<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 25, 1999
ReliaStar Financial Corp.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-10640 41-1620373
------------------------ ------------------------ -------------------
(State of Incorporation) (Commission file number) (I.R.S. Employer
Identification No.)
20 Washington Avenue South
Minneapolis, Minnesota 55401
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(612) 372-5432
-------------------------------
(Registrant's telephone number)
===========================================================================
<PAGE>
Item 5. Other Events
------------
On October 25, 1999, ReliaStar Financial Corp. announced its earnings for
the three months and nine months ending September 30, 1999. A copy of the press
release and letter to the investment community which discuss these matters are
filed as exhibits to, and incorporated by reference in, this report.
Item 7. Financial Statements and Exhibits.
---------------------------------
Exhibit
- -------
99 (a) Press Release, dated October 25, 1999.
99 (b) Letter to the Investment Community, dated October 25, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RELIASTAR FINANCIAL CORP.
Date: October 25, 1999 By: /s/ Richard R. Crowl
---------------------------------------
Richard R. Crowl, Senior Vice President,
General Counsel, and Secretary
<PAGE>
Exhibit 99(a)
FINAL
-----
For Immediate Release
---------------------
Media Contact: RuthWeber Kelley October 25, 1999
(612) 372-5628
Investor Contact: Karin E. Glasgow
(612) 342-3979
RELIASTAR THIRD QUARTER EARNINGS
--------------------------------
AFFECTED BY CHARGE FOR REINSURANCE CLAIMS
-----------------------------------------
MINNEAPOLIS - ReliaStar Financial Corp. announced today that third quarter
operating income per common share on a diluted basis was $.54 in the third
quarter, down from $.73 per common share in the same period a year ago. Total
operating income in the third quarter was $47.1 million, compared with $67.6
million in the third quarter of 1998.
In the third quarter, net income per common share on a diluted basis
totaled $.53, down from $.74 in the third quarter of 1998. Total net income in
the third quarter was $46.1 million, compared with $68.6 million in the third
quarter of 1998.
ReliaStar said its third quarter operating and net earnings were reduced by
a $21.3 million after-tax charge, which includes $5.1 million to strengthen
reserves for international reinsurance business and $16.2 million to accrue for
all incurred and prospective losses expected from medical reinsurance business
written by two independent reinsurance managing underwriters with whom the
company terminated its relationship in the third quarter. (See operations
section below for more information on reinsurance operating loss.)
-more-
<PAGE>
RELIASTAR ANNOUNCES THIRD QUARTER EARNINGS, pg 2 of 6
Year-to-Date Results
For the first nine months of 1999, operating income per common share on a
diluted basis was $2.05, compared with $2.11 in the first nine months of 1998.
Total operating income for the first nine months of 1999 was $181.7 million,
compared with $196.2 million in the first nine months of 1998.
Net income per common share on a diluted basis totaled $2.05 for the year-
to-date period, compared with $2.18 in the first nine months of 1998. Total net
income for the first nine months of 1999 was $182.2 million, compared with
$202.6 million in the first nine months of 1998.
"Our adverse reinsurance claims experience stands in stark contrast to the
exceptional revenue and earnings growth that this unit has delivered over the
years," said John Turner, ReliaStar chairman and CEO. "What's important is that
we've taken appropriate actions to get the reinsurance claims issue under
control and behind us. Excluding reinsurance, the rest of our business is
performing very well, as evidenced by the 14.8 percent growth in earnings per
share quarter over quarter. Clearly, the fundamentals of all our businesses
remain extremely strong, which sets the stage for good, solid growth going
forward."
- more-
<PAGE>
RELIASTAR ANNOUNCES THIRD QUARTER EARNINGS, pg 3 of 6
Revenue Measures
Total statutory premiums and deposits, and fee revenues in the third quarter of
1999 were $1.0 billion, an increase of 14 percent compared with the same period
a year ago. For the 12 months ended Sept. 30, 1999, total statutory premiums and
deposits, and fee revenues increased 12.7 percent from the 12 months ended Sept.
30, 1998.
Operations
Total insurance product sales for the third quarter were $453.3 million, an
increase of 7 percent from $422.5 million in the same period last year. For the
first nine months of 1999, total insurance product sales climbed to $1.5
billion, an increase of 16 percent from $1.3 billion during the first nine
months of 1998.
"While the spotlight has been on reinsurance, we can't lose sight of the
fact that ReliaStar continues to have strong top-line momentum," said Bob
Salipante, president and COO. "This sales success can be attributed to the
strength of our multiple distribution channels and our tremendous cross-selling
efforts. In the next couple weeks, ReliaStar will reach two important milestones
that will further boost our sales success: the addition of Pilgrim Capital to
the ReliaStar family and the launch of full-scale annuity operations at our new,
state-of-the-art service center in Minot, N.D."
Sales of individual market products, which comprise products sold through
the company's Personal Financial Services and Tax-Sheltered/Fixed Annuity
segments, totaled $265.5 million in the third quarter of 1999, up 3 percent from
the same period last year. Sales of individual life insurance were up 11 percent
for the quarter and 12 percent for the first nine months over the same periods
last year.
-more-
<PAGE>
RELIASTAR ANNOUNCES THIRD QUARTER EARNINGS, pg 4 of 6
Operating income in the Personal Financial Services segment was up 18
percent for the quarter and 16 percent for the first nine months over the same
periods in 1998. In the Tax-Sheltered/Fixed Annuity segment, operating income
decreased 7 percent for the quarter and increased 7 percent for the first nine
months over the same periods in 1998.
In the Worksite Financial Services (WFS) segment, which specializes in the
sales of group life, 401(k) plans and voluntary life insurance products at the
worksite, sales totaled $141.8 million for the quarter, an increase of 21
percent over the third quarter of 1998. During the first nine months of 1999,
sales reached $492.2 million, an increase of 31 percent over the same period a
year ago. WFS operating income in the third quarter was $16.6 million, an
increase of 8 percent over the same period a year ago. For the year-to-date
period, operating income in this segment was $46.5 million, up 8 percent over
the first nine months of 1998.
Northstar, ReliaStar's mutual fund operation, had third quarter sales of
$343.5 million, up 75 percent from the same period last year. For the first nine
months of 1999, mutual fund sales were $816.2 million, up 9 percent from the
same period a year ago. Assets under management for this operation totaled $4.5
billion at September 30, 1999, compared with $3.4 billion at September 30, 1998.
- more-
<PAGE>
RELIASTAR ANNOUNCES THIRD QUARTER EARNINGS, pg 5 of 6
Reinsurance Segment
ReliaStar's reinsurance segment recorded an operating loss of $13.9 million
in the third quarter of 1999, compared with operating income of $10.4 million in
the third quarter of 1998. The loss in the quarter was primarily due to losses
from medical reinsurance business written by two independent reinsurance
managing underwriters with whom ReliaStar has terminated its relationships.
In September, ReliaStar announced that claims losses in the medical
reinsurance line of business had increased over expected levels in July and
August, and that the company did not expect improvement in the final month of
the quarter. Because of these increased claims, the company conducted an
extensive review of its medical reinsurance business, aided by a national
actuarial consulting firm. This review resulted in ReliaStar's decision to
record an accrual in the third quarter.
Concurrent with the review of the medical reinsurance business, ReliaStar
initiated a broader review of its reinsurance businesses. During this review,
the company discovered that there were deficiencies in claims reporting
processes in the international line, and reserves were strengthened by $8.0
million, pretax ($5.1 million, after-tax) as a result. The deficiencies have
been corrected and further reserve adjustments will not be required. The
international business remains profitable and continues to be a targeted growth
area.
Reinsurance sales for the third quarter were $46.0 million, a decrease of 5
percent from the third quarter of 1998. For the first nine months of 1999,
reinsurance sales totaled $204.8 million, an increase of 37 percent over the
first nine months of 1998. For the year-to-date period, operating income was
$5.6 million, compared with $31.4 million for the first nine months of 1998.
As of September 30, 1999, ReliaStar had $24.1 billion in assets under
management compared with $21.1 billion as of September 30, 1998. ReliaStar had
86.2 million common shares outstanding as of September 30, 1999.
-more-
<PAGE>
RELIASTAR ANNOUNCES THIRD QUARTER EARNINGS, pg 6 of 6
Other Developments
Acquisition of Pilgrim Capital Corp. The Board of Directors of Pilgrim
Capital Corp. (NYSE: PFX) announced today that Pilgrim will extend the
opportunity for shareholders to vote on the proposed acquisition of Pilgrim by
ReliaStar until Friday, Oct. 29. The voting period was previously scheduled to
close Oct. 26. Working in consultation with ReliaStar management, the Pilgrim
board decided to extend the voting period to provide Pilgrim shareholders with
an opportunity to review ReliaStar's third quarter earnings. The transaction is
expected to close directly following the close of the voting period.
In July, ReliaStar announced a definitive agreement to acquire Pilgrim
Capital Corp., a Phoenix-based mutual fund and asset management company with
more than $7 billion in assets under management.
Bond sale. On Oct. 5, 1999, ReliaStar sold $200 million of 8 percent senior
notes due on Oct. 30, 2006. The proceeds from this sale will be used to fund the
cash requirements for the acquisition of Pilgrim Capital Corp. and to reduce
outstanding debt under existing bank lines.
New consolidated service center to open. ReliaStar's new service center in
Minot, N.D., will open its doors November 8. The company announced last December
that it would consolidate its five individual life insurance and annuity service
centers into one operation in a two-year, staged transition beginning this fall.
Construction on the new 90,000-square-foot building in Minot was completed in
August. The center is staffed with 250 employees, scheduled to grow to about 550
by the end of 2000 as the transition of business is completed.
ReliaStar Financial Corp. is a Minneapolis-based holding company whose
subsidiaries offer individuals and institutions life insurance and annuities,
employee benefits products and services, life and health reinsurance, retirement
plans, mutual funds, bank products and personal finance education. Based on
revenues, ReliaStar Financial Corp. is the eighth largest publicly held life
insurance holding company in the United States and as of Sept. 30, 1999, has
$24.1 billion in assets under management and life insurance in force of $317.2
billion.
###
All statements contained in the report relative to markets for the Company's
products and trends in the Company's operations or financial results, as well as
other statements including words such as "anticipate," "believe," "expect," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the Company's ability to sell its products, the market value of the Company's
investments and the lapse rate and profitability of the Company's policies; the
Company's ability to achieve anticipated levels of operating efficiencies;
mortality and morbidity; changes in federal income tax laws that may affect the
relative tax advantages of some of the Company's products; and regulatory
changes or actions, including those relating to regulation of financial services
affecting bank sales and underwriting of insurance products and regulation of
the sale, underwriting and pricing of insurance products.
<PAGE>
ReliaStar Financial Corp.
Financial Highlights (Unaudited)
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Premium Revenues $ 283.4 $ 248.5 $ 842.8 $ 740.8
Total Revenues 743.8 708.9 2,212.8 2,120.3
Operating Income $ 47.1 $ 67.6 $ 181.7 $ 196.2
Net Realized Investment Gains (Losses) (After-Tax) (1.0) 1.0 0.5 9.8
------------ ------------ ------------ -----------
Income from Continuing Operations 46.1 68.6 182.2 206.0
Income (Loss) from Discontinued Operations - - - (3.4)
------------ ------------ ------------ -----------
Net Income $ 46.1 $ 68.6 $ 182.2 $ 202.6
============ ============ ============ ===========
Per Common Share:
Basic:
Operating Income $ 0.55 $ 0.74 $ 2.07 $ 2.15
Net Realized Investment Gains (Losses) (After-Tax) (0.01) 0.01 0.01 0.11
------------ ------------ ------------ -----------
Income from Continuing Operations 0.54 0.75 2.08 2.26
Income (Loss) from Discontinued Operations - - - (0.04)
------------ ------------ ------------ -----------
Net Income $ 0.54 $ 0.75 $ 2.08 $ 2.22
============ ============ ============ ===========
Diluted:
Operating Income $0.54 $0.73 $2.05 $2.11
Net Realized Investment Gains (Losses) (After-Tax) (0.01) 0.01 - 0.11
------------ ------------ ------------ -----------
Income from Continuing Operations 0.53 0.74 2.05 2.22
Income (Loss) from Discontinued Operations - - - (0.04)
------------ ------------ ------------ -----------
Net Income $ 0.53 $ 0.74 $ 2.05 $ 2.18
============ ============ ============ ===========
Weighted Average Common Shares:
Basic 86.1 91.5 87.6 91.2
Diluted 87.3 93.1 88.8 92.9
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue Measures
Statutory Premiums and Deposits (Statutory Accounting Basis)
Personal Financial Services Segment $ 265.7 $ 241.4 $ 765.5 $ 736.5
Worksite Financial Services Segment 333.1 277.1 1,070.5 816.6
Tax-Sheltered and Fixed Annuities Segment 223.7 219.7 720.7 684.5
Reinsurance Segment 117.7 78.9 325.8 218.2
------------ ------------ ------------ -----------
Total Statutory Premiums and Deposits 940.2 817.1 2,882.5 2,455.8
Fee Revenues (GAAP Accounting Basis) 60.6 60.6 179.1 182.6
------------ ------------ ------------ -----------
Total Statutory Premiums and Deposits
and Fee Revenues $ 1,000.8 $ 877.7 $ 3,061.6 $ 2,638.4
============ ============ ============ ===========
Assets Under Management (End of Period)
Invested Assets $ 14,550.5 $ 14,201.6
Managed Assets 9,527.2 6,928.3
------------ -----------
Total Assets Under Management $24,077.7 $21,129.9
============ ===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
Premium revenues are determined in accordance with generally accepted
accounting principles and do not recognize premiums and deposits received on
interest sensitive products.
Invested assets exclude unrealized investment gains and losses recorded in
accordance with SFAS No. 115. The amounts excluded at September 30, 1999 and
1998, were unrealized (losses) gains of ($64.7) million and $682.3 million,
respectively.
Certain prior period segment financial data has been restated to conform to
current period presentation.
<PAGE>
Exhibit 99(b)
October 25, 1999
To the Investment Community:
Operating income per share, on a diluted basis, was $0.54 in the
third quarter of 1999, compared with $0.73 earned in the third
quarter of 1998. The First Call analysts' consensus estimate for the
quarter was $0.79 per share. Operating income totaled $47.1 million,
compared with $67.6 million in the third quarter of 1998. Results
for the third quarter of 1999 include an operating charge of $21.3
million ($33 million, on a pretax basis), which includes $5.1
million (after-tax) to strengthen reserves for international
reinsurance business and $16.2 million (after-tax) to accrue for all
incurred and prospective losses on all reinsurance business written
by two independent reinsurance managing underwriters; ReliaStar
terminated its relationships with these two managing underwriters in
the third quarter of 1999.
Results for the quarter reflected strong year-over-year earnings
growth in Personal Financial Services (up 18 percent) and Worksite
Financial Services (up 8 percent). Compared with the same period of
last year, third quarter 1999 operating earnings for Personal
Financial Services reflected improved mortality, strong sales and
growth in assets under management. Worksite Financial Services
results in the third quarter reflected continued growth in 401(k)
plan revenues, and improved mortality experience in employee
benefits. Operating earnings in the Tax-Sheltered and Fixed
Annuities segment were down 7 percent from the third quarter of
1998, primarily due to higher expenses, including those associated
with the transition to a consolidated service center.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights Summary
- --------------------------------------------------------------------------------------------------------------------------------
($ in millions, except First Nine First Nine
per-share data) Percent Months Months Percent
3Q99 3Q98 Change 1999 1998 Change
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating income * $ 47.1 $67.6 (30)% $181.7 $196.2 (7)%
Net realized investment
gains (losses) (1.0) 1.0 0.5 9.8
---------------------------- --------------------------
Income from continuing
operations 46.1 68.6 (33) 182.2 206.0 (12)
Income (loss) from
discontinued operations -- -- -- (3.4)
---------------------------- ---------------------------
Net income $ 46.1 $68.6 (33) $182.2 $202.6 (10)
============================ ===========================
Per diluted share:
Operating income $ 0.54 $0.73 (26) $ 2.05 $ 2.11 (3)
Net realized investment
gains (losses) (0.01)) 0.01 -- 0.11
---------------------------- ---------------------------
Income from continuing
operations 0.53 0.74 (28) 2.05 2.22 (8)
Income (loss) from
discontinued operations -- -- -- (0.04)
---------------------------- ---------------------------
Net income $ 0.53 $0.74 (28) $ 2.05 $ 2.18 (6)
============================ ===========================
Operating income-based
return on equity 14.1% 15.2%
Book value per common share $ 21.67 $21.47
* 1999 includes an operating charge of $21.3 million (after-tax) for
reinsurance losses, as described in the discussion of reinsurance
segment earnings.
Notes:
1) ROE calculations are for the 12 months ended September 30 and
exclude special charges and the accumulated other comprehensive
income component of shareholders' equity, primarily the FAS115
adjustment for net unrealized investment gains and losses.
2) Book values per common share exclude the accumulated other
comprehensive income component of shareholders' equity.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REINSURANCE OPERATING LOSS
On September 22, 1999, ReliaStar announced that the loss ratio
(percent of claims to premiums) in the medical reinsurance line of
business had increased over expected levels in July and August, and
that the company did not expect the loss ratio to improve in the
final month of the quarter.
<PAGE>
The reinsurance segment recorded an operating loss of $13.9 million
in the third quarter of 1999, compared with operating income of
$10.4 million in the third quarter of 1998. The loss in the quarter
was primarily due to losses from medical reinsurance business
written by two managing underwriters. Because of increased claims in
the third quarter we conducted an extensive review of our medical
business, aided by an independent national actuarial consulting
firm, and determined that claims experience for certain business
written through two managing underwriters was developing much worse
than was assumed for pricing and reported in previous quarters. Our
review concluded that the business was not profitable, and as a
result, a pretax accrual of $25 million ($16.2 million, after-tax)
was recorded for all incurred and prospective losses on all premiums
written through these two managing underwriters. We have terminated
our relationships with these two managing underwriters. The third
quarter 1999 operating loss generated by all reinsurance business
written by these two managing underwriters was $18.0 million,
including the $16.2 million charge.
Concurrent with the review of the medical reinsurance business, we
undertook a broader review of our reinsurance businesses. As a
result, we discovered that there were deficiencies in our claims
reporting processes in the international reinsurance line. This
required reserves to be strengthened by $8 million, pretax ($5.1
million, after-tax). The deficiencies have been corrected and
further reserve adjustments are not anticipated. The international
business remains profitable and continues to be a targeted growth
area. We expect the international reinsurance line to produce after-
tax profits of 10 percent on net earned premium going forward.
The following table shows, for all business except the international
business and the business written by the two managing underwriters,
the aggregate ratio of claims to net earned premium and the
aggregate ratio of commissions and operating expenses to net earned
premium in 1999:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Reinsurance Claims and Expense Ratios
---------------------------------------------------------------------------
($ in millions)
1Q99 2Q99 3Q99
----------------------------------------
<S> <C> <C> <C>
Aggregate Claims Ratio 69.4% 58.4% 66.8%
Aggregate Expense Ratio 23.7 21.1 21.7
Net Earned Premium $75.7 $67.1 $66.2
Note: excludes international business and the business
written by two managing underwriters, with whom ReliaStar has
terminated its relationships
---------------------------------------------------------------------------
</TABLE>
<PAGE>
Claims experience and overall profitability of workers compensation carve-out
reinsurance in the third quarter of 1999 were consistent with those of the same
period in 1998 and in line with our expectations. After the actions taken this
quarter and assuming average loss ratios, we expect earnings in the reinsurance
unit to be approximately $40-$44 million in 2000.
SALES RESULTS
In the third quarter of 1999, insurance product sales totaled $453.3 million, up
7 percent from the third quarter of 1998, reflecting strong sales growth in
401(k) plans, individual variable annuities, and individual and group life
insurance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Sales (Annualized New Premiums and Deposits)
- --------------------------------------------------------------------------------------------------------------------------------
($ in millions) First Nine First Nine
Percent Months Months Percent
3Q99 3Q98 Change 1999 1998 Change
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individual markets
Individual life insurance $ 33.0 $ 29.6 11% $ 88.9 $ 79.5 12%
Variable annuities 121.4 107.5 13 367.2 324.4 13
Fixed annuities 111.1 119.5 (7) 302.6 322.8 (6)
------------------------ -------------------------
Subtotal 265.5 256.6 3 758.7 726.7 4
Worksite Financial Services
Group life insurance 14.9 10.4 43 65.6 55.0 19
Group health insurance 4.2 1.7 147 21.4 14.6 47
401(k) plans 119.1 101.4 17 393.5 294.8 33
Individual life insurance 3.6 3.8 (5) 11.7 10.6 10
------------------------ -------------------------
Subtotal 141.8 117.3 21 492.2 375.0 31
------------------------ -------------------------
Total Individual and Worksite 407.3 373.9 9 1,250.9 1,101.7 14
------------------------------------------------------------------------------------------------------------------------
Reinsurance 46.0 48.6 (5) 204.8 149.3 37
Total insurance product sales $453.3 $422.5 7 $1,455.7 $1,251.0 16
------------------------------------------------------------------------------------------------------------------------
Northstar mutual funds $343.5 $195.9 75 $ 816.2 $ 745.9 9
Broker/dealer revenues $ 39.6 $ 33.3 19 $ 118.1 $ 100.3 18
</TABLE>
Notes:
1) Beginning in 2Q99, individual life insurance sales include lump-sum
deposits reported on a weighted basis, for all periods presented.
2) Individual markets includes sales of the PFS and TSA/FA business
segments.
- --------------------------------------------------------------------------------
4
<PAGE>
Cross-selling efforts generated $125.3 million in enterprise sales for the third
quarter of 1999, up 41 percent from $88.9 million in the third quarter of 1998,
reflecting strong cross-unit sales by both our employee benefits sales force and
the personal producing general agent and brokerage general agent channels.
Cross-sales for the first nine months of 1999 totaled $380.3 million (up 61
percent from $235.9 million in the first nine months of 1998).
. Sales of individual market products, including sales of both the Personal
Financial Services (PFS) and the Tax-Sheltered and Fixed Annuities (TSA/FA)
segments totaled $265.5 million in the third quarter of 1999, which was 3
percent higher than in the third quarter of 1998. With a wide offering of
fixed and variable products, we are well positioned to meet consumer needs
in a variety of different interest rate and equity market environments.
Individual life insurance sales totaled $33.0 million in the third quarter
of 1999, up 11 percent from the third quarter of 1998, reflecting growth in
variable and fixed universal life insurance. Individual life insurance
sales for the first nine months of 1999 were up 12 percent over the same
period of 1998, compared with a 1 percent year-over-year increase in total
industry sales of individual life insurance for the first half of 1999
(industry data from LIMRA).
Sales of individual annuities in the current quarter totaled $232.5
million, up from $227.0 million in the same period in 1998. Variable
annuity sales totaled $121.4 million, or 13 percent higher than in the
third quarter of 1998. Fixed annuity sales totaled $111.1 million in the
third quarter of 1999, compared with $119.5 million for the same period
last year. Industry sales of individual fixed and variable annuities for
the first half of 1999 grew by 9 percent and 10 percent, respectively
(LIMRA).
. The Worksite Financial Services segment reported total sales of $141.8
million in the third quarter of 1999, up 21 percent from the third quarter
of 1998. The increase in 1999 reflected strong growth in sales of 401(k)
plans and group life insurance.
. Reinsurance segment sales in the third quarter of 1999 were $46.0 million,
down 5 percent from the third quarter of 1998.
5
<PAGE>
. Northstar's mutual fund sales in the third quarter were $343.5 million,
up 75 percent from the third quarter of 1998. Northstar's assets under
management totaled $4.5 billion at September 30, 1999, compared with
$3.4 billion at September 30, 1998.
. Transactions conducted through the broker/dealer operations of
Washington Square Securities, Inc. (supporting our personal producing
general agents) and PRIMEVEST (our bank marketing operation) generated
revenues of $39.6 million in the current quarter, up 19 percent from the
third quarter of 1998. Through our various independent distribution
channels, ReliaStar is focused on gathering consumer assets. Building
ReliaStar's assets under management through the conversion of client
assets to ReliaStar products will be a key driver of future earnings
growth. Total client assets of the registered representatives of our two
broker/dealers reached an estimated $17.3 billion at September 30, 1999,
up 35 percent from September 30, 1998.
[Sales results will fluctuate from quarter to quarter due to a variety of
factors, including volatility in market interest rates, the popularity of
equity-based investment products, and the incidence of large single
employer or single treaty sales in the group, 401(k), and reinsurance
business lines.]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Earnings by Segment
- -----------------------------------------------------------------------------------------------------------------------------------
($ in millions) First Nine First Nine
Percent Months Months Percent
3Q99 3Q98 Change 1999 1998 Change
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal Financial Services $ 27.6 $23.4 18% $ 80.6 $ 69.4 16%
Worksite Financial Services 16.6 15.4 8 46.5 43.2 8
Tax-Sheltered and Fixed
Annuities 18.5 19.8 (7) 60.3 56.3 7
Reinsurance (13.9) 10.4 nm 5.6 31.4 (82)
Other Business Units 2.7 3.4 (21) 7.3 9.3 (22)
Corporate (4.4) (4.8) nm (18.6) (13.4) nm
------------------------ ------------------------
$ 47.1 $67.6 (30) $181.7 $196.2 (7)
======================== ========================
</TABLE>
Notes:
1) Operating income excludes net realized investment gains and losses and
discontinued operations.
2) Prior period segment financial data have been restated to reflect the 1Q99
tansfer of certain blocks of business between the PFS and TSA/FA segements
for all periods presented.
- --------------------------------------------------------------------------------
6
<PAGE>
SEGMENT EARNINGS
. Personal Financial Services (PFS) operating income was $27.6 million in the
third quarter of 1999, up 18 percent over the third quarter of 1998,
reflecting improved mortality, strong sales, and growth in assets under
management, offset in part by slightly higher expense levels, primarily
associated with the transition to the new consolidated service center in
Minot, ND.
Total PFS assets under management increased to $7.1 billion at September
30, 1999, from $6.5 billion at September 30, 1998. General account assets
totaled $4.7 billion at September 30, 1999 and September 30, 1998. The
interest spread on interest-sensitive balances in the third quarter of 1999
was 232 basis points, compared with 236 basis points in the third quarter
of 1998, reflecting a 20-basis-point decrease in the portfolio yield and a
16-basis-point decrease in the average crediting rate. PFS separate account
assets increased to $2.4 billion at September 30, 1999, up from $1.8
billion at September 30, 1998.
. Worksite Financial Services (WFS) operating income in the third quarter of
1999 totaled $16.6 million, or 8 percent higher than in the same period of
last year. Results for the employee benefits unit, which account for about
two-thirds of WFS, were 7 percent higher in the third quarter of 1999 than
in the same period of 1998. The improvement from third quarter of 1998 in
employee benefits earnings reflects improved mortality experience.
Total operating earnings of the retirement plans unit in the third quarter
of 1999 were essentially unchanged from the third quarter of 1998, as
growth in 401(k) plan fee revenues was effectively offset by the reduced
earnings from the closed block of pension business, which is in run-off. At
September 30, 1999, 401(k) assets under management totaled $2.3 billion,
compared with $1.6 billion a year ago.
. Operating income from the Tax-Sheltered and Fixed Annuities (TSA/FA)
segment in the third quarter was $18.5 million, down 7 percent from the
same quarter of last year. The decrease in earnings in the third quarter of
1999 reflects higher expense levels, including those associated with the
transition to the new consolidated service center, partially offset by
improved interest spreads and growth in assets under management.
TSA/FA segment assets under management increased to $7.9 billion at
September 30, 1999 from $7.4 billion at September 30, 1998. General account
assets increased to $7.3 billion at September 30, 1999, up from $7.1
billion at September 30, 1998. The third quarter 1999 spread on interest-
sensitive balances was 276 basis points, or 29 basis points higher than the
spread of 247 basis points in the third quarter of 1998, reflecting a 41-
basis-point decrease in the average crediting rate, offset in part by a 12-
basis-point decrease in the portfolio yield. Separate account assets,
reflecting variable annuity
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operations, increased to $579 million at September 30, 1999 from $263
million at September 30, 1998.
"Other Business Units" represents operations that are not large enough to be
separate reportable segments, including our mutual fund operation, broker/dealer
operations, personal finance seminar company, and banking and trust operations.
Together, these units reported operating income of $2.7 million in the third
quarter of 1999, compared with $3.4 million in the same period of last year.
Northstar, our mutual funds operation, reported operating earnings of $1.8
million in the third quarter of 1999, compared with $1.7 million in the third
quarter of 1998. Our two broker/dealer operations, WSSI and PRIMEVEST, reported
operating earnings of $1.4 million in the current quarter, down from $1.9
million in the same quarter of last year.
"Corporate" includes financing costs, amortization of goodwill, other
unallocated expenses, and inter-segment eliminations and adjustments. Corporate
posted an operating loss of $4.4 million in the third quarter of 1999 and $4.8
million in the third quarter of 1998.
PILGRIM CAPITAL CORP. ACQUISITION
On July 22, 1999, ReliaStar announced that it would acquire Pilgrim Capital
Corp., a Phoenix-based asset management and mutual fund company. The
transaction is expected to close shortly after the Pilgrim shareholder vote.
This acquisition will give ReliaStar greater economies of scale in its mutual
funds operation, resulting in lower unit costs and increased sales and
profitability, which will enable us to compete more effectively in this
important market. The combined organization will have a family of 32 mutual
funds representing assets under management of approximately $12 billion and
combined annual sales of $2 billion. On a pro forma basis, the combined
organization has a fund complex that includes seven funds with Morningstar
ratings of 4 or 5, and a sales force that generated over $450 million in mutual
fund sales in August and September, representing an annualized run rate of
nearly $3 billion. We will incorporate Pilgrim funds into our variable products
for both the individual and worksite markets, and the acquisition will expand
distribution of those products through independent broker/dealers.
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SUPPLEMENTAL FINANCIAL DATA
Average common shares, on a diluted basis, for the third quarters of 1999 and
1998 totaled 87.3 million and 93.1 million, respectively. At September 30,
1999, there were 86.2 million common shares outstanding. Book value per common
share, excluding the FAS 115 adjustment for unrealized investment gains and
---------
losses, increased during the third quarter to $21.67 from $21.47 at June 30,
1999. Book value per common share, including the FAS 115 adjustment, decreased
---------
during the third quarter to $21.09 from $21.91 at June 30, 1999.
FINANCIAL GOALS
ReliaStar is focused on three key financial goals for long-term growth and
profitability. The objective behind these goals is to deliver top quartile
performance within our life insurance peer group (a list of peer companies
follows). Our goals are to:
(1) Maintain an average annual growth rate of at least 13 percent in statutory
premiums and deposits and fee revenues:
Our statutory premiums and deposits and fee revenues totaled $1.0 billion
in the third quarter of 1999, which was 14 percent higher than the total in
the third quarter of 1998. Statutory premiums and deposits and fee revenues
for the 12 months ended September 30, 1999 were up 12.7 percent over the
total for the 12 months ended September 30, 1998.
(2) Maintain an annual growth rate of at least 12 to 14 percent in operating
income per share, and (3) Maintain an operating income-based return on
equity of 16 percent :
Operating earnings per share and operating income-based return on equity
were both down in the current period from last year, reflecting the $21.3
million (after-tax) reinsurance charge taken in the third quarter of 1999.
Excluding the reinsurance unit, operating earnings per share for the twelve
months ended September 30, 1999 were up 12.2 percent from the twelve months
ended September 30, 1998. ReliaStar does not expect to achieve these two
financial objectives in 1999, but management remains committed to achieving
these goals in 2000 and beyond.
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EARNINGS GUIDANCE
1999: Current analyst estimates for ReliaStar operating earnings per share in
the fourth quarter of 1999 range from $0.80 to $0.87. Management currently
expresses comfort with estimates in the lower half of this range, excluding the
impact of the Pilgrim transaction.
2000: Operating income from the Reinsurance segment in 2000 are expected to be
in the range of $40 - $44 million. Current analyst estimates for ReliaStar
operating earnings per share in 2000 range from $3.45 to $3.75. Management
currently expresses comfort with estimates in the lower third of this range.
All statements contained in this report relative to markets for the Company's
products and trends in the Company's operations or financial results, as well as
other statements including words such as "anticipate," "believe," "expect," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: general economic conditions and other factors, including market
receptiveness to new products, prevailing interest rate levels and stock market
performance, which may affect the Company's ability to sell its products, the
market value of the Company's investments and the lapse rate and profitability
of the Company's policies; the Company's ability to achieve anticipated levels
of operating efficiencies; mortality and morbidity; changes in federal income
tax laws that may affect the relative tax advantages of some of the Company's
products; and regulatory changes or actions, including those relating to
regulation of financial services affecting bank sales and underwriting of
insurance products and regulation of the sale, underwriting and pricing of
insurance products.
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PEER COMPANIES
Aetna Jefferson-Pilot
Allmerica Financial Kansas City Life
American Annuity Group Lincoln National
American General MONY
American Heritage Nationwide Financial
American National Presidential Life
AmerUs Protective Corp
Conseco Torchmark
Equitable Companies UNUM
Hartford Life
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Investor Contact:
Karin E. Glasgow
Director of Investor Relations
phone: (612) 342-3979
fax: (612) 372-1192
email: [email protected]
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