UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM______________ TO________________
COMMISSION FILE NUMBER 33-28976
IDS LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0823832
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
55 AMERIPRISE FINANCIAL CENTER, MINNEAPOLIS, MINNESOTA 55474
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 671-3131
NONE
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act.
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 9, 2006
- ------------------------------------------------- --------------------------
Common Stock (par value $30 per share) 100,000 shares
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)
(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
IDS LIFE INSURANCE COMPANY
FORM 10-Q
INDEX
PAGE NO.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2006 and December 31, 2005.................................. 1
Consolidated Statements of Income - Three Months Ended March 31, 2006 and 2005...................... 2
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2006 and 2005.................. 3
Consolidated Statements of Stockholder's Equity - Three Months Ended March 31, 2006 and 2005........ 4
Notes to Consolidated Financial Statements.......................................................... 5-8
Item 2. Management's Discussion and Analysis................................................................ 9-12
Item 4. Controls and Procedures............................................................................. 13-14
Part II. Other Information:
Item 1. Legal Proceedings................................................................................... 14
Item 1A. Risk Factors........................................................................................ 14
Item 5. Other Information................................................................................... 14
Item 6. Exhibits............................................................................................ 14
Signatures.................................................................................................... 15
Exhibit Index................................................................................................. E-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDS LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
MARCH 31, DECEMBER 31,
2006 2005
--------------- ---------------
(UNAUDITED)
ASSETS
Investments:
Available-for-Sale:
Fixed maturities, at fair value (amortized cost: 2006, $27,624,166; 2005, $27,817,021) $ 27,093,965 $ 27,753,174
Common stocks, at fair value (cost: 2006 and 2005, $13)............................... 24 21
Mortgage loans on real estate, at cost (less allowance for loan losses: 2006, $37,347;
2005, $41,347)........................................................................ 2,805,244 2,842,362
Policy loans............................................................................. 610,960 605,212
Trading securities and other investments................................................. 517,499 547,668
--------------- ---------------
Total investments............................................................... 31,027,692 31,748,437
Cash and cash equivalents................................................................ 39,403 233,589
Reinsurance recoverables................................................................. 1,013,263 982,521
Amounts due from brokers................................................................. 3,015 4,166
Other accounts receivable................................................................ 47,735 62,930
Accrued investment income................................................................ 326,425 328,567
Deferred acquisition costs............................................................... 4,145,050 4,035,879
Deferred sales inducement costs.......................................................... 393,938 370,166
Deferred income tax assets, net.......................................................... 124,017 -
Other assets............................................................................. 236,008 220,371
Separate account assets.................................................................. 41,247,882 37,929,960
--------------- ---------------
Total assets........................................................................... $ 78,604,428 $ 75,916,586
=============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Future policy benefits:
Fixed annuities....................................................................... $ 25,528,620 $ 26,126,068
Variable annuity guarantees........................................................... 17,788 29,550
Universal life insurance.............................................................. 3,705,181 3,711,628
Traditional life insurance............................................................ 305,705 298,479
Disability income and long-term care insurance........................................ 2,216,833 2,145,969
Policy claims and other policyholders' funds............................................. 82,087 90,233
Amounts due to brokers................................................................... 31,296 31,772
Deferred income tax liabilities, net..................................................... - 9,099
Other liabilities........................................................................ 460,214 381,938
Separate account liabilities............................................................. 41,247,882 37,929,960
--------------- ---------------
Total liabilities...................................................................... 73,595,606 70,754,696
--------------- ---------------
STOCKHOLDER'S EQUITY:
Capital stock, $30 par value;
100,000 shares authorized, issued and outstanding...................................... 3,000 3,000
Additional paid-in capital............................................................... 2,020,388 2,020,388
Retained earnings........................................................................ 3,381,105 3,269,206
Accumulated other comprehensive loss, net of tax......................................... (395,671) (130,704)
--------------- ---------------
Total stockholder's equity............................................................. 5,008,822 5,161,890
--------------- ---------------
Total liabilities and stockholder's equity............................................. $ 78,604,428 $ 75,916,586
=============== ===============
See Notes to Consolidated Financial Statements.
1
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2006 2005
---------------- -----------------
REVENUES
Premiums:
Traditional life insurance...................................................... $ 18,164 $ 17,490
Disability income and long-term care insurance.................................. 74,343 71,343
---------------- -----------------
Total premiums.............................................................. 92,507 88,833
Net investment income............................................................. 444,475 458,788
Contractholder and policyholder charges........................................... 152,408 143,057
Mortality and expense risk and other fees......................................... 146,272 114,778
Net realized gain on investments.................................................. 5,839 194
---------------- -----------------
Total revenues.............................................................. 841,501 805,650
---------------- -----------------
BENEFITS AND EXPENSES
Death and other benefits:
Traditional life insurance...................................................... 5,418 12,069
Investment contracts and universal life-type insurance.......................... 57,013 52,287
Disability income and long-term care insurance.................................. 20,748 17,177
Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance...................................................... (219) 938
Disability income and long-term care insurance.................................. 42,171 29,597
Interest credited to account values............................................... 269,551 273,262
Amortization of deferred acquisition costs........................................ 105,285 99,082
Separation costs.................................................................. 24,607 -
Other insurance and operating expenses............................................ 156,854 137,524
---------------- -----------------
Total benefits and expenses................................................. 681,428 621,936
---------------- -----------------
Income before income tax provision................................................... 160,073 183,714
Income tax provision................................................................. 48,174 58,173
---------------- -----------------
Net income........................................................................... $ 111,899 $ 125,541
================ =================
See Notes to Consolidated Financial Statements.
2
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2006 2005
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................................... $ 111,899 $ 125,541
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization of deferred acquisition costs............................................. 105,285 99,082
Amortization of deferred sales inducement costs........................................ 11,285 9,633
Capitalization of deferred acquisition costs........................................... (172,463) (141,538)
Capitalization of deferred sales inducement costs...................................... (27,703) (20,657)
Amortization of premium, net........................................................... 18,460 22,719
Deferred income taxes.................................................................. 9,558 43,394
Policyholder and contractholder charges, non-cash...................................... (55,164) (57,584)
Net realized gain on investments....................................................... (5,839) (194)
Net realized gain on trading securities and equity method investments in hedge funds... (21,201) (8,971)
Change in operating assets and liabilities:
Trading securities and equity method investments in hedge funds, net................... 68,928 63,236
Future policy benefits for traditional life, disability income and long-term care
insurance........................................................................... 78,090 59,337
Policy claims and other policyholders' funds........................................... (8,146) 7,862
Policy loans, excluding universal life-type insurance:
Repayment........................................................................... 8,573 8,799
Issuance............................................................................ (9,027) (8,856)
Reinsurance recoverables............................................................... (30,742) (33,891)
Other accounts receivable.............................................................. 15,195 (4,790)
Accrued investment income.............................................................. 2,142 (7,030)
Other assets and liabilities, net...................................................... 52,678 40,529
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...................................... 151,808 196,621
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Proceeds from sales.................................................................... 396,056 547,237
Maturities, sinking fund payments and calls............................................ 595,209 428,245
Purchases.............................................................................. (810,097) (864,336)
Other investments, excluding policy loans:
Proceeds from sales, maturities, sinking fund payments and calls....................... 148,670 98,233
Purchases.............................................................................. (128,756) (99,298)
Change in amounts due to and from brokers, net........................................... 675 (121,775)
Change in restricted cash................................................................ - (40,264)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...................................... 201,757 (51,958)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Activity related to investment contracts and universal life-type insurance:
Considerations received................................................................ 335,567 443,345
Interest credited to account values.................................................... 269,551 273,262
Surrenders and other benefits.......................................................... (1,147,575) (793,517)
Universal life-type insurance policy loans:
Repayment.............................................................................. 24,975 21,991
Issuance............................................................................... (30,269) (24,190)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...................................... (547,751) (79,109)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... (194,186) 65,554
Cash and cash equivalents at beginning of period......................................... 233,589 131,427
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 39,403 $ 196,981
=============== ===============
Supplemental disclosures:
Income taxes paid...................................................................... $ 13,106 $ 31,651
Interest paid on borrowings............................................................ $ 146 $ 53
See Notes to Consolidated Financial Statements.
3
IDS LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(in thousands)
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
----------- ------------- ------------ ----------------- -------------
BALANCES AT DECEMBER 31, 2004............ $ 3,000 $ 1,370,388 $3,190,474 $ 341,693 $ 4,905,555
Comprehensive loss:
Net income............................ 125,541 125,541
Change in unrealized holding
losses on securities, net........... (310,033) (310,033)
Change in unrealized derivative
losses, net......................... (6,684) (6,684)
-------------
Total comprehensive loss................. (191,176)
----------- ------------- ------------ ----------------- -------------
BALANCES AT MARCH 31, 2005............... $ 3,000 $ 1,370,388 $3,316,015 $ 24,976 $ 4,714,379
=========== ============= ============ ================= =============
BALANCES AT DECEMBER 31, 2005............ $ 3,000 $ 2,020,388 $3,269,206 $ (130,704) $ 5,161,890
Comprehensive loss:
Net income............................ 111,899 111,899
Change in unrealized holding
losses on securities, net........... (265,680) (265,680)
Change in unrealized derivative
losses, net......................... 713 713
-------------
Total comprehensive loss................. (153,068)
----------- ------------- ------------ ----------------- -------------
BALANCES AT MARCH 31, 2006............... $ 3,000 $ 2,020,388 $3,381,105 $ (395,671) $ 5,008,822
=========== ============= ============ ================= =============
See Notes to Consolidated Financial Statements.
4
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts
of IDS Life Insurance Company and companies in which it directly or
indirectly has a controlling financial interest. All material
intercompany transactions and balances between or among IDS Life
Insurance Company and its subsidiaries and affiliates have been
eliminated in consolidation. IDS Life Insurance Company is a stock life
insurance company with four wholly-owned operating subsidiaries: IDS
Life Insurance Company of New York, American Partners Life Insurance
Company, American Enterprise Life Insurance Company and American
Centurion Life Assurance Company. IDS Life Insurance Company also owns
IDS REO 1, LLC, IDS REO 2, LLC and American Enterprise REO 1, LLC which
hold real estate investments. IDS Life Insurance Company and its seven
subsidiaries are referred to collectively in this Form 10-Q as "IDS
Life".
The accompanying Consolidated Financial Statements have been prepared
in accordance with U.S. generally accepted accounting principles
("GAAP"). The interim financial information in this report has not been
audited. In the opinion of management, all adjustments necessary for a
fair presentation of the consolidated financial position and the
consolidated results of operations for the interim periods have been
made. All adjustments made were of a normal, recurring nature. Results
of operations reported for interim periods are not necessarily
indicative of results for the entire year. These Consolidated Financial
Statements and Notes should be read in conjunction with the Annual
Report on Form 10-K of IDS Life for the year ended December 31, 2005,
filed with the Securities and Exchange Commission ("SEC") on March 10,
2006.
Certain reclassifications of prior period amounts have been made to
conform to the current presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 155,
"Accounting for Certain Hybrid Financial Instruments-an amendment of
FASB Statements No. 133 and 140." SFAS No. 155 improves financial
reporting by eliminating the exemption from applying SFAS No. 133 to
interests in securitized financial assets so that similar instruments
are accounted for similarly regardless of the form of the instruments.
It also improves financial reporting by allowing a preparer to elect
fair value measurement at acquisition, at issuance, or when a
previously recognized financial instrument is subject to a
remeasurement (new basis) event, on an instrument-by-instrument basis,
in cases in which a derivative would otherwise have to be bifurcated.
SFAS No. 155 is effective for all financial instruments acquired or
issued after the beginning of an entity's first fiscal year that begins
after September 15, 2006. IDS Life is currently evaluating the impact
of SFAS No. 155 on IDS Life's consolidated results of operations and
financial condition.
On November 3, 2005, the FASB issued FASB Staff Position ("FSP") FAS
115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments." FSP FAS 115-1 and FAS
124-1 address the determination as to when an investment is considered
impaired, whether that impairment is other-than-temporary and the
measurement of loss. It also includes accounting considerations
subsequent to the recognition of an other-than-temporary impairment and
requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. FSP FAS 115-1 and FAS
124-1 are effective for reporting periods beginning after December 15,
2005. The effect of adopting FSP FAS 115-1 and FAS 124-1 on IDS Life's
consolidated results of operations and financial condition was not
material.
5
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2005, the American Institute of Certified Public
Accountants issued Statement of Position 05-1, "Accounting by Insurance
Enterprises for Deferred Acquisition Costs in Connection With
Modifications or Exchanges of Insurance Contracts" ("SOP 05-1"). SOP
05-1 provides guidance on accounting by insurance enterprises for
deferred acquisition costs on internal replacements of insurance and
investment contracts other than those specifically described in SFAS
No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments." SOP 05-1 is effective for internal replacements
occurring in fiscal years beginning after December 15, 2006, with
earlier adoption encouraged. IDS Life is currently evaluating the
impact of SOP 05-1 on IDS Life's consolidated results of operations and
financial condition.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). This statement replaces Accounting
Principles Board ("APB") Opinion No. 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements"
and changes the requirements for the accounting for and reporting of a
change in accounting principle. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The effect of adopting SFAS 154 on IDS Life's
consolidated results of operations and financial condition was not
material.
3. SEPARATION OF AMERIPRISE FINANCIAL, INC.
IDS Life Insurance Company is a wholly-owned subsidiary of Ameriprise
Financial, Inc. ("Ameriprise Financial"). Prior to August 1, 2005,
Ameriprise Financial was referred to as American Express Financial
Corporation. On February 1, 2005, the American Express Company
("American Express") Board of Directors announced its intention to
pursue the disposition of 100% of its shareholdings in what is now
Ameriprise Financial ("the Separation") through a tax-free distribution
to American Express shareholders. Effective as of the close of business
on September 30, 2005, American Express completed the Separation and
distribution of common shares to American Express shareholders ("the
Distribution"). In connection with the Distribution, Ameriprise
Financial entered into certain agreements with American Express to
effect the separation of its business and to define the responsibility
for obligations arising before and after the date of the Distribution,
including, among others, obligations relating to transition services,
taxes, and employees. IDS Life was allocated certain expenses incurred
as a result of Ameriprise Financial becoming an independent company.
Cumulatively, the expenses allocated to IDS Life are significant to IDS
Life. IDS Life received a capital contribution of $650 million from
Ameriprise Financial during the third quarter of 2005 to support its
financial strength ratings and to cover separation costs.
During 2005, Ameriprise Financial developed an allocation policy for
separation costs resulting in the allocation of certain costs to IDS
Life that it considered to be a reasonable reflection of separation
costs benefiting IDS Life. Separation costs generally consist of
allocated re-branding and marketing costs and costs to separate and
reestablish technology platforms related to the separation and
Distribution of Ameriprise Financial. For the three months ended March
31, 2006, IDS Life incurred $24.6 million in separation costs.
6
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. INVESTMENT SECURITIES
Gross realized gains and losses on sales of Available-for-Sale
securities and other-than-temporary impairment losses on
Available-for-Sale securities included in net realized gains and losses
were as follows:
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2006 2005
---------------- -------------
(IN THOUSANDS)
Gross realized gains from sales......................... $ 10,537 $ 8,834
Gross realized losses from sales........................ (5,172) (8,094)
Other-than-temporary impairments........................ - (636)
5. INCOME TAXES
IDS Life is required to establish a valuation allowance for any portion
of the deferred tax assets that management believes will not be
realized. Included in IDS Life's deferred tax assets is a significant
deferred tax asset relating to capital losses realized for tax return
purposes and capital losses that have been recognized for financial
statement purposes but not yet for tax return purposes. Under current
U.S. federal income tax law, capital losses generally must be used
against capital gain income within five years of the year in which the
capital losses are recognized for tax purposes. IDS Life's deferred tax
assets include $231 million in capital loss carryforwards that expire
December 31, 2009. Based on analysis of IDS Life's tax position,
management believes it is more likely than not that the results of
future operations and implementation of tax planning strategies will
generate sufficient taxable income to enable IDS Life to utilize all of
its deferred tax assets. Accordingly, no valuation allowance for
deferred tax assets was established as of March 31, 2006 and December
31, 2005.
6. COMMITMENTS AND CONTINGENCIES
At March 31, 2006 and December 31, 2005, IDS Life had commitments to
fund mortgage loans on real estate of $94.6 million and $106.8 million,
respectively.
The SEC, the National Association of Securities Dealers and several
state authorities have brought proceedings challenging several mutual
fund and variable product financial practices, generally including
suitability, late trading, market timing, compensation and disclosure
of revenue sharing arrangements. IDS Life has received requests for
information and has been contacted by regulatory authorities concerning
its practices and is cooperating fully with these inquiries.
IDS Life is involved in other proceedings concerning matters arising in
connection with the conduct of its business activities. IDS Life
believes that it is not a party to, nor are any of its properties the
subject of, any pending legal, arbitration or regulatory proceedings
that would have a material adverse effect on its consolidated financial
condition, results of operations or liquidity. However, it is possible
that the outcome of any such proceedings could have a material adverse
impact on results of operations in any particular reporting period as
the proceedings are resolved.
7
IDS LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. REGULATORY REQUIREMENTS
IDS Life Insurance Company and its wholly-owned life insurance
subsidiaries are subject to regulatory capital requirements. Actual
capital, determined on a statutory basis, and regulatory capital
requirements, based on the most recent statutory risk-based capital
filings for each of the life insurance entities are as follows:
REGULATORY CAPITAL
ACTUAL CAPITAL AS OF(a) REQUIREMENT
---------------------------------------- -----------------
MARCH 31, DECEMBER 31, DECEMBER 31,
2006 2005 2005
------------------- ----------------- -----------------
(IN THOUSANDS)
IDS Life Insurance Company.......................... $ 3,376,810 $ 3,270,285 $ 750,975
American Enterprise Life Insurance Company.......... 585,731 583,303 125,285
IDS Life Insurance Company of New York.............. 254,712 246,001 39,880
American Partners Life Insurance Company............ 70,053 67,884 10,906
American Centurion Life Assurance Company........... 64,058 61,748 12,654
--------------
(a) Actual capital, as defined by the National Association of
Insurance Commissioners for purposes of meeting regulatory capital
requirements, includes statutory capital and surplus, plus certain
statutory valuation reserves.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis ("MD&A") should be
read in conjunction with IDS Life Insurance Company's Consolidated
Financial Statements and related notes presented in Item 1. IDS Life
Insurance Company and its seven subsidiaries are referred to
collectively in this Form 10-Q as "IDS Life". This discussion may
contain forward-looking statements that reflect IDS Life's plans,
estimates and beliefs. Actual results could differ materially from
those discussed in these forward-looking statements. Factors that could
cause or contribute to these differences include, but are not limited
to, those discussed under "Forward-Looking Statements." IDS Life
believes it is useful to read its MD&A in conjunction with its Annual
Report on Form 10-K for the year ended December 31, 2005, filed with
the Securities and Exchange Commission ("SEC") on March 10, 2006, as
well as its current reports on Form 8-K and other publicly available
information.
IDS Life follows United States generally accepted accounting principles
("GAAP"), and the following discussion is presented on a consolidated
basis consistent with GAAP.
Management's narrative analysis of the results of operations is
presented in lieu of MD&A, pursuant to General Instructions H(2) (a) of
Form 10-Q.
OVERVIEW
IDS Life Insurance Company is a stock life insurance company with four
wholly-owned operating subsidiaries: IDS Life Insurance Company of New
York, American Partners Life Insurance Company, American Enterprise
Life Insurance Company and American Centurion Life Assurance Company.
IDS Life Insurance Company is a wholly-owned subsidiary of Ameriprise
Financial, Inc. ("Ameriprise Financial").
o IDS Life Insurance Company is domiciled in Minnesota and holds
Certificates of Authority in American Samoa, the District of
Columbia and all states except New York. IDS Life Insurance Company
issues insurance and annuity products.
o American Enterprise Life Insurance Company ("American Enterprise
Life") is a stock life insurance company domiciled in Indiana,
which holds Certificates of Authority in the District of Columbia
and all states except New York. American Enterprise Life issues
fixed and variable annuity contracts primarily through regional and
national financial institutions and regional and/or independent
broker-dealers. (In past years, American Enterprise Life issued a
nominal number of variable universal life contracts.)
o American Partners Life Insurance Company ("American Partners Life")
is a stock life insurance company domiciled in Arizona, which holds
Certificates of Authority in the District of Columbia and all
states except New York and New Hampshire. American Partners Life
markets annuity products directly to customers, generally persons
holding an American Express(R) Card.
o IDS Life Insurance Company of New York ("IDS Life of New York") is
a stock life insurance company domiciled in New York, which holds
Certificates of Authority in New York and North Dakota. IDS Life of
New York issues insurance and annuity products.
o American Centurion Life Assurance Company ("American Centurion
Life") is a stock life insurance company domiciled in New York,
which holds Certificates of Authority in New York, Alabama and
Delaware. American Centurion Life issues fixed and variable annuity
contracts primarily through financial institutions and independent
broker-dealers. American Centurion Life also markets annuity
products directly, generally to persons holding an American
Express(R) Card.
IDS Life Insurance Company also owns IDS REO 1, LLC, IDS REO 2, LLC and
American Enterprise REO 1, LLC which hold real estate investments.
9
Prior to August 1, 2005, Ameriprise Financial was referred to as
American Express Financial Corporation. On February 1, 2005 American
Express Company ("American Express") announced its intention to pursue
the disposition of 100% of its shareholdings in what is now Ameriprise
Financial ("the Separation") through a tax-free distribution to
American Express shareholders. Effective as of the close of business on
September 30, 2005, American Express completed the Separation and
distribution of common shares to American Express shareholders ("the
Distribution"). In connection with the Distribution, Ameriprise
Financial entered into certain agreements with American Express to
effect the separation of its business and to define the responsibility
for obligations arising before and after the date of the Distribution,
including, among others, obligations relating to transition services,
taxes, and employees. IDS Life was allocated certain expenses incurred
as a result of Ameriprise Financial becoming an independent company.
Cumulatively, the expenses allocated to IDS Life are significant to IDS
Life. The majority of such costs are expected to be incurred by
December 31, 2006. IDS Life received a capital contribution of $650
million from Ameriprise Financial during the third quarter of 2005 to
support its financial strength ratings and to cover separation costs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO MARCH 31, 2005
Overview
Net income was $111.9 million for the three months ended March 31, 2006
compared to $125.5 million for the three months ended March 31, 2005.
The decrease in net income primarily resulted from increases in
separation costs, amortization of deferred acquisition costs ("DAC")
and other insurance and operating expenses, as well as a decrease in
net investment income, partially offset by higher mortality and expense
risk and other fees and contractholder and policyholder charges.
Revenues
Disability income ("DI") and long-term care ("LTC") insurance premiums
increased $3.0 million or 4% reflecting higher DI insurance in force
levels.
Net investment income decreased $14.3 million or 3% reflecting a
decrease in the average yield and unfavorable mark-to market
adjustments on options hedging guaranteed minimum withdrawal benefit
("GMWB") provisions, partially offset by favorable mark-to-market
adjustments on trading securities, equity method investments in hedge
funds and options hedging equity index annuities ("EIA"). The decrease
also reflects $7.8 million in income in the first quarter of 2005
compared to $0.9 million in income in the first quarter of 2006 related
to the liquidation of secured loan trusts. The impacts from options
hedging EIA and GMWB were primarily offset in the interest credited to
account values and death and other benefits for investment contracts
and universal life-type insurance line items.
Contractholder and policyholder charges increased $9.4 million or 7%
reflecting an increase in the cost of insurance charges on variable
universal life products, as well as an increase in surrender charges on
annuities.
Mortality and expense risk and other fees increased $31.5 million or
27% reflecting higher average values of separate account assets due to
increased inflows and market appreciation.
Net realized gain on investments was $5.8 million for the three months
ended March 31, 2006 compared to $0.2 million for the three months
ended March 31, 2005. For the three months ended March 31, 2006, $11.0
million of total investment gains were partially offset by $5.2 million
of losses. Included in these total net investment gains and losses were
$10.5 million of gross realized gains partially offset by $5.2 million
of gross realized losses from sales of securities, classified as
Available-for-Sale.
For the three months ended March 31, 2005, $8.9 million of total
investment gains were partially offset by $8.7 million of losses and
impairments. Included in these total net investment gains and losses
were $8.8 million of gross realized gains and $8.1 million of gross
realized losses from sales of securities, as well as $0.6 million of
other-than-temporary impairment losses on investments, classified as
Available-for-Sale.
10
Benefits and Expenses
Death and other benefits for traditional life insurance decreased $6.7
million or 55% reflecting lower claims volume.
Death and other benefits for investment contracts and universal
life-type insurance increased $4.7 million or 9% reflecting an increase
in variable universal life benefits and increases in guaranteed minimum
death benefit ("GMDB") reserves, partially offset by decreases in GMWB
reserves.
Increase in liabilities for future policy benefits for DI and LTC
insurance increased $12.6 million or 42% reflecting a $5.1 million
adjustment to the liabilities for incurred but not reported claims and
unfavorable claims experience relative to the same period a year ago.
Interest credited to account values decreased by $3.7 million or 1%
primarily due to lower interest crediting rates and average
accumulation values of annuities, partially offset by the effect of
appreciation on equity indexed annuities linked to the S&P 500 Index in
the first quarter of 2006 versus depreciation in the same period a year
ago.
Amortization of DAC increased to $105.3 million for the three months
ended March 31, 2006 from $99.1 million for the three months ended
March 31, 2005. The increase primarily reflects an adjustment to the
unearned commission balance. Amortization of DAC associated with
variable annuities was up only slightly in the first quarter of 2006
compared to the first quarter of 2005. Increased amortization
consistent with strong growth of the variable annuity business was
mostly offset by the impact of more favorable equity market conditions.
Separation costs generally consist of allocated re-branding and
marketing costs and costs to separate and reestablish technology
platforms related to the separation and Distribution of Ameriprise
Financial. During the quarter ended March 31, 2006, IDS Life incurred
$24.6 million in separation costs.
Other insurance and operating expenses increased $19.3 million or 14%
primarily reflecting increased non-deferrable distribution costs,
compensation costs and corporate overhead expenses.
Income Taxes
IDS Life's effective tax rate was 30% for the three months ended March
31, 2006 compared to 32% for the three months ended March 31, 2005. The
decreased effective tax rate primarily reflects higher tax-advantaged
items in the first quarter of 2006 compared to the same period a year
ago.
11
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of IDS Life are generally met by funds
provided by investment income, maturities and periodic repayments of
investments, deposits, premiums and proceeds from sales of investments,
as well as capital contributions from Ameriprise Financial. The primary
uses of funds are policy benefits, commissions, other product-related
acquisition and sales inducement costs, operating expenses, policy
loans, dividends to Ameriprise Financial and investment purchases. IDS
Life routinely reviews its sources and uses of funds in order to meet
its ongoing obligations. In connection with the separation, IDS Life
received a capital contribution of $650 million from Ameriprise
Financial during the third quarter of 2005 to support its financial
strength ratings and to cover separation costs. On April 5, 2006, IDS
Life declared an extraordinary dividend of $100 million and has made
the required advance notice to the Minnesota Department of Commerce,
its primary state regulator. IDS Life received a response from the
Minnesota Department of Commerce stating that they do not object to the
payment of this dividend.
At March 31, 2006 and December 31, 2005, IDS Life had outstanding
reverse repurchase agreements totaling $5.0 million and $25.0 million,
respectively. The reverse repurchase agreements are used strictly as
short-term sources of funds.
OTHER REPORTING MATTERS
ACCOUNTING DEVELOPMENTS
See Note 2 to the Consolidated Financial Statements.
12
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
IDS Life maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended ("the Exchange Act")) designed to provide reasonable
assurance that the information required to be reported in the Exchange
Act filings is recorded, processed, summarized and reported within the
time periods specified and pursuant to the regulations of the
Securities and Exchange Commission, including controls and procedures
designed to ensure that this information is accumulated and
communicated to IDS Life's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding the required disclosure. It should be noted that,
because of inherent limitations, IDS Life's disclosure controls and
procedures, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the
disclosure controls and procedures are met.
IDS Life's management, with the participation of its Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of
IDS Life's disclosure controls and procedures as of the end of the
period covered by this report. Based upon that evaluation, IDS Life's
Chief Executive Officer and Chief Financial Officer have concluded that
IDS Life's disclosure controls and procedures were effective at a
reasonable level of assurance as of March 31, 2006.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
American Express Company ("American Express") has historically provided
a variety of corporate and other support services for Ameriprise
Financial and its subsidiaries, including information technology,
treasury, accounting, financial reporting, tax administration, human
resources, marketing, legal, procurement and other services. American
Express continues to provide Ameriprise Financial and its subsidiaries
with some of these services pursuant to a transition services agreement
for a transition period of up to two years following the Distribution.
For the quarter ended December 31, 2005, IDS Life noted that many of
these services performed by American Express had an impact on its
financial reporting processes, which it considered a material change in
its internal control over financial reporting. Since the quarter ended
December 31, 2005, Ameriprise Financial has increased the staffing of
its accounting and reporting functions and has taken steps to perform
these functions on a basis independent from American Express. IDS Life
considers this reduction in reliance on American Express to perform
accounting and financial reporting related services a material change
in its internal control over financial reporting.
Other than the changes mentioned above, no other changes in IDS Life's
internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates have materially affected, or are
reasonably likely to materially affect, IDS Life's internal control
over financial reporting.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are subject to
risks and uncertainties. The words "believe," "expect," "anticipate,"
"optimistic," "intend," "plan," "aim," "will," "may," "should,"
"could," "would," "likely," and similar expressions are intended to
identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as
of the date on which they are made. IDS Life undertakes no obligation
to update or revise any forward-looking statements. Factors that could
cause actual results to differ materially from these forward-looking
statements include, but are not limited to, the following: the success,
timeliness and financial impact (including the amount of intercompany
costs allocated to IDS Life, cost savings and other benefits including
increased revenues), both in the short-term and over time, of
reengineering initiatives being implemented or considered by Ameriprise
Financial that could impact IDS Life, including cost management,
structural and strategic measures such as vendor, process, facilities
and operations consolidation and outsourcing (including, among others,
technologies operations); the ability to control and manage operating
infrastructure, advertising and promotion expenses as business expands
or changes; a downturn in IDS Life's businesses and/or negative changes
in IDS Life's credit or financial strength ratings, which could result
in decreased liquidity, negative impact on marketing and sale of
products, and higher borrowing costs; IDS Life's ability to improve
investment performance, including attracting and retaining high-quality
personnel, and reduce outflows of invested funds; IDS Life's ability to
develop and introduce new and attractive products to clients in a
timely manner and effectively manage the economics in selling a growing
volume of non-proprietary mutual funds and other retail financial
products to clients; fluctuation in the
13
equity and fixed income markets, which can affect the amount and types
of investment products sold by IDS Life, and other fees received based
on the value of those assets; IDS Life's ability to recover DAC, as
well as the timing of such DAC amortization, in connection with the
sale of annuity and insurance products; the level of GMDB or living
benefits paid to clients; changes in assumptions relating to DAC, which
could impact the amount of DAC amortization; IDS Life's ability to
avoid deterioration in its high-yield portfolio in order to mitigate
losses in its investment portfolio; fluctuations in interest rates,
which impact IDS Life's borrowing costs, return on lending products and
spreads in the insurance and annuity products; accuracy of estimates
for the fair value of the assets in IDS Life's investment portfolio
and, in particular, those investments that are not readily marketable;
the potential negative effect on IDS Life's businesses and
infrastructure, including information technology, of terrorist attacks,
disasters or other catastrophic events in the future; changes in laws
or government regulations, including changes in tax laws or regulations
that could result in the elimination of certain tax benefits; outcomes
and costs associated with litigation and compliance and regulatory
matters; successfully cross-selling insurance and annuity products and
services to Ameriprise Financial's customer base; lower than
anticipated spreads in the insurance and annuity business; the type and
the value of certain benefit features on variable annuity contracts;
the affect of assessments and other surcharges for guaranty funds; the
response of reinsurance companies under reinsurance contracts; the
impact of the separation of Ameriprise Financial from American Express;
the impact of reinsurance rates and the availability and adequacy of
reinsurance; and competitive pressures in IDS Life's business. A
further description of these and other risks and uncertainties can be
found under "Item 1A - Risk Factors" and elsewhere in IDS Life's Annual
Report on Form 10-K for the year ended December 31, 2005, and its other
reports filed with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
IDS LIFE INSURANCE COMPANY
Item 1. Legal Proceedings
The information set forth in Note 6 to Consolidated
Financial Statements in Part I, Item 1 is incorporated
herein by reference.
Item 1A. Risk Factors
There have been no material changes in the risk factors
provided in Part I, Item 1A of IDS Life's Annual Report on
Form 10-K for the year ended December 31, 2005 filed with
the SEC.
Item 5. Other Information
None.
Item 6. Exhibits
See Exhibit Index on page E-1 hereof.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDS LIFE INSURANCE COMPANY
--------------------------
(Registrant)
Date: May 9, 2006 By /s/ Mark E. Schwarzmann
-----------------------------------
Mark E. Schwarzmann
Director, Chairman of the Board and
Chief Executive Officer
Date: May 9, 2006 By /s/ Brian J. McGrane
-----------------------------------
Brian J. McGrane
Executive Vice President and
Chief Financial Officer
15
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report:
EXHIBIT DESCRIPTION
- ------- ----------------------------------------------------------------
*31.1 Certification of Mark E. Schwarzmann pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
*31.2 Certification of Brian J. McGrane pursuant to Rule 13a-14(a)
promulgated under the Securities Exchange Act of 1934, as
amended.
*32.1 Certification of Mark E. Schwarzmann and Brian J. McGrane
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed electronically herewith.
E-1