<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): February 1, 2000
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 February 1, 2000, ReliaStar Financial Corp. announced its earnings for
the three months and twelve months ending December 31, 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 February 1, 2000.
99 (b) Letter to the Investment Community, dated February 1, 2000.
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: February 2, 2000 By: /s/ Richard R. Crowl
---------------------------------
Richard R. Crowl, Senior Vice President,
General Counsel, and Secretary
<PAGE>
EXHIBIT 99(a)
FINAL
Media: Ruth Weber Kelley For Immediate Release
---------------------
(612) 372-5628 February 1, 2000
Investors: Karin E. Glasgow
(612) 342-3979
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS
---------------------------------------------------
MINNEAPOLIS - ReliaStar Financial Corp. (NYSE: RLR) announced today that fourth
quarter 1999 operating income on a diluted basis before special items was $.82
per share, an increase of 3 percent over $.80 per share before special charges
in the same period a year ago. Analysts' consensus estimate for operating
earnings in the fourth quarter was $.81 per share.
Total operating income before special items was $73.3 million in the fourth
quarter of 1999, unchanged from $73.3 million of operating income before special
charges in the fourth quarter of 1998.
"The fundamentals of our business are extremely strong, as evidenced by the
19 percent increase in total insurance sales for the quarter and 17 percent
increase in sales for the year. Given the steps we took last year to build a
strong base for future growth -- including our acquisition of Pilgrim - we're
confident about our ability to achieve our financial goals in 2000," said John
G. Turner, ReliaStar chairman and CEO. "I think our fourth quarter results
demonstrate that the reinsurance difficulties of '99 are behind us and that
we've taken the necessary steps to achieve our growth objectives."
Special Items
Fourth quarter 1999 earnings were affected by two special items: an $8.9
million after-tax special charge relating to severance, facilities and merger-
related costs associated with the combination of ReliaStar's mutual fund
operations; and an unrelated $7.0 million one-time tax benefit. The two items
resulted in a negative net impact of $1.9 million.
-more-
<PAGE>
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS 2-2-2
The company said at the time of the Pilgrim acquisition announcement that
it would take a charge of this magnitude to integrate the company's existing
mutual fund operation into the newly acquired operation. The one-time tax
benefit resulted from a clarification in tax law affecting previous
acquisitions.
On a diluted basis, fourth quarter net income per share was $.80, a 111
percent increase over the $.38 per share earned in the fourth quarter of 1998.
Total net income in the fourth quarter of 1999 was $71.4 million, an increase of
103 percent over the $35.1 million of net income earned in the same period last
year. Fourth quarter 1998 earnings were reduced by $34.3 million (after-tax) in
special charges relating to severance and facilities costs associated with
consolidating service operations; a change in lapse assumptions; and life
insurance litigation settlement costs.
Full-Year 1999 Results
On a diluted basis, 1999 operating income per share before special items was
$2.86, compared with $2.91 per share before special charges in 1998. Full-year
operating income before special items totaled $255.0 million, compared with
$269.5 million before special charges in 1998. Full-year 1999 operating
earnings were affected by a $21.3 million after-tax charge in the third quarter
related to the company's reinsurance business. The charge included $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.
Net income in 1999 totaled $253.6 million, an increase of 7 percent over
$237.7 million in 1998. On a diluted basis, 1999 net income per share was
$2.85, an increase of 11 percent compared with $2.56 per share in 1998.
-more-
<PAGE>
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS 3-3-3
Revenue Measures
Total statutory premiums and deposits, and fee revenues in the fourth quarter of
1999 were $1.1 billion, an increase of 25 percent compared with the same period
a year ago. For full-year 1999, total statutory premiums and deposits, and fee
revenues were $4.2 billion, an increase of 18 percent compared with 1998.
Operations
In the fourth quarter of 1999, insurance product sales totaled $546.2 million,
an increase of 19 percent over the fourth quarter of 1998. For full-year 1999,
insurance product sales totaled $2.0 billion, an increase of 17 percent over
1998. Cross-selling efforts, an important component of the company's overall
strategy, generated sales for the year of $550.3 million, an increase of 39
percent over 1998.
"Our 1999 sales results tell an incredible story about the health and
vitality of this organization," said Bob Salipante, president and COO. "In
addition to achieving record sales in the majority of our operations, we also
laid a tremendous amount of track in '99 for producing future sales and earnings
growth. The Pilgrim acquisition gives us the scale, fund performance and
additional distribution that we need to ramp up our efforts to gather and manage
more customer assets - a key growth strategy for 2000. Opening the doors of our
consolidated service center in Minot, N.D., was a major accomplishment, as was
the additional streamlining of our individual operations - two actions that will
contribute significantly to improved operating efficiency going forward."
Fourth quarter sales of individual market products, which comprise products
sold through the company's Personal Financial Services and Tax-Sheltered/Fixed
Annuity segments, totaled $239.7 million, an increase of 6 percent over the same
period a year ago. Individual life insurance sales were particularly strong in
the fourth quarter, increasing 13 percent over the same period last year.
Individual market products were up 5 percent for the year, with sales of
individual life insurance up 12 percent and variable annuities up 11 percent on
a year-over-year basis.
-more-
<PAGE>
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS 4-4-4
Operating income in the Personal Financial Services and Tax-Sheltered/Fixed
Annuity segments was down 5 and 4 percent, respectively, for the quarter, due to
higher expense levels, including costs associated with the company's service
center consolidation and unusually high levels of investment income reported in
the fourth quarter of '98. For the year, operating income was up 10 percent in
Personal Financial Services and 4 percent in the Tax-Sheltered/Fixed Annuity
segment.
In the Worksite Financial Services segment, which specializes in group
life, 401(k) plans and voluntary life insurance products at the worksite, sales
totaled $235.9 million for the quarter and $728.1 million for the year, an
increase of 34 percent and 32 percent, respectively, over the previous periods.
Operating income for this segment was $18.0 million for the quarter and $64.5
million for the year, an increase of 4 percent and 7 percent, respectively, over
the same periods last year.
In the reinsurance segment, sales totaled $70.6 million for the quarter and
$275.4 million for the year, an increase of 25 percent and 34 percent,
respectively, over the previous periods. Operating income for this segment was
down 5 percent for the quarter and 62 percent for the year, due to the $21.3
million third quarter operating charge noted earlier.
ReliaStar's mutual fund operation, now called Pilgrim, posted sales of
$873.4 million for the quarter and $1.69 billion for the year, an increase of
492 percent and 89 percent, respectively, over the same periods last year.
Including the sales of Pilgrim funds in both periods, on a pro forma basis,
sales of mutual funds were 169 percent higher in the fourth quarter of 1999 over
the same period in 1998.
As of Dec. 31, 1999, ReliaStar had $35.5 billion in assets under management
compared with $22.7 billion as of Dec. 31, 1998. ReliaStar had 88.9 million
common shares outstanding as of Dec. 31, 1999.
-more-
<PAGE>
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS 5-5-5
Other Developments
ReliaStar completes acquisition of Pilgrim Capital. ReliaStar announced on Oct.
29 that it had completed its acquisition of Pilgrim Capital Corp. Immediately
following the close, ReliaStar's Northstar mutual fund business was integrated
into Pilgrim's operation based in Phoenix. The new organization has a family of
32 mutual funds, assets under management of $14.6 billion and an annualized
sales run rate of over $4 billion.
New ReliaStar consolidated service center open for business. On Nov. 8,
ReliaStar began serving customers and distributors from its new 90,000-square-
foot service center in Minot, N.D. The company announced in December 1998 that
it would consolidate its five individual life insurance and annuity service
centers into one operation in a two-year, staged transition beginning in
November 1999. The center currently employs 370 people, with that number
scheduled to grow to about 550 by the end of 2000 as the transition of business
is completed.
PrimeVest signs agreement to acquire third-party bank marketing operation.
PrimeVest Financial Services, Inc., a ReliaStar subsidiary, announced on Jan. 18
that it had signed an agreement to acquire the retail third-party financial
institution marketing component of BISYS Brokerage Services, a subsidiary of
BISYS Group, Inc. Terms of the deal were not disclosed. The acquisition will
provide PrimeVest with additional scale and extend its presence in the western
United States.
ReliaStar announces regular quarterly dividend of 20 1/2 cents per share of
common stock. The board of directors of ReliaStar Financial Corp. (NYSE: RLR)
declared on Jan. 13 a regular quarterly dividend of 20 1/2 cents per share of
common stock. The dividend is payable on Feb.11, 2000, to shareholders of record
at the close of business on Jan. 24, 2000.
-more-
<PAGE>
RELIASTAR REPORTS FOURTH QUARTER, YEAR-END EARNINGS 6-6-6
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, investment advisory and brokerage services,
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 its subsidiaries have $35.5 billion in assets under management and
life insurance in force of $327.7 billion.
###
Certain Forward-Looking Information
This report and earlier filings contain forward-looking information that
discusses earnings guidance, known trends and uncertainties, interest spreads,
reinsurance claims experience, withdrawal and surrender activity, direction of
new investment cash flow, impacts of changes in interest rates on the Insurers'
investment portfolio and strategies to mitigate such effects. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-
looking information to encourage companies to provide prospective information
about themselves without fear of litigation so long as such information is
identified as forward-looking and is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the information. Forward-looking
information is indicated by the use of such words as "anticipates," "expects,"
"believes," "should," "could," "intends," "estimates," and "may," or other
comparable language. ReliaStar identifies the following important factors that
could cause ReliaStar's actual results to differ materially from any results
that might be projected by ReliaStar in forward-looking information. All of
these factors are difficult to predict, and many are beyond the control of the
Company. Accordingly, although ReliaStar believes that the assumptions
underlying the forward-looking information are reasonable, there can be no
assurances that those assumptions will approximate actual experience.
The important factors include the following:
* General economic conditions, including prevailing interest rates and the
performance of the stock market which may affect the Company's ability to sell
its products;
* The market value of the Company's investments;
* The lapse rate and profitability of the insurance policies issued by
ReliaStar;
* Mortality and morbidity factors in ReliaStar's insurance business (including
the effect of the Company's reinsurance and retrocession risk management
programs);
* Changes in federal tax laws, which could adversely affect the tax advantages
of certain of the Company's products;
* Legislative or regulatory changes affecting financial institutions, including
those affecting bank sales and underwriting of insurance products and regulation
of the sale, underwriting and pricing of insurance products;
* Industry consolidation and competition; and
* Retention of key employees.
You should also consider other risks and uncertainties discussed in documents
filed by ReliaStar with the Securities and Exchange Commission. ReliaStar has no
obligation to update forward-looking information.
<PAGE>
EXHIBIT 99(b)
(LOGO OF RELIASTAR)
[LETTERHEAD OF RELIASTAR FINANCIAL CORP. APPEARS HERE]
February 1, 2000
To the Investment Community:
Operating income before special items in the fourth quarter of 1999 totaled
$73.3 million, compared with $73.3 million before special charges in the fourth
quarter of 1998. On a diluted basis, fourth quarter 1999 operating income per
share before special items was $0.82, or 3 percent higher than the $0.80 before
special charges earned in the fourth quarter of 1998. The First Call analysts'
consensus estimate for operating earnings in the fourth quarter of 1999 was
$0.81 per share.
The fourth quarter of 1999 was characterized by very strong sales of insurance
products and mutual funds. Total insurance product sales in the fourth quarter
were up 19 percent over the fourth quarter of 1998. Individual life insurance
sales in the fourth quarter of 1999 were up 13 percent over the same quarter of
1998, while group life and health insurance sales and 401(k) plan sales were up
50 percent and 31 percent, respectively, over the same period. Boosted by our
recent acquisition of Pilgrim, mutual fund sales in the fourth quarter of 1999
reached $873.4 million, which was up 492 percent over the same period of 1998.
On a pro forma, or `same-stores' basis, mutual fund sales in the fourth quarter
were up a dramatic 169 percent over the fourth quarter of 1998.
The Pilgrim acquisition, which closed on October 29, 1999, is off to a very
strong start. The strong sales growth is translating into increased assets under
management. On a pro forma basis (including Pilgrim assets in the count of one
year ago), mutual fund assets under management rose 51 percent from the end of
1998 to $14.6 billion at year-end 1999. The operations of Northstar mutual funds
were fully integrated into those of Pilgrim immediately following the
transaction close, including complete consolidation of back office operations,
and sales and asset management functions. As previously announced, the
acquisition of Pilgrim is expected to be substantially accretive for the
incremental shares resulting from the transaction, as well as accretive to
ReliaStar's overall earnings in 2000.
The transition of our individual life insurance and annuities customer service
functions to a new consolidated service center in Minot, ND, remains on track to
<PAGE>
ReliaStar Financial Corp.
4Q99 Letter to the Investment Community
deliver on expectations of cost savings and superior service. On November 8,
1999, Phase One of this transition was completed successfully, when we
transferred all annuity service operations from Seattle and Minneapolis to
Minot. We will continue the transition during 2000 with the transfer of our
individual life insurance business from four existing locations to Minot.
SPECIAL ITEMS
The fourth quarter of 1999 included two special items: a previously announced
$8.9 million (after-tax) special charge relating to severance, facilities and
merger-related costs associated with the integration of the mutual fund
operations of Northstar and Pilgrim, and an unrelated $7.0 million one-time tax
benefit. When we announced plans to acquire Pilgrim on July 22, 1999, we
announced that a charge of approximately $15 million (pre-tax) would be recorded
in the fourth quarter, and that the related consolidation actions would yield
annualized cost savings of $9 million (pre-tax). This savings target will be
met.
The one-time tax benefit resulted from a clarification in tax law that permits
ReliaStar to use certain net operating loss carryforwards of previous
acquisitions.
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Financial Highlights Summary
- -------------------------------------------------------------------------------------------------------------------
($ in millions, except
per-share data) Percent Percent
4Q99 4Q98 Change 1999 1998 Change
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating income
before special items: $73.3 $73.3 -- $255.0 $269.5 (5)%
Special charges (8.9) (34.3) (8.9) (34.3)
One-time tax benefit 7.0 -- 7.0 --
Net realized investment
gains (losses) -- (0.1) 0.5 9.7
----------------------- -----------------------
Income from continuing
operations 71.4 38.9 84 253.6 244.9 4
Income (loss) from
discontinued operations -- (3.8) -- (7.2)
----------------------- -----------------------
Net income $71.4 $35.1 103 $253.6 $237.7 7
======================= =======================
Per diluted share:
Operating income
before special items: $0.82 $0.80 3 $ 2.86 $2.91 (2)
Special charges (0.10) (0.38) (0.10) (0.37)
One-time tax benefit 0.08 -- 0.08 --
Net realized investment
gains (losses) -- -- 0.01 0.10
----------------------- -----------------------
Income from continuing
operations 0.80 0.42 90 2.85 2.64 8
Income (loss) from
discontinued operations -- (0.04) -- (0.08)
----------------------- -----------------------
Net income $0.80 $0.38 111 $ 2.85 $2.56 11
======================= =======================
Operating income before
special items-based
return on equity 14.2% 15.2%
Book value per common share $23.10 $20.96
Notes:
1) Full year 1999 includes an operating charge of $21.3 million (after-tax) for reinsurance losses recorded in the
third quarter of 1999.
2) ROE calculations are for the 12 months ended December 31 and exclude special items and the accumulated
other comprehensive income component of shareholders' equity, which is primarily the FAS adjustment for net
unrealized investment gains and losses.
3) Book values per common share exclude the accumulated other comprehensive income component of shareholders' equity.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
SALES RESULTS
In the fourth quarter of 1999, insurance product sales totaled $546.2 million,
up 19 percent from the fourth quarter of 1998, reflecting strong sales growth in
401(k) plans, individual life insurance, group insurance and reinsurance.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Sales (Annualized New Premiums and Deposits)
- ------------------------------------------------------------------------------------------------------------------
($ in millions)
Percent Percent
4Q99 4Q98 Change 1999 1998 Change
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Individual markets:
Individual life insurance $ 36.5 $ 32.3 13% $ 125.4 $ 111.8 12%
Variable annuities 101.4 98.4 3 468.6 422.8 11
Fixed annuities 101.8 95.1 7 404.4 417.9 (3)
-------------------------- ---------------------------
Total annuities 203.2 193.5 5 873.0 840.7 4
Worksite Financial Services:
Group life insurance 12.9 11.0 17 78.5 66.0 19
Group health insurance 7.0 2.3 204 28.4 16.9 68
401(k) plans 206.9 158.3 31 600.4 453.1 33
Individual life insurance 9.1 4.9 86 20.8 15.5 34
-------------------------- ---------------------------
Total WFS 235.9 176.5 34 728.1 551.5 32
-------------------------- ---------------------------
Total Individual and Worksite 475.6 402.3 18 1,726.5 1,504.0 15
- ------------------------------------------------------------------------------------------------------------------
Reinsurance 70.6 56.3 25 275.4 205.6 34
Total insurance product sales $546.2 $458.6 19 $2,001.9 $1,709.6 17
- ------------------------------------------------------------------------------------------------------------------
Pilgrim mutual funds $873.4 $147.5 492 $1,689.6 $ 893.4 89
Broker/dealer revenues $ 42.1 $ 33.7 25 $ 160.2 $ 134.0 20
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.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Cross-selling efforts generated $170 million in enterprise sales for the fourth
quarter of 1999, up from $158.7 million in the fourth 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 full year totaled $550.3 million in 1999, up 39 percent from
$394.6 million in 1998.
4
<PAGE>
. Sales of individual market products include sales of both the Personal
Financial Services (PFS) and the Tax-Sheltered and Fixed Annuities (TSA/FA)
segments. 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 $36.5 million in the fourth quarter
of 1999, up 13 percent from the fourth quarter of 1998, reflecting strong
growth in sales across product lines, but particularly in variable
universal life (up 32 percent) and term life insurance (up 24 percent). By
distribution channel, the ReliaStar Life personal producing general agents'
(PPGAs') sales of individual life insurance were up 13 percent in the
fourth quarter of 1999, compared with the same period last year; sales by
the ReliaStar Life of New York general agents were up 44 percent; and sales
by the Security-Connecticut brokerage general agents (BGAs) were up 31
percent.
Sales of individual annuities in the current quarter totaled $203.2
million, up 5 percent from $193.5 million in the same period in 1998.
Variable annuity sales totaled $101.4 million, or 3 percent higher than in
the fourth quarter of 1998. Fixed annuity sales totaled $101.8 million in
the fourth quarter of 1999, or 7 percent higher than in the same period
last year. We expect that sales of individual variable annuities will
increase in 2000 following the addition of Pilgrim mutual funds to our
variable account fund choices and the introduction of a new VA product,
which are both scheduled to occur in the second quarter of 2000.
. The Worksite Financial Services segment reported total sales of $235.9
million in the fourth quarter of 1999, up 34 percent from the fourth
quarter of 1998. The increase in 1999 reflected record sales of 401(k)
plans (up 31 percent) and strong, across-the-board growth in sales of group
life and health insurance (up 50 percent) and payroll deduction individual
life insurance (up 86 percent). Strategic expansion of the number of
salaried sales people and of the sales territory they cover, together with
increased productivity of the sales force, and strong cross-selling all
contributed to the strong sales growth in the fourth quarter of 1999.
5
<PAGE>
. Mutual fund sales in the fourth quarter were $873.4 million, up 492 percent
from the fourth quarter of 1998, as a result of the acquisition of Pilgrim.
Including the sales results of Pilgrim in both periods, on a pro forma
basis, sales of mutual funds were 169 percent higher in the fourth quarter
of 1999 than in the fourth quarter of 1998, reflecting both the superior
track record of the Pilgrim funds' performance and the effectiveness of
Pilgrim's wholesaling efforts.
. Reinsurance segment sales in the fourth quarter of 1999 were $70.6 million,
up 25 percent from the fourth quarter of 1998, reflecting growth in sales
of group long-term disability and group medical reinsurance. Reinsurance
sales figures are reported on a `gross of retrocession' basis; ReliaStar
uses retrocession to cede a portion of the risk underwritten in most lines
of its reinsurance business.
. 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 $42.1
million in the current quarter, up 25 percent from the fourth quarter of
1998. Through our various independent distribution channels, ReliaStar is
focused on gathering consumer assets. Building ReliaStar assets under
management through the accumulation of our registered reps' client assets
into ReliaStar products will be a key driver of future earnings growth.
Total client assets of the registered reps of our two broker/dealers
reached an estimated $19.6 billion at December 31, 1999, up 36 percent from
December 31, 1998.
[Sales results will fluctuate from quarter to quarter due to a variety of
factors, including volatility in market interest rates, the popularity of
equity-based investment products, and the incidence of large single employer or
single treaty sales in the group, 401(k), and reinsurance business lines. Sales
figures are reported on a `gross of retrocession' basis; ReliaStar uses
retrocession to cede a portion of the risk underwritten in most lines of its
insurance and reinsurance business.]
6
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Operating Earnings by Segment
(before Special Items)
- -------------------------------------------------------------------------------------------------------------------
($ in millions)
Percent Percent
4Q99 4Q98 Change 1999 1998 Change
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal Financial Services $29.3 $30.9 (5)% $109.9 $100.3 10%
Worksite Financial Services 18.0 17.3 4 64.5 60.5 7
Tax-Sheltered and Fixed
Annuities 17.0 17.7 (4) 77.3 74.0 4
Reinsurance 10.5 11.0 (5) 16.1 42.4 (62)
Other Business Units 5.0 2.1 138 12.3 11.4 8
Corporate (6.5) (5.7) nm (25.1) (19.1) nm
-------------------------- ---------------------------
$73.3 $73.3 -- $255.0 $269.5 (5)
========================== ===========================
Notes:
1) Operating income before special intems; excluding net realized investment
gains and losses and discontinued operations.
2) Prior period segment financial data have been restated to reflect the 1Q99
transger of certain blocks of business between the PFS and TSA/FA segments
for all periods presented.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEGMENT EARNINGS
. Personal Financial Services (PFS) operating income was $29.3 million in the
fourth quarter of 1999, down 5 percent over the fourth quarter of 1998,
primarily as a result of lower spreads, partially offset by more favorable
mortality experience. Spreads were affected by higher levels of
prepayments, joint venture income and other elements of investment income
in the fourth quarter of 1998; the level of investment income from these
elements was affected by the interest rate environment and did not recur in
1999.
Total PFS assets under management increased to $7.5 billion at December 31,
1999, from $6.9 billion at December 31, 1998. General account assets
totaled $4.7 billion at December 31, 1999 and $4.8 billion at December 31,
1998. The interest spread on interest-sensitive balances in the fourth
quarter of 1999 was 224 basis points, down from 241 basis points in the
fourth quarter of 1998, reflecting a 38-basis-point decrease in the
portfolio yield and a 21-basis-point decrease in the average crediting
rate. PFS separate account assets increased to $2.9 billion at December 31,
1999, up 37 percent from $2.1 billion at December 31, 1998.
7
<PAGE>
. Worksite Financial Services (WFS) operating income in the fourth quarter of
1999 totaled $18.0 million, or 4 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 slightly lower in the fourth quarter of 1999 than
in the same period of 1998. Following a strategic decision to exit the
group medical insurance business, ReliaStar's group medical insurance
business was transitioned to a third party during the course of the past
year. Operating earnings from the payroll deduction products unit were up
24 percent in the fourth quarter of 1999, primarily due to lower expenses.
. Growth in 401(k) plan operating earnings in the fourth quarter of 1999 more
than offset the effect of decreased earnings from the closed block of
pension business, which is in run-off. At December 31, 1999, 401(k) assets
under management totaled $2.7 billion, up 36 percent from $2.0 billion a
year ago.
. Operating income from the Tax-Sheltered and Fixed Annuities (TSA/FA)
segment in the fourth quarter was $17.0 million, down 4 percent from the
same quarter of last year. The decrease in earnings in the fourth quarter
of 1999 reflected higher surrenders and higher expense levels, including
those associated with the transition to a new consolidated customer service
center. Nonaccruable, transition-related redundant expenses in the fourth
quarter of 1999 (including $0.6 million incurred by the PFS business
segment) totaled pretax $2.2 million; for the year, these expenses totaled
$5.7 million. These transition-related expenses affected fourth quarter
1999 operating results by approximately $1 million, or $0.01 per share.
Annuity servicing was transferred to the Minot service center in November
of 1999. Lapse rates on Northern Life annuities (which comprise the
majority of our annuities) in the fourth quarter were 10.2 percent,
compared with 7.5 percent in the fourth quarter of 1998.
The unfavorable impact of higher surrenders and expense levels was
partially offset by growth in assets under management and higher spreads.
Spreads in the fourth quarter of 1999 were higher than a year ago, despite
the incidence of higher levels of prepayments, joint venture income and
certain other elements of investment income in the fourth quarter of 1998.
TSA/FA segment assets under management increased to $8.2 billion at
December 31, 1999 from $7.6 billion at December 31, 1998. General account
assets increased to $7.4 billion at December 31, 1999, up from $7.2 billion
at December 31, 1998. The fourth quarter 1999 spread on interest-sensitive
balances was 276 basis points, or 19
8
<PAGE>
basis points higher than the spread of 257 basis points in the fourth
quarter of 1998, reflecting a 46-basis-point decrease in the average
crediting rate, offset in part by a 27-basis-point decrease in the
portfolio yield. Separate account assets, reflecting variable annuity
operations, increased by over 100 percent to $779 million at December 31,
1999, from $378 million at December 31, 1998.
. Operating income from the Reinsurance segment in the fourth quarter was
$10.5 million, down 5 percent from the same quarter of last year.
In the third quarter of 1999, ReliaStar recorded an operating charge to
strengthen reserves for international reinsurance business and to accrue
for all incurred and prospective losses on all reinsurance business written
by two independent reinsurance managing underwriters, with whom ReliaStar
has terminated its relationships. The claims development in the fourth
quarter of 1999 on the terminated business was consistent with the
assumptions underlying the loss accrual recorded in the third quarter, and
the terminated business had no impact on earnings in the fourth quarter of
1999.
The following table shows, for all business except that written by the two
terminated managing underwriters, the aggregate ratio of claims to net
earned premium and the aggregate ratio of commissions and operating
expenses to net earned premium:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Reinsurance Claims and Expense Ratios
- ---------------------------------------------------------------------------------------------------------
($ in millions)
4Q98 1Q99 2Q99 3Q99 4Q99
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate Claims Ratio 59.9% 66.8% 59.1% 74.6% 70.0%
Aggregate Expense Ratio 24.3 24.7 22.4 21.9 21.8
Net Earned Premium $74.6 $86.9 $78.8 $89.0 $103.5
Note: excludes the business written by the managing underwriters, with whom ReliaStar has terminated
its relationships
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Claims experience and overall profitability of workers compensation
carve-out reinsurance in the fourth of 1999 were consistent with those of
the same period in 1998 and in line with expectations.
9
<PAGE>
"Other Business Units" represents operations that are not large enough to form
separate reportable segments, including our mutual funds operation,
broker/dealer operations, personal finance seminar company, and banking and
trust operations. Together, these units reported operating income of $5.0
million in the fourth quarter of 1999, compared with $2.1 million in the same
period of last year.
The increase in operating earnings of Other Business Units in the fourth quarter
was attributable to our mutual funds operation, which grew dramatically with the
addition of the Pilgrim mutual funds and asset management operation on October
29, 1999. Our mutual funds operation, now called Pilgrim, reported operating
earnings of $4.1 million in the fourth quarter of 1999, compared with the
Northstar earnings of $1.6 million in the fourth quarter of 1998. Mutual fund
assets under management totaled $14.6 billion at December 31, 1999, compared
with $4.0 billion at December 31, 1998. (On a pro forma basis, including the
assets under management of Pilgrim at December 31, 1998, assets under management
rose 51 percent during the year 1999.)
Our two broker/dealer operations, WSSI and PRIMEVEST, reported operating
earnings of $1.8 million in the current quarter, compared with $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 operating losses of $6.5 million in the fourth quarter of 1999 and $5.7
million in the fourth quarter of 1998. Corporate results in the fourth quarter
of 1999 reflected higher interest expense relating to increased borrowings and
additional goodwill amortization expense.
PILGRIM ACQUISITION
On October 29, 1999, ReliaStar completed its acquisition of Pilgrim, a Phoenix-
based asset management and mutual fund company, and effective November 1, 1999,
the operations of Northstar were consolidated into the operations of Pilgrim.
The addition of Pilgrim operations, combined with the effects of the related
issuance of debt securities and common shares, resulted in $0.01 per share
dilution to the consolidated results in the fourth quarter of 1999. As announced
on July 22, 1999, the acquisition of Pilgrim is expected to be substantially
accretive to the incremental shares resulting from the transaction, as well as
accretive to ReliaStar's overall earnings in 2000.
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<PAGE>
This acquisition is expected to bring increased sales and profitability to
ReliaStar. It adds greater economies of scale in our mutual funds operation,
resulting in lower unit costs, which will enable us to compete more effectively
in this important market. The combined Pilgrim organization now has a family of
32 mutual funds representing assets under management of $14.6 billion. As of
year-end 1999, about 80 percent of Pilgrim's equity mutual fund assets were
invested in funds that ranked in the top quartile of all Lipper-rated funds (for
latest one-year period). Plus, more than half of Pilgrim's total assets were
invested in funds rated four- or five-star by Morningstar (for latest three-year
period). With Pilgrim, we now have a wholesaling force that generated $750
million in mutual fund sales in November and December, representing an
annualized run rate of over $4 billion. Beginning in the second quarter of 2000,
we will be incorporating Pilgrim funds into ReliaStar variable products for both
the individual and worksite markets. We also expect that the Pilgrim wholesaling
force will expand distribution of those products through independent
broker/dealers across the country.
BROKER/DEALER ACQUISITION ANNOUNCED
PrimeVest Financial Services, Inc., a ReliaStar subsidiary, announced on January
18, 2000, that it had signed an agreement to acquire the retail third-party
financial institution marketing component of BISYS Brokerage Services, a
subsidiary of BISYS Group, Inc. Terms of the deal were not disclosed. The
acquisition will provide PRIMEVEST with additional scale and extend its presence
in the western United States.
ANNUAL ANALYST MEETING IN NEW YORK
ReliaStar management will host the company's annual analyst meeting in New York
on Tuesday, February 8, 2000, from 11:30 a.m. to 2 p.m., at the Grand Hyatt
Hotel. Management will discuss ReliaStar's key strategies for growth in 2000 and
beyond. In particular, we will explain how our recent acquisition of Pilgrim has
the power to drive growth in assets under management and operating earnings to
new levels. We will also provide an update on the status of our ongoing expense
savings initiatives. Further, we will describe the ways we are using internet-
based technology to improve the efficiency and effectiveness of our current
operations, and developing new applications that have the potential to transform
the way we do business. (Please call Ruth Strauss at 612-342-7190 if you have
any questions about the meeting, or to let us know that you are coming.)
11
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
Average common shares, on a diluted basis, for the fourth quarters of 1999 and
1998 totaled 89.5 million and 92.0 million, respectively. At December 31, 1999,
there were 88.9 million common shares outstanding. Book value per common share,
excluding the FAS 115 adjustment for unrealized investment gains and losses,
increased during the fourth quarter to $23.10 from $21.67 at September 30, 1999.
Book value per common share, including the FAS 115 adjustment, increased during
the fourth quarter to $21.89 from $21.09 at September 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. Our goals are to:
(1) Maintain an average annual growth rate of at least 13 percent in statutory
premiums and deposits and fee revenues.
Statutory premiums and deposits and fee revenues totaled $1.1 billion in
the fourth quarter of 1999, which was 25 percent higher than the total in
the fourth quarter of 1998. Statutory premiums and deposits and fee
revenues for the full year were up 18 percent in 1999 over the total for
1998.
(2) Maintain an annual growth rate of at least 12 to 14 percent in operating
income per share.
Operating earnings per share before special items in the fourth quarter of
1999 were up 3 percent from operating earnings per share before special
charges in the fourth quarter of 1998. Before special items in both years,
operating earnings per share in 1999 were 2 percent lower than in 1998,
reflecting the $21.3 million (after-tax) reinsurance charge taken in the
third quarter of 1999.
(3) Maintain an operating income-based return on equity of 16 percent.
Excluding special items in both years, operating income-based ROE was 14.2
percent for 1999, compared with 15.2 percent for 1998.
12
<PAGE>
Management remains committed to achieving ReliaStar's stated financial goals in
2000 and beyond.
EARNINGS GUIDANCE FOR 2000
Operating income from the Reinsurance segment in 2000 is expected to be in the
range of $40 - $44 million. The other operations of the Company are expected to
be consistent with ReliaStar's stated financial objectives. Current analyst
estimates for ReliaStar operating earnings per share in 2000 range from $3.35 to
$3.60, with a First Call consensus of $3.47. Management is comfortable with
estimates near the middle of this range.
CONFERENCE CALL
Management will host a conference call to discuss fourth quarter 1999 earnings
results on Wednesday, February 2, 2000. The call will begin at 9:00 a.m. (EST)
and last approximately one hour. Participants should plan to dial into the call
10 minutes prior to the start of the call to ensure a smooth connection. The
telephone number is 212-699-6810. A rebroadcast of the call may be accessed from
approximately 11:00 a.m. (EST) on Wednesday, February 2 until approximately 6:00
p.m. (EST) on Saturday, February 5. The telephone number for the rebroadcast is
800-405-2236, reservation number 670386.
CERTAIN FORWARD-LOOKING INFORMATION
This report and earlier filings contain forward-looking information, including
information under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which discuss earnings guidance, known
trends and uncertainties, interest, reinsurance claims experience, withdrawal
and surrender activity, direction of new investment cash flow, impacts of
changes in interest rates on the Insurers' investment portfolio and strategies
to mitigate such effects. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward- looking information to encourage companies
to provide prospective information about themselves without fear of litigation
so long as such information is identified as forward-looking and is accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in the
information. Forward-looking information is indicated by the use of such words
as "anticipates," "expects," "believes," "should," "could," "intends,"
"estimates," and "may," or other
13
<PAGE>
comparable language. ReliaStar identifies the following important factors that
could cause ReliaStar's actual results to differ materially from any results
that might be projected by ReliaStar in forward-looking information. All of
these factors are difficult to predict, and many are beyond the control of the
Company. Accordingly, although ReliaStar believes that the assumptions
underlying the forward-looking information are reasonable, there can be no
assurances that those assumptions will approximate actual experience.
The important factors include the following:
o General economic conditions, including prevailing interest rates and the
performance of the stock market which may affect the Company's ability to
sell its products;
o The market value of the Company's investments;
o The lapse rate and profitability of the insurance policies issued by
ReliaStar;
o Mortality and morbidity factors in ReliaStar's insurance business
(including the effect of the Company's reinsurance and retrocession risk
management programs);
o Changes in federal tax laws, which could adversely affect the tax
advantages of certain of the Company's products;
o Legislative or regulatory changes affecting financial institutions,
including those affecting bank sales and underwriting of insurance products
and regulation of the sale, underwriting and pricing of insurance products;
o Industry consolidation and competition; and
o Retention of key employees.
You should also consider other risks and uncertainties discussed in documents
filed by ReliaStar with the Securities and Exchange Commission. ReliaStar has no
obligation to update forward-looking information.
Investor Contact: Karin E. Glasgow,
AVP, Investor Relations
phone: (612) 342-3979
fax: (612) 372-1192
email: [email protected]
14
<PAGE>
ReliaStar Financial Corp.
Financial Highlights (Unaudited)
(In Millions, Except Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31 December 31
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Premium Revenues $ 350.0 $ 273.3 $ 1,192.8 $ 1,014.1
Total Revenues 824.5 727.9 3,037.3 2,848.2
Operating Income Before Special Items $ 73.3 $ 73.3 $ 255.0 $ 269.5
Special Items (1.9) (34.3) (1.9) (34.3)
----------- ----------- ------------ -----------
Operating Income 71.4 39.0 253.1 235.2
Net Realized Investment Gains (Losses) (After-Tax) - (0.1) 0.5 9.7
----------- ----------- ------------ -----------
Income from Continuing Operations 71.4 38.9 253.6 244.9
Loss from Discontinued Operations - (3.8) - (7.2)
----------- ----------- ------------ -----------
Net Income $ 71.4 $ 35.1 $ 253.6 $ 237.7
=========== =========== ============ ===========
Per Common Share:
Basic:
Operating Income Before Special Items $ 0.83 $ 0.81 $ 2.91 $ 2.96
Special Items (0.02) (0.38) (0.02) (0.38)
----------- ----------- ------------ -----------
Operating Income 0.81 0.43 2.89 2.58
Net Realized Investment Gains (Losses) (After-Tax) - - - 0.11
----------- ----------- ------------ -----------
Income from Continuing Operations 0.81 0.43 2.89 2.69
Loss from Discontinued Operations - (0.04) - (0.08)
----------- ----------- ------------ -----------
Net Income $ 0.81 $ 0.39 $ 2.89 $ 2.61
=========== =========== ============ ===========
Diluted:
Operating Income Before Special Items $ 0.82 $ 0.80 $ 2.86 $ 2.91
Special Items (0.02) (0.38) (0.02) (0.37)
----------- ----------- ------------ -----------
Operating Income 0.80 0.42 2.84 2.54
Net Realized Investment Gains (Losses) (After-Tax) - - 0.01 0.10
----------- ----------- ------------ -----------
Income from Continuing Operations 0.80 0.42 2.85 2.64
Loss from Discontinued Operations - (0.04) - (0.08)
----------- ----------- ------------ -----------
Net Income $ 0.80 $ 0.38 $ 2.85 $ 2.56
=========== =========== ============ ===========
Weighted Average Common Shares:
Basic 88.0 90.6 87.7 91.1
Diluted 89.5 92.0 89.0 92.7
- ------------------------------------------------------------------------------------------------------------------------------
Revenue Measures
Statutory Premiums and Deposits (Statutory Accounting Basis)
Personal Financial Services Segment $ 236.4 $ 238.3 $ 1,001.9 $ 974.8
Worksite Financial Services Segment 434.5 301.0 1,505.0 1,117.6
Tax-Sheltered and Fixed Annuities Segment 252.9 226.6 973.6 911.1
Reinsurance Segment 142.2 86.3 468.0 304.5
----------- ----------- ------------ -----------
Total Statutory Premiums and Deposits 1,066.0 852.2 3,948.5 3,308.0
Fee Revenues (GAAP Accounting Basis) 68.1 52.6 247.2 235.2
----------- ----------- ------------ -----------
Total Statutory Premiums and Deposits and Fee Revenues $ 1,134.1 $ 904.8 $ 4,195.7 $ 3,543.2
=========== =========== ============ ===========
Assets Under Management (End of Period)
Invested Assets $ 14,669.8 $ 14,382.9
Managed Assets 20,786.8 8,329.0
------------ -----------
Total Assets Under Management $ 35,456.6 $ 22,711.9
============ ===========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
During the fourth quarters of 1999 and 1998, ReliaStar recorded special items
totaling $1.9 million (after-tax) and $34.3 million (after-tax),
respectively.
ReliaStar sold its mortgage banking subsidiary in 1998. Results of this former
subsidiary are shown as discontinued operations.
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 were an unrealized loss of
$206.6 million at December 31, 1999, and an unrealized gain of $526.2 million
at December 31, 1998.
Certain prior period segment financial data has been restated to conform to
current period presentation.
15
