136,573.
The maximum amount of risk retained by the Company on any one life is
$750 of life and waiver of premium benefits plus $50 of accidental death
benefits. The excesses are reinsured with other life insurance
companies on a yearly renewable term basis.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company and AEFC do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. The Company and AEFC, like other
life and health insurers, from time to time are involved in such
litigation. On December 13, 1996, an action entitled Lesa Benacquisto
and Daniel Benacquisto vs. IDS Life Insurance Company and American
Express Financial Corporation was commenced in Minnesota state court.
The action is brought by individuals who replaced an existing Company
insurance policy with a new Company policy. The plaintiffs purport to
represent a class consisting of all persons who replaced existing
Company policies with new policies from and after January 1, 1985. The
complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and also seek to establish a claims resolution
facility for the determination of individual issues. The Company and
AEFC filed an answer to the Complaint on February 18, 1997. A similar
action entitled Mork and Melchert, et ux. vs. IDS Life Insurance Company
involving the replacement of existing IDS Life insurance policies and
annuity contracts was filed in the same court on March 21, 1997.
The Company is a defendant in various other lawsuits, none of which, in
the opinion of the Company counsel, will result in a material liability.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996:
Consolidated net income increased 17 percent to $363 million for the
nine months ended September 30, 1997, compared to $311 million in 1996.
Earnings growth resulted primarily from increases in management fees and
policyholder and contractholder charges.
Premiums received totaled $4.0 billion for the nine months ended
September 30, 1997, compared to $4.6 billion a year ago. Increased sales of
fixed annuities and life insurance were offset by decreased sales of variable
annuities.
Net investment income increased slightly to $1.5 billion for the nine
months ended September 30. The increase primarily reflects slightly higher
total investments of $26 billion at September 30, 1997.
Policyholder and contractholder charges increased to $252 million for
the nine months ended September 30, 1997, compared with $223 million a year
ago. This increase is primarily due to higher life insurance in force.
Management and other fees increased to $249 million for the nine months
ended September 30, 1997, compared with $196 million a year ago. This is
primarily due to an increase in separate account assets, which grew 33 percent
over the past 12 months to $23 billion at September 30, 1997, due to market
appreciation and sales. The Company provides investment management services for
the mutual funds which are used as investment options for variable annuities and
variable life insurance. The Company also receives a mortality and expense risk
fee from the separate accounts.
Total benefits and expenses were $1.6 billion for the nine months ended
September 30, 1997, a slight increase over a year ago. The largest component
of expenses, interest credited on universal life-type insurance and
investment contracts, increased slightly to $1.0 billion. This is due to
higher aggregate amounts in force partially offset by slightly lower interest
credited rates. The increases in amortization of deferred policy acquisition
costs is primarily due to an increase in business in force.
<PAGE>
Liquidity and Capital Resources
The primary components of the funds provided are premiums, investment
income, proceeds from sales of investments as well as maturities and periodic
repayments of investment principal.
The primary uses of funds are policy benefits, commissions and
operating expenses, policy loans, new investment purchases and dividends to
parent.
The Company has available lines of credit with aggregating $125 million,
of which $100 million is with its parent. These lines of credit are used
strictly as short-term sources of funds. At September 30, 1997, outstanding
borrowings under these agreements were $nil. The Company also uses reverse
repurchase agreements for short-term liquidity needs. Outstanding reverse
repurchase agreements totaled $286 million at September 30, 1997.
At September 30, 1997, approximately 9.3 percent of the Company's
invested assets were below-investment-grade bonds, compared to 8.1 percent at
December 31, 1996. These investments may be subject to a higher degree of
risk than higher-rated issues because of the borrowers' generally greater
sensitivity to adverse economic conditions, such as recession or increasing
interest rates, and in certain instances the lack of an active secondary
market. Expected returns on below-investment-grade bonds reflect
consideration of such factors. The Company has identified those fixed
maturities for which a decline in fair value is determined to be other than
temporary, and has written them down to fair value with a charge to earnings.
For the nine months ended September 30, 1997, sales of fixed maturities
held to maturity were due to significant deterioration in the issuers'
creditworthiness.
At September 30, 1997, the Company had an allowance for losses on
mortgage loans of $43 million, compared to $37 million at December 31, 1996.
The Company paid $135 million in dividends to its parent during the nine
months ended September 30, 1997. During the 4th quarter of 1997, the Company
expects to pay an additional $65 million in dividends.
The economy and other factors have caused an increase in the number of
insurance companies that are under regulatory supervision. This circumstance
has resulted in assessments by state guaranty associations to cover losses to
policyholders of insolvent or rehabilitated companies. Some assessments can
be partially recovered through a reduction in future premium taxes in certain
states. The Company has established an asset for guaranty association
assessments paid to those states allowing a reduction in future premium taxes
over a reasonable period of time. The asset will be amortized as future
premium taxes are reduced. The Company has also estimated the effect of
future assessments on the Company's financial position and results of
operations and has established a reserve for such assessments.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to Note 4 of the Notes to Consolidated Financial
Statements (unaudited) contained in the Report filed on Form 10-Q
for the quarterly period ended September 30, 1997.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
No reports on Form 8-K were required to be filed by the Company for the nine
months ended September 30, 1997.
<PAGE>
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.
REGISTRANT IDS LIFE INSURANCE COMPANY
BY /s/ Melinda S. Urion
NAME AND TITLE Melinda S. Urion
Executive Vice President and Controller
DATE October 12, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000727892
<NAME> IDS Life Insurance Company
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 12472475
<DEBT-CARRYING-VALUE> 9537884
<DEBT-MARKET-VALUE> 9905788
<EQUITIES> 3278
<MORTGAGE> 3605715
<REAL-ESTATE> 108724
<TOTAL-INVEST> 26401655
<CASH> 239039
<RECOVER-REINSURE> 773
<DEFERRED-ACQUISITION> 2435719
<TOTAL-ASSETS> 52924650
<POLICY-LOSSES> 26079096
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 71830
<NOTES-PAYABLE> 0
<COMMON> 3000
0
0
<OTHER-SE> 2776648
<TOTAL-LIABILITY-AND-EQUITY> 52924650
151410
<INVESTMENT-INCOME> 1483508
<INVESTMENT-GAINS> 1785
<OTHER-INCOME> 500983
<BENEFITS> 1196676
<UNDERWRITING-AMORTIZATION> 234793
<UNDERWRITING-OTHER> 186389
<INCOME-PRETAX> 519828
<INCOME-TAX> 157207
<INCOME-CONTINUING> 362621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362621
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 26387
<PROVISION-CURRENT> 108164
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 106757
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 27794
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</TABLE>
