THIS DOCUMENT IS A COPY OF THE 10-Q FILED ON NOV. 17, 1998 PURSUANT TO A RULE
201 TEMPORARY HARDSHIP EXEMPTION.
<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, 1998
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, 1998
Table of Contents
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 (unaudited) and
December 31, 1997 3 - 4
Consolidated Statements of Income for the
three months ended September 30, 1998 and 1997
(unaudited) 5
Consolidated Statements of Income for the
nine months ended September 30, 1998 and 1997
(unaudited) 6
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997
(unaudited) 7 - 8
Notes to Consolidated Financial Statements
(unaudited) 9 - 11
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations 12 - 17
PART II - OTHER INFORMATION 18 - 19
SIGNATURES 20
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amount)
September 30, December 31,
ASSETS 1998 1997
----------------- -------------
(unaudited)
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1998, $8,714,096; 1997, $9,743,410) ......... $ 8,118,468 $9,315,450
Available for sale, at fair value (Amortized cost:
1998, $13,178,790; 1997, $12,515,030) ........ 13,652,200 12,876,694
----------- -----------
21,770,668 22,192,144
Mortgage loans on real estate ........................ 3,595,924 3,618,647
Policy loans ......................................... 519,524 498,874
Other investments .................................... 326,353 318,591
----------- -----------
Total investments ................... 26,212,469 26,628,256
Cash and cash equivalents ................................ 34,273 19,686
Amounts recoverable from reinsurers ...................... 244,935 205,716
Amounts due from brokers ................................. 780 8,400
Other accounts receivable ................................ 46,433 37,895
Accrued investment income ................................ 356,752 357,390
Deferred policy acquisition costs ........................ 2,488,297 2,479,577
Other assets ............................................. 29,427 22,700
Separate account assets .................................. 23,032,744 23,214,504
----------- -----------
Total assets ........................ $52,446,110 $52,974,124
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
($ thousands, except per share amount)
(continued)
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
------------------ ------------
(unaudited)
<S> <C> <C>
Liabilities:
Future policy benefits:
Fixed annuities ................................. $21,295,700 $22,009,747
Universal life-type insurance ................... 3,324,963 3,280,489
Traditional life insurance ...................... 220,290 213,676
Disability income and
long-term care insurance .................... 627,603 533,124
Policy claims and other
policyholders' funds ............................ 69,331 68,345
Amounts due to brokers .............................. 314,822 381,458
Deferred income taxes ............................... 86,167 61,582
Other liabilities ................................... 318,451 345,383
Separate account liabilities ........................ 23,032,744 23,214,504
----------- -----------
Total liabilities .................. 49,290,071 50,108,308
----------- -----------
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 .......................... 288,327 290,847
Accumulated other comprehensive income
Net unrealized gain on investments .................. 297,460 226,359
Retained earnings ................................... 2,567,252 2,345,610
----------- -----------
Total stockholder's equity ......... 3,156,039 2,865,816
----------- -----------
Total liabilities and stockholder's equity .............. $52,446,110 $52,974,124
=========== ===========
See accompanying notes .
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
($ thousands)
(unaudited)
Three months ended
September 30,
1998 1997
-------------
<S> <C> <C>
Revenues:
Premiums:
Traditional life insurance .................................... $ 13,391 $13,046
Disability income and
long-term care insurance .................................... 44,570 37,922
---------- --------
Total premiums ................................... 57,961 50,968
Policyholder and contractholder charges ........................... 95,919 85,137
Management and other fees ......................................... 93,268 91,438
Net investment income ............................................. 492,488 478,852
Net realized loss on investments ........................... 4,429 4,460
--------- ---------
Total revenues ................................... 744,065 710,855
--------- ---------
Benefits and expenses:
Death and other benefits:
Traditional life insurance .................................... 7,223 7,593
Universal life-type insurance
and investment contracts .................................. 26,673 23,453
Disability income and
long-term care insurance .................................. 7,120 5,344
Increase in liabilities for
future policy benefits:
Traditional life insurance ................................ 1,313 1,006
Disability income and
long-term care insurance ............................. 20,201 16,407
Interest credited on universal life-type
insurance and investment contracts ............................ 321,008 349,274
Amortization of deferred policy
acquisition costs ............................................. 93,864 80,481
Other insurance and operating expenses ............................ 81,967 49,378
--------- ---------
Total benefits and expenses ...................... 559,369 532,936
--------- ---------
Income before income taxes ............................................ 184,696 177,919
Income taxes .......................................................... 54,170 53,003
--------- ---------
Net income ............................................................ $ 130,526 $124,916
========= =========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
($ thousands)
(unaudited)
Nine months ended
September 30,
1998 1997
------------ ----------
<S> <C> <C>
Revenues:
Premiums:
Traditional life insurance .................................... $ 40,284 $39,470
Disability income and
long-term care insurance .................................... 128,054 111,940
--------- ---------
Total premiums ................................... 168,338 151,410
Policyholder and contractholder charges ........................... 284,461 252,092
Management and other fees ......................................... 296,145 48,891
Net investment income ............................................. 1,489,846 1,483,508
Net realized loss on investments .................................. 3,820 1,785
--------- ---------
Total revenues ................................... 2,242,610 2,137,686
--------- ---------
Benefits and expenses:
Death and other benefits:
Traditional life insurance .................................... 23,282 22,241
Universal life-type insurance
and investment contracts .................................. 78,437 69,755
Disability income and
long-term care insurance .................................. 21,190 16,168
Increase in liabilities for
future policy benefits:
Traditional life insurance ................................ 4,485 2,351
Disability income and
long-term care insurance ............................. 55,621 44,412
Interest credited on universal life-type
insurance and investment contracts ............................ 993,250 1,041,749
Amortization of deferred policy
acquisition costs ............................................. 284,136 234,793
Other insurance and operating expenses ............................ 204,089 186,389
--------- ---------
Total benefits and expenses ...................... 1,664,490 1,617,858
--------- ---------
Income before income taxes ............................................ 578,120 519,828
Income taxes .......................................................... 176,477 157,207
--------- ---------
Net income ............................................................ $ 401,643 $362,621
========= =========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ thousands)
(unaudited)
Nine months ended
September 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 401,643 $ 362,621
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy loans, excluding universal
life-type insurance:
Issuance ....................................... (42,396) (42,190)
Repayment ...................................... 45,556 33,619
Change in reinsurance recoverable .................... (39,219) (33,394)
Change in other accounts receivable .................. (8,538) 3,582
Change in accrued investment income .................. 638 (6,343)
Change in deferred policy
acquisition costs, net ............................ (13,921) (111,434)
Change in liabilities for future policy
benefits for traditional life,
disability income and
long-term care insurance .......................... 101,092 78,652
Change in policy claims and other
policyholders' funds .............................. 986 (11,804)
Change in deferred income taxes ...................... (16,221) 16,361
Change in other liabilities .......................... (26,932) (10,285)
Accretion of discount, net ........................... (108) (7,960)
Net realized loss on investments ..................... (3,820) (1,785)
Policyholder and contractholder charges,
non-cash .......................................... (126,424) (118,737)
Other, net ........................................... 8,689 (5,138)
--------- ---------
Net cash provided by operating activities $ 281,024 $145,765
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ thousands)
(unaudited)
(continued)
Nine months ended
September 30,
1998 1997
------- --------
- - ---------
<S> <C> <C>
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases ....................................................... ($1,020) ($1,011)
Maturities, sinking fund payments and calls ..................... 964,874 548,185
Sales ........................................................... 235,683 168,671
Fixed maturities available for sale:
Purchases .......................................................(2,305,827)(2,394,019)
Maturities, sinking fund payments and calls ..................... 1,457,454 804,215
Sales ........................................................... 205,777 452,315
Other investments, excluding policy loans:
Purchases ....................................................... (424,042) (413,096)
Sales ........................................................... 406,663 237,645
Change in amounts due from broker ................................... 7,620 1,047
Change in amounts due to broker ..................................... (66,636) 150,703
----------- -----------
Net cash provided by (used in) investing activities....... 480,546 (445,345)
----------- -----------
Cash flows from financing activities:
Activity related to universal life-type insurance
and investment contracts:
Considerations received ......................................... 1,393,409 2,176,376
Surrenders and death benefits ...................................(2,929,807)(2,747,986)
Interest credited to account balances ........................... 993,250 1,041,749
Universal life-type insurance policy loans:
Issuance ........................................................ (75,904) (71,654)
Repayment ....................................................... 52,069 50,531
Cash dividends to parent ............................................ (180,000) (135,000)
----------- -----------
Net cash (used in) provided by financing activities ...... (746,983) 314,016
----------- ----------
Net decrease in cash and cash equivalents ............................... 14,587 14,436
Cash and cash equivalents at beginning of period ........................ 19,686 224,603
----------- -----------
Cash and cash equivalents at end of period .............................. $34,273 $239,039
=========== ===========
See accompanying notes
</TABLE>
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
($ 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, 1998,
statements of income for the three and nine months ended September 30,
1998 and 1997 and statements of cash flows for the nine months ended
September 30, 1998 and 1997.
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
deferred and recognized in management and other fees in the same period
as the hedged fee income.
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 $10,550 and $5,726 for the
nine months ended September 30, 1998, and 1997, respectively. Cash paid
for income taxes totaled $175,768 and $113,939 for the nine months ended
September 30, 1998 and 1997, respectively.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ thousands)
(unaudited)
(continued)
4. Commitments and contingencies
At September 30, 1998, the Company had commitments to purchase
affordable housing limited partnership investments of $26,679, which are
included in other liabilities. Commitments for purchases of investments
in the ordinary course of business at September 30, 1998 aggregated
$111,066.
The maximum amount of risk retained by the Company on any one life is
$750 of life and waiver of premium benefits plus $50 of accidental death
benefits. The excesses are reinsured with other life insurance companies
on a yearly renewable term basis.
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company and AEFC do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. The Company and AEFC, like other
life and health insurers, from time to time are involved in such
litigation. On December 13, 1996, an action entitled Lesa Benacquisto
and Daniel Benacquisto vs. IDS Life Insurance Company and American
Express Financial Corporation was commenced in Minnesota state court.
The action is brought by individuals who replaced an existing Company
insurance policy with a new Company policy. The plaintiffs purport to
represent a class consisting of all persons who replaced existing
Company policies with new policies from and after January 1, 1985. The
complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. Plaintiffs seek damages in an
unspecified amount and also seek to establish a claims resolution
facility for the determination of individual issues. The Company and
AEFC filed an answer to the Complaint on February 18, 1997. A similar
action entitled Mork and Melchert, et ux. vs. IDS Life Insurance Company
involving the replacement of existing IDS Life insurance policies and
annuity contracts was filed in the same court on March 21, 1997. A
subsequent class action, Thoreson vs. AEFC et al, was filed in the same
court on October 13, 1998 alleging that the sale of annuities in
tax-deferred contributory retirement investment plans (e.g. IRA's) is
never appropriate.
<PAGE>
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
($ thousands)
(unaudited)
(continued)
5. Accounting Changes
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires the display of comprehensive income and its
components. Comprehensive income is defined as the aggregate change in
shareholders' equity excluding changes in ownership interests. For the
Company, it is the sum of net unrealized gains or losses on
available-for-sale investments, and net income. The components of
comprehensive income, net of related tax, for the nine month periods
ended September 30, 1998 and 1997 were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net income $401,643 $362,621
Net unrealized gain on investments 71,101 100,715
================ ================
Total $472,744 $463,336
================ ================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997:
Consolidated net income increased 11 percent to $402 million for the
nine months ended September 30, 1998, compared to $363 million in 1997. Earnings
growth resulted primarily from increases in management fees and policyholder and
contractholder charges and an increase in spread rates.
Premiums received totaled $3.3 billion for the nine months ended
September 30, 1998 compared to $4.0 billion a year ago. This is the result of
decreased sales of fixed and variable annuities partially offset by increased
sales of life insurance.
Policyholder and contractholder charges increased to $284 million for
the nine months ended September 30, 1998, compared with $252 million a year ago.
This increase was primarily due to higher life insurance in force.
Management and other fees increased to $296 million for the nine months
ended September 30, 1998 compared with $249 million a year ago. This was
primarily due to an increase in average separate account assets outstanding,
resulting from market appreciation during the first seven months of the year.
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 $1.7 billion for the nine months ended
September 30, 1998, an increase of 3.0 percent from a year ago. The largest
component of expenses, interest credited on universal life-type insurance and
investment contracts, decreased 5 percent to $993 million. This was due to lower
aggregate amounts of fixed annuities in force and lower crediting rates,
reflecting market conditions. An increase in DAC amortization primarily reflects
an increase in surrenders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided from
operations and investment activity. 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 an available line of credit with its parent totaling
$100 million. This line of credit is used strictly as a short-term source of
funds. At September 30, 1998, outstanding borrowings under this agreement were
$nil. The Company also uses reverse repurchase agreements for short-term
liquidity needs. Outstanding reverse repurchase agreements totaled $148 million
at September 30, 1998.
At September 30, 1998, approximately 11 percent of the Company's
invested assets were below-investment-grade bonds, compared to 11 percent at
December 31, 1997. 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, 1998, sales of fixed maturities
held to maturity were due to significant deterioration in the issuers'
creditworthiness.
At September 30, 1998, the Company had an allowance for losses on
mortgage loans of $47 million.
The Company paid $180 million in dividends to its parent during the nine
months ended September 30, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000
The Company is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American Express
Company (American Express). All of the major systems used by the Company are
maintained by AEFC and are utilized by multiple subsidiaries and affiliates of
AEFC. American Express is coordinating Year 2000 (Y2K) efforts on behalf of all
of its businesses and subsidiaries. Representatives of AEFC are participating in
these efforts. The Y2K issue is the result of computer programs having been
written using two digits rather than four to define a year. Some programs may
recognize a date using "00" as the year 1900 rather than 2000. This
misinterpretation could result in the failure of major systems or
miscalculations, which could have a material impact on American Express and its
businesses or subsidiaries through business interruption or shutdown, financial
loss, reputational damage and legal liability to third parties. American Express
and AEFC began addressing the Y2K issue in 1995 and have established a plan for
resolution, which involves the remediation, decommissioning and replacement of
relevant systems, including mainframe, mid-range and desktop computers,
application software, operating systems, systems software, date back-up archival
and retrieval services, telephone and other communications systems, and hardware
peripherals and facilities dependent on embedded technology. As a part of their
plan, American Express has generally followed and utilized the specific policies
and guidelines established by the Federal Financial Institutions Examination
Council, as well as other U.S. and international regulatory agencies.
Additionally, American Express continues to participate in Y2K related industry
consortia sponsored by various partners and suppliers. Progress is reviewed
regularly with the Company's senior management and American Express's senior
management and Board of Directors.
American Express's and AEFC's Y2K compliance effort related to information
technology (IT) systems is divided into two initiatives. The first, which is the
much larger initiative, is known internally as "Millenniax," and relates to
mainframe and other technological systems maintained by the American Express
Technologies organization. The second, known as "Business T," relates to the
technological assets that are owned, managed or maintained by American Express's
individual business units, including AEFC. Business T also encompasses the
remediation of non-IT systems. These initiatives involve a substantial number of
employees and external consultants. This multiple sourcing approach is intended
to mitigate the risk of becoming dependent on any one vendor or resource. While
the vast majority of American Express's and AEFC's systems that require
modification are being remediated, in some cases they have chosen to migrate to
new applications that are already Y2K compliant.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000 (cont.)
American Express's and AEFC's plans for remediation with respect to Millenniax
and Business T include the following program phases: (i) employee awareness and
mobilization, (ii) inventory collection and assessment, (iii) impact analysis,
(iv) remediation/decommission, (v) testing and (vi) implementation. As part of
the first three phases, American Express and AEFC have identified their
mission-critical systems for purposes of prioritization. American Express's and
AEFC's goals are to substantially complete remediation of critical systems by
the end of 1998, complete testing of those systems by early 1999, and to
continue compliance efforts, including but not limited to, the testing of
systems on an integrated basis and independent validation of
such testing, through 1999.** American Express and AEFC are currently on
schedule to meet these goals. With respect to systems maintained by American
Express and AEFC, the first three phases referred to above have been
substantially completed for both Millenniax and Business T. As of October 31,
1998, for Millenniax for American Express, the remediation/decommission, testing
and implementation phases are approximately 80%, 65% and 55% complete,
respectively. For Business T for American Express, such phases are approximately
70%, 55% and 55% complete, respectively.
American Express's most commonly used methodology for remediation is the sliding
window. Once an application/system has been remediated, American Express applies
specific types of tests, such as stress, regression, unit, future date and
baseline to ensure that the remediation process has achieved Y2K compliance
while maintaining the fundamental data processing integrity of the particular
system. To assist with remediation and testing, American Express is using
various standardized tools obtained from a variety of vendors.
American Express's cumulative costs since inception of the Y2K initiatives were
$311 million through September 30, 1998 and are estimated to be in the range of
$210-$235 million for the remainder through 2000.** These include both
remediation costs and costs related to replacements that were or will be
required as a result of Y2K. These costs, which are expensed as incurred, relate
to both Millenniax and Business T, and have not had, nor are they expected to
have, a material adverse impact on American Express's, AEFC's, or the Company's
results of operations or financial condition.** Costs related to Milleniax,
which represent most of the total Y2K costs of American Express, are managed by
and included in the American Express corporate level financial results; costs
related to Business T are included in American Express's individual business
segment's financial results, including AEFC's. American Express and AEFC have
not deferred other critical technology projects or investment spending as a
result of Y2K. However, because American Express and AEFC must continually
prioritize the allocation of finite financial and human resources, certain
non-critical spending initiatives have been deferred.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000 (cont.)
American Express's and AEFC's major businesses are heavily dependent upon
internal computer systems, and all have significant interaction with systems of
third parties, both domestically and internationally. American Express and AEFC
are working with key external parties, including merchants, clients,
counterparties, vendors, exchanges, utilities, suppliers, agents and regulatory
agencies to mitigate the potential risks to American Express and AEFC of Y2K.
The failure of external parties to resolve their own Y2K issues in a timely
manner could result in a material financial risk to American Express or AEFC. As
part of their overall compliance program, American Express and AEFC are actively
communicating with third parties through face-to-face meetings and
correspondence, on an ongoing basis, to ascertain their state of readiness.
Although numerous third parties have indicated to American Express and AEFC in
writing that they are addressing their Y2K issues on a timely basis, the
readiness of third parties overall varies across the spectrum. Because American
Express's and AEFC's Y2K compliance is dependent on key third parties being
compliant on a timely basis, there can be no assurances that American Express's
and AEFC's efforts alone will resolve all Y2K issues.
At this point, American Express and AEFC have not completed their assessment of
reasonably likely Y2K systems failures and related consequences. However,
American Express is in the process of preparing specific Y2K contingency plans
for all key American Express business units, including AEFC, to mitigate the
potential impact of such failures. This effort is a full-scale initiative that
includes both internal and external experts under the guidance an American
Express-wide steering committee. The contingency plans, which will be based in
part on an assessment of the magnitude and probability of potential risks, will
primarily focus on proactive steps to prevent Y2K failures from occurring, or if
they should occur, to detect them quickly, minimize their impact and expedite
their repair. The Y2K contingency plans will supplement disaster recovery and
business continuity plans already in place, and are expected to include measures
such as selecting alternative suppliers and channels of distribution, and
developing American Express's and AEFC's own technology infrastructure in lieu
of those provided by third parties. Development of the Y2K contingency plans is
expected to be substantially complete by the end of the first quarter of 1999,
and will continue to be refined throughout 1999 as additional information
related to American Express's and AEFC's exposures is gathered. **
Statements in this Y2K discussion marked with two asterisks are forward-looking
statements which are subject to risks and uncertainties. Important factors that
could cause results to differ materially from these forward-looking statements
include, among other things, the ability of American Express or AEFC to
successfully identify systems containing two-digit codes, the nature and amount
of programming required to fix the affected systems, the costs of labor and
consultants related to such efforts, the continued availability of such
resources, and the ability of third parties that interface with American Express
or AEFC to successfully address their Y2K issues.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. The SOP is effective
for the Company beginning January 1, 1999. The SOP will require the
capitalization of certain costs incurred subsequent to December 31, 1998, in
connection with developing or obtaining software for internal use. Adoption of
the SOP will not have a material impact on the Company's future earnings or
financial position.
The AICPA also issued SOP 97-3, Accounting by Insurance and Other
Enterprises for Insurance Related Assessments. The SOP is effective for the
Company beginning January 1, 1999. The SOP will require recognition of
liabilities for insurance-related assessments when information indicates it is
probable an assessment will be imposed and the amount of the assessment can be
reasonably estimated. Adoption of the SOP will not have a material impact on the
Company's future earnings or financial position.
<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, 1998.
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
(a) Exhibits
3.1 Copy of Certificate of Incorporation of IDS Life
Insurance Company filed electronically as Exhibit
3.1 to Post Effective Amendment No. 5 to
Registration Statement No. 33-28976 is
incorporated herein by reference.
3.2 Copy of the Amended By-laws of IDS Life Insurance
Company filed electronically as Exhibit 3.2 to
Post-Effective Amendment No. 5 to Registration
Statement No. 33-28976 is incorporated herein
by reference.
3.3 Copy of Resolution of the Board of Directors of IDS
Life Insurance Company, dated May 5, 1989,
establishing IDS Life Account MGA filed
electronically as Exhibit 3.3 to Post-Effective
Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
<PAGE>
PART II - OTHER INFORMATION (continued)
4.1 Copy of Group Annuity Contract, Form 30363C, filed
electronically as Exhibit 4.1 to Post-Effective
Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.2 Copy of Group Annuity Certificate, Form 30360C,
filed electronically as Exhibit 4.2 to
Post-Effective Amendment No. 5 to Registration
Statement No. 33-28976 is incorporated herein
by reference.
4.3 Copy of Endorsement No. 30340C-GP to the Group
Annuity Contract filed electronically as Exhibit
4.3 to Post-Effective Amendment No. 5 to
Registration Statement No. 33-28976 is
incorporated herein by reference.
4.4 Copy of Endorsement No. 30340C to the Group
Annuity Certificate filed electronically as
Exhibit 4.4 to Post-Effective Amendment No. 5 to
Registration Statement No. 33-28976 is
incorporated herein by reference.
4.5 Copy of Group Annuity Contract, Form 30363D, filed
electronically as Exhibit 4.1 to Post-Effective
Amendment No. 2 to Registration Statement No.
33-50968 is incorporated herein by reference.
4.6 Copy of Group Annuity Certificate, Form 30360D,
filed electronically as Exhibit 4.2 to
Post-Effective Amendment No.2 to Registration
Statement No. 33-50968 is incorporated herein by
reference.
4.7 Form of Deferred Annuity Contract, Form 30365E,
filed electronically as Exhibit 4.3 to
Post-Effective Amendment No. 2 to Registration
Statement No. 33-50968 is incorporated herein
by reference.
4.8 Form of Group Deferred Variable Annuity Contract,
Form 34660, filed electronically as Exhibit 4.1 to
Post-Effective Amendment No. 2 to Registration
Statement No. 33-48701 is incorporated herein by
reference.
27. Financial data schedule is filed electronically
herewith.
(b) No reports on Form 8-K were required to be filed by the Company for the
nine months ended September 30, 1998.
<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/ Stuart A. Sedlacek
NAME AND TITLE Stuart A. Sedlacek
Executive Vice President and Controller
DATE November 11, 1998
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