<PAGE>
 
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q



(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1999

                                       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  1-10640

                            RELIASTAR FINANCIAL CORP.
                            -------------------------
             (Exact name of registrant as specified in its charter)


             DELAWARE                                     41-1620373      
             --------                                     ----------      
 (State or other jurisdiction                          (I.R.S. Employer     
of incorporation or organization)                      Identification No.)  
                                                       



            20 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55401
            --------------------------------------------------------
                (Address of principal executive offices)      
                                  (Zip Code)

                                 (612) 372-5432
                                 --------------
              (Registrant's telephone number, including area code)


            --------------------------------------------------------
             (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 [ ]

Number of shares of common stock outstanding as of April 30, 1999 was
88,474,639.
<PAGE>
 
Part I-Financial Information
Item 1. Financial Statements

                            RELIASTAR FINANCIAL CORP.
                      Condensed Consolidated Balance Sheets
                                  (in millions)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                        March 31, 1999         December 31, 1998
                                                                        --------------         -----------------
<S>                                                                      <C>                       <C>         
ASSETS
Fixed Maturity Securities                                                $   11,486.5              $   11,625.1
Equity Securities                                                                61.2                      60.3
Mortgage Loans on Real Estate                                                 2,207.7                   2,154.8
Real Estate and Leases                                                           50.4                      53.3
Policy Loans                                                                    709.5                     702.3
Other Invested Assets                                                           137.2                     144.6
Short-Term Investments                                                          137.8                     168.7
                                                                         ------------              ------------
     Total Investments                                                       14,790.3                  14,909.1
Cash                                                                              1.6                      21.5
Accounts and Notes Receivable                                                   350.6                     287.7
Reinsurance Receivable                                                          458.8                     417.7
Deferred Policy Acquisition Costs                                             1,271.8                   1,214.9
Present Value of Future Profits                                                 437.8                     422.5
Property and Equipment, Net                                                     114.4                     117.3
Accrued Investment Income                                                       206.2                     196.0
Other Assets                                                                    406.5                     399.8
Participation Fund Account Assets                                               311.2                     311.6
Assets Held in Separate Accounts                                              4,548.8                   4,310.6
                                                                         ------------              ------------
       TOTAL ASSETS                                                      $   22,898.0              $   22,608.7
                                                                         ============              ============

LIABILITIES
Future Policy and Contract Benefits                                      $   13,580.3              $   13,519.8
Pending Policy Claims                                                           477.6                     433.5
Other Policyholder Funds                                                        329.2                     304.6
Notes and Mortgages Payable                                                     529.5                     509.4
Income Taxes                                                                    170.5                     199.0
Other Liabilities                                                               662.2                     663.2
Participation Fund Account Liabilities                                          311.2                     311.6
Liabilities Related to Separate Accounts                                      4,543.3                   4,305.1
                                                                         ------------              ------------
       TOTAL LIABILITIES                                                     20,603.8                  20,246.2
                                                                         ------------              ------------

Company-Obligated Mandatorily Redeemable Preferred
   Securities Issued by Consolidated Subsidiaries                               242.4                     242.3
                                                                         ------------              ------------

SHAREHOLDERS' EQUITY
Common Stock (Shares Issued: 1999 and 1998, 98.1)                                  .9                        .9
Additional Paid-in Capital                                                      997.0                   1,003.0
Retained Earnings                                                             1,185.3                   1,137.6
Accumulated Other Comprehensive Income                                          154.2                     257.2
Note Receivable from ESOP                                                       (19.2)                    (19.8)
Unamortized Restricted Stock Awards                                              (1.1)                      (.7)
Treasury Common Stock, at Cost (Shares Held: 1999, 9.3; 1998, 9.2)             (265.3)                   (258.0)
                                                                         ------------              ------------
       TOTAL SHAREHOLDERS' EQUITY                                             2,051.8                   2,120.2
                                                                         ------------              ------------

       TOTAL LIABILITIES AND
       SHAREHOLDERS' EQUITY                                              $   22,898.0              $   22,608.7
                                                                         ============              ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
                   Condensed Consolidated Statements of Income
                      (in millions, except per share data)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                  Three Months Ended March 31
                                                                -------------------------------
                                                                    1999               1998   
                                                                ------------      -------------
<S>                                                             <C>               <C>          
REVENUES
Premiums                                                        $      276.4      $       235.0
Net Investment Income                                                  277.3              274.4
Realized Investment Gains, Net                                           2.5                7.2
Policy and Contract Charges                                            109.2              100.6
Other Income                                                            61.7               72.4
                                                                ------------      -------------
     Total                                                             727.1              689.6
                                                                ------------      -------------

BENEFITS AND EXPENSES
Benefits to Policyholders                                              411.1              380.3
Sales and Operating Expenses                                           152.9              149.2
Amortization of Deferred Policy Acquisition Costs
     and Present Value of Future Profits                                40.5               41.9
Interest Expense                                                         9.5                6.5
Dividends and Experience Refunds to Policyholders                        7.5                5.9
                                                                ------------      -------------
     Total                                                             621.5              583.8
                                                                ------------      -------------

Income from Continuing Operations
  Before Income Taxes and Dividends on Preferred
     Securities of Subsidiaries                                        105.6              105.8
Income Tax Expense                                                      37.9               38.0
Dividends on Preferred Securities of Subsidiaries, Net of Tax            3.3                3.3
                                                                ------------      -------------
Income from Continuing Operations                                       64.4               64.5
Income from Discontinued Operations, Net of Tax                            -                 .1
                                                                ------------      -------------

Net Income                                                      $       64.4      $        64.6
                                                                ============      =============

INCOME FROM CONTINUING OPERATIONS AND NET
     INCOME PER COMMON SHARE
Basic                                                           $        .73      $        0.71
                                                                ============      =============

Diluted                                                         $        .71      $        0.70
                                                                ============      =============


Weighted Average Common Shares
     Basic                                                              88.8               91.0
     Diluted                                                            90.1               92.8
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
            Condensed Consolidated Statements of Shareholders' Equity
                      (in millions, except per share data)
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                         Three Months Ended March 31         
                                                               -----------------------------------------------
                                                                   Total Equity          Comprehensive Income 
                                                               ---------------------     ---------------------
                                                                  1999       1998          1999        1998  
                                                               ---------   ---------     --------    ---------
<S>                                                            <C>          <C>          <C>         <C>    
Common Stock
   Beginning and End of Period                                 $      .9    $     .9
                                                               ---------    --------

Additional Paid-in Capital
   Beginning of Year                                            1,003.0      1,019.8
   Loss on Treasury Shares Reissued for Benefit Plans              (9.9)       (13.4)
   Loss on Treasury Shares Reissued for Acquisitions                  -          (.9)
   Tax Benefit on Stock Options Exercised                           3.9          6.9
                                                              ---------     --------
      End of Period                                               997.0      1,012.4
                                                              ---------     --------

Retained Earnings
   Beginning  of Year                                           1,137.6        964.8
   Net Income                                                      64.4     $   64.6     $  64.4     $    64.6
   Common Dividends to Shareholders: (Per Share: 1999,
       $.185; 1998, $.155)                                        (16.4)       (14.1)
   Other, Net                                                       (.3)         (.4)
                                                              ---------     --------
      End of Period                                             1,185.3      1,014.9
                                                              ---------     --------

Accumulated Other Comprehensive Income
   Beginning of Year                                              257.2        226.2
   Change for the Period                                         (103.0)         2.3      (103.0)          2.3
                                                              ---------     --------     -------      --------
      End of Period                                               154.2        228.5
                                                              ---------     --------

Note Receivable from ESOP
   Beginning of Year                                              (19.8)       (20.8)
   Repayments, Accrued or Paid                                       .6           .4
                                                              ---------     --------
      End of Period                                               (19.2)       (20.4)
                                                              ---------     --------

Unamortized Restricted Stock Awards
   Beginning of Year                                                (.7)        (1.0)
   Awards, Net                                                      (.4)         (.3)
   Amortization of Restricted Stock Awards                            -           .1
                                                               --------     --------
      End of Period                                                (1.1)        (1.2)
                                                              ---------     --------

Treasury Common Stock
   Beginning of Year                                             (258.0)      (178.9)
   Acquired                                                       (27.5)       (32.5)
   Reissued for Acquisitions                                          -         21.2
   Reissued, Other                                                 20.2         28.8
                                                              ---------    ---------
      End of Period                                              (265.3)      (161.4)
                                                              ---------    ---------

Comprehensive Income (Loss)                                                              $ (38.6)      $  66.9
                                                                                         =======       =======
Total Shareholders' Equity                                     $2,051.8     $2,073.7
                                                               ========     ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
                 Condensed Consolidated Statements of Cash Flows
                                  (in millions)
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                      Three Months Ended March 31   
                                                                      ---------------------------
                                                                         1999              1998   
                                                                      ----------         --------
<S>                                                                   <C>                <C>     
OPERATING ACTIVITIES
Net Income                                                             $   64.4          $   64.6
Adjustments to Reconcile Net Income to Net Cash Provided by
  Operating Activities
     Interest Credited to Insurance Contracts                             138.3             145.6
     Future Policy Benefits                                              (170.1)           (153.4)
     Capitalization of Policy Acquisition Costs                           (66.2)            (54.6)
     Amortization of Deferred Policy Acquisition Costs and Present
        Value of Future Profits                                            40.5              41.9
     Deferred Income Taxes                                                 10.3               3.4
     Net Change in Receivables and Payables                               (10.8)             46.2
     Other Assets                                                         (16.9)            (43.0)
     Realized Investment Gains, Net                                        (2.5)             (7.2)
     Other                                                                  (.5)             (4.7)
                                                                       --------        ----------
          Net Cash Provided by Operating Activities                       (13.5)             38.8
                                                                       --------        ----------

INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities                          135.2              73.1
Proceeds from Maturities or Repayment of Fixed Maturity Securities        322.1             279.3
Cost of Fixed Maturity Securities Acquired                               (520.8)           (462.2)
Sales (Purchases) of Equity Securities, Net                                 1.6             (11.6)
Proceeds of Mortgage Loans Sold, Matured or Repaid                         96.8             118.9
Cost of Mortgage Loans Acquired                                          (149.7)            (63.0)
Sales of Real Estate and Leases, Net                                        2.9                .3
Policy Loans Issued, Net                                                   (7.2)             (6.0)
Sales (Purchases) of Other Invested Assets, Net                              .4              21.8
Purchases of Short-Term Investments, Net                                   30.9             (51.4)
Cash Acquired with Acquisitions, Net                                         --               1.3
                                                                       --------        ----------
          Net Cash Used by Investing Activities                           (87.8)            (99.5)
                                                                       --------        ----------

FINANCING ACTIVITIES
Deposits to Insurance Contracts                                           426.4             405.4
Maturities and Withdrawals from Insurance Contracts                      (331.5)           (343.1)
Increase in Notes and Mortgages Payable                                    20.2              42.6
Repayment of Notes and Mortgages Payable                                    (.1)             (6.2)
Issuance of Common Stock Under Stock Option and Other Plans                10.3              12.0
Dividends on Common Stock                                                 (16.4)            (14.1)
Acquisition of Treasury Common Stock                                      (27.5)            (32.5)
                                                                       --------        ----------
          Net Cash Provided by Financing Activities                        81.4              64.1
                                                                       --------        ----------
Increase (Decrease) in Cash                                               (19.9)              3.4
Cash at Beginning of Period                                                21.5              46.4
                                                                       --------        ----------
Cash at End of Period                                                  $    1.6        $     49.8
                                                                       ========        ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and such principles were applied
on a basis consistent with that reflected in the Annual Report of ReliaStar
Financial Corp. (the Company or ReliaStar) for the year ended December 31, 1998
filed with the Securities and Exchange Commission (SEC). The financial
information included herein, other than the condensed consolidated balance sheet
as of December 31, 1998, has been prepared by management without audit by
independent certified public accountants. The condensed consolidated balance
sheet as of December 31, 1998 has been derived from, and does not include all of
the disclosures contained in, the audited consolidated financial statements for
the year ended December 31, 1998.

The information furnished includes all adjustments and accruals consisting only
of normal, recurring accrual adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim period.
The results of operations for any interim period are not necessarily indicative
of results for the full year. The unaudited interim condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's 1998 Annual Report.

Note 2.  Segment Information

The Company operates in four reportable segments which are differentiated by
products and/or marketing focus. The Personal Financial Services (PFS) segment
sells life insurance and annuity products to individuals. The Worksite Financial
Services segment sells group and individual insurance products, 401(k) plans and
financial services to employers and their employees at the worksite. The
Tax-Sheltered and Fixed Annuities (TSA/FA) segment sells 403(b) annuities and
other retirement products, primarily to the K-12 schoolteacher market. The
Reinsurance segment sells group life, health and specialty reinsurance products
in the U.S. and internationally.

In the first quarter of 1999, management responsibility for the closed block of
individual life insurance of Northern Life was transferred from the TSA/FA
segment to the PFS segment. At the same time, management responsibility for the
fixed annuities of Security-Connecticut Life and the former Lincoln Security
Life were transferred from the PFS segment to the TSA/FA segment. Previously
reported segment financial data has been restated to reflect these changes and
conform with current period presentation.

Operations not included in the four reportable segments are classified as Other
Business units and include the Company's mutual fund operation, broker/dealer
operations, banking and trust operations and personal financial education
company. Financing costs, goodwill amortization, unallocated costs and
consolidating/eliminating adjustments are reported in Corporate.

Selected segment data follows (in millions):
                                                   Three Months Ended March 31
                                                   ---------------------------
OPERATING INCOME(1)                                   1999              1998
-------------------                                  -------          --------
Personal Financial Services                          $  25.2          $   22.4
Worksite Financial Services                             14.5              13.9
Tax-Sheltered and Fixed Annuities                       20.8              16.8
Reinsurance                                              6.7               9.4
                                                     -------          --------
     Total Reportable Segments                          67.2              62.5
Other Business Units                                     2.6               3.7
Corporate                                               (7.0)             (5.1)
                                                     -------          --------
Operating Income                                        62.8              61.1
Net Realized Investment Gains                            1.6               3.4
                                                     -------          --------
Consolidated Income from Continuing Operations       $  64.4          $   64.5
                                                     =======          ========

(1)      Operating income is after-tax and excludes realized investment gains
         and losses and their impact on the amortization of deferred policy
         acquisition costs (DAC) and present value of future profits (PVFP).


                                       6
<PAGE>
 
                                                   Three Months Ended March 31
                                                   ---------------------------
OPERATING REVENUES                                   1999              1998
------------------                                  -------          -------- 
Personal Financial Services                         $ 217.8          $  221.1
Worksite Financial Services                           194.7             196.5
Tax-Sheltered and Fixed Annuities                     147.1             145.1
Reinsurance                                           110.8              70.8
                                                    -------          --------
     Total Reportable Segments                        670.4             633.5
Other Business Units                                   50.6              45.7
Corporate                                               3.6               3.2
                                                    -------          --------
     Operating Revenues                               724.6             682.4
Net Realized Investment Gains                           2.5               7.2
                                                    -------          --------
Consolidated Revenues                               $ 727.1          $  689.6
                                                    =======          ========

                                                 March 31          December 31
ASSETS UNDER MANAGEMENT                            1999               1998    
-----------------------                          ---------         -----------
Personal Financial Services                      $ 7,037.3           $ 6,887.0
Worksite Financial Services                        3,574.9             3,512.1
Tax-Sheltered and Fixed Annuities                  7,756.9             7,594.7
Reinsurance                                          320.4               309.9
                                                 ---------           ---------
     Total Reportable Segments                    18,689.5            18,303.7
Other Business Units                               4,129.4             4,018.4
Corporate                                            335.3               389.8
                                                 ---------           ---------
     Assets Under Management                      23,154.2            22,711.9
Net Unrealized Investment Gains                      314.3               526.2
Other Balance Sheet Assets                         3,558.9             3,389.0
Off-Balance Sheet Mutual Fund Client Assets       (4,129.4)           (4,018.4)
                                                 ---------           ---------
Consolidated Assets                              $22,898.0           $22,608.7
                                                 =========           =========



                                       7
<PAGE>
 
Items 2 and 3.
                            RELIASTAR FINANCIAL CORP.

                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Results of operations by operating segment are summarized below (in millions):

                                                          Three Months
                                                         Ended March 31    
                                                     -----------------------
                                                      1999             1998
                                                     ------            -----
Operating Income (Loss)(1)
   Personal Financial Services Segment                $25.2            $22.4
   Worksite Financial Services Segment                 14.5             13.9
   Tax-Sheltered and Fixed Annuities Segment           20.8             16.8
   Reinsurance Segment                                  6.7              9.4
   Other Business Units                                 2.6              3.7
   Corporate                                           (7.0)            (5.1)
                                                      -----            -----
Operating Income                                       62.8             61.1
Net Realized Investment Gains, Net of Tax               1.6              3.4
                                                      -----            -----
Income From Continuing Operations                      64.4             64.5
Income From Discontinued Operations, Net of Tax          -                .1
                                                      -----            -----
   Net Income                                         $64.4            $64.6
                                                      =====            =====

(1)      Operating income is after-tax and excludes realized investment gains
         and losses and their impact on the amortization of deferred policy
         acquisition costs (DAC) and present value of future profits (PVFP).

ReliaStar Financial Corp. (the Company or ReliaStar) has four reportable
operating segments: Personal Financial Services (PFS), Worksite Financial
Services, Tax-Sheltered and Fixed Annuities (TSA/FA), and Reinsurance; and
conducts its operations primarily through its life insurance subsidiaries:
ReliaStar Life Insurance Company (ReliaStar Life), Northern Life Insurance
Company (Northern), Security-Connecticut Life Insurance Company
(Security-Connecticut), and ReliaStar Life Insurance Company of New York (RLNY).
These subsidiaries are sometimes collectively referred to as the Insurers.

In the first quarter of 1999, management responsibility for the closed block of
individual life insurance of Northern Life was transferred from the TSA/FA
segment to the PFS segment. At the same time, management responsibility for the
fixed annuities of Security-Connecticut and the former Lincoln Security Life
were transferred from the PFS segment to the TSA/FA segment. Previously reported
segment financial data has been restated to reflect these changes and conform
with current period presentation.

The discussion of segment operating results that follows refers to the above
after-tax segment results and, in each instance, amounts are after-tax unless
otherwise indicated.

Personal Financial Services

The Personal Financial Services (PFS) segment sells life insurance and annuity
products to individuals. Operating income of the PFS segment for the first three
months of 1999 increased $2.8 million, or 13%, compared with the same period in
1998. The increase in operating income was primarily due to more favorable
mortality experience, lower expenses, and growth in assets under management. The
interest spread of 248 basis points in the first quarter of 1999 compares to 249
basis points in the first quarter of 1998. This decrease in spread reflects a 22
basis point decrease in the portfolio yield and a 21 basis point reduction in
the average crediting rate. We expect that the average interest spread for the
remainder of 1999 will be lower than the rate experienced in the first quarter
of 1999, primarily as a result of declining portfolio yields. It should be noted
that the interest spread calculation is an annualized measure and can be overly
influenced in a particular period by the level of prepayments, recoveries on
problem investments and other variances in the level of net investment income.
For approximately one-half of the 


                                       8
<PAGE>
 
business included in the PFS segment, crediting rates on in force business are
reset annually at the beginning of the calendar year and are guaranteed for one
year. The balance of the business has crediting rates that can be changed on the
policy anniversary or some other date. Crediting rates offered on new business
can be changed at any time in response to competition and market interest rates
and are guaranteed to the end of the calendar year on most new premiums
received.

Total assets under management increased to $7.0 billion as of March 31, 1999
from $6.6 billion as of March 31, 1998. Separate account assets under management
increased to $2.2 billion as of March 31, 1999 from $1.8 billion as of March 31,
1998.

Total sales (annualized new premiums and deposits) decreased 3% for the first
three months of 1999 and were $96.8 million compared with $100.0 million in the
same period of 1998. The 3% decline in sales is primarily due to a decline in
sales of fixed annuities due to the Company's efforts to emphasize the sale of
these products through its Tax-Sheltered and Fixed Annuities segment. Sales of
fixed annuities were $.8 million in the first quarter of 1999 compared with $4.3
million in the same period of last year. Sales during the first three months of
1999 of individual life insurance increased 3% to $40.1 million compared to the
first quarter of last year. Sales of variable annuities for the first quarter of
1999 declined 1% to $55.9 million compared to the same period of last year.

Worksite Financial Services

The Worksite Financial Services (WFS) segment sells group and individual life
insurance products, retirement plans and financial services to employers and
their employees at the worksite. Operating income of the WFS segment for the
first three months of 1999 increased $.6 million, or 4%, compared with the same
period in 1998. The increase in operating income was primarily due to higher
sales and lower expense levels in the voluntary payroll deduction unit and
growth in 401(k) plan fees in the retirement plans unit. These factors were
partially offset by less favorable morbidity experience in the insured group
medical line of business which is being transitioned to Trustmark Insurance 
Company during 1999; and higher expense ratios in the employee benefits
unit.

Total sales for the first three months of 1999 were $206.2 million compared with
$157.0 million in the same period of 1998. Sales for the first three months of
1999 increased 31% compared with the same period in 1998, reflecting a 25%
increase in group life sales, a 31% increase in retirement plan sales, a 46%
increase in individual life sales, and a 52% increase in group health sales, 
primarily due to increased sales of long-term disability and excess loss 
products.

Tax-Sheltered and Fixed Annuities

The Tax-Sheltered and Fixed Annuities (TSA/FA) segment sells 403(b) annuities
and other retirement products, primarily to the K-12 schoolteacher market.
Operating income of the TSA/FA segment for the first three months of 1999
increased $4.0 million, or 24%, compared with the same period in 1998. The
increase in operating income was primarily due to increased interest spreads and
growth in assets under management. The interest spread of 282 basis points in
the first quarter of 1999 compares to 258 basis points in the first quarter of
1998. This increase in spread reflects a 40 basis point reduction in the average
crediting rate and a 16 basis point decrease in the portfolio yield. We expect
that the average interest spread for the remainder of 1999 will be lower than
the rate experienced in the first quarter of 1999, primarily as a result of
declining portfolio yields. It should be noted that the interest spread
calculation is an annualized measure and can be overly influenced in a
particular period by the level of prepayments, recoveries on problem investments
and other variances in the level of net investment income. For most of the
business included in the TSA/FA segment, crediting rates on in force business
are reset annually at the beginning of the calendar year and are guaranteed for
one year. The balance of the business has crediting rates that can be changed on
the policy anniversary or some other date. Crediting rates offered on new
business can be changed at any time in response to competition and market
interest rates and are guaranteed to the end of the calendar year on most new
deposits received.

Total assets under management increased to $7.8 billion as of March 31, 1999
from $7.2 billion as of March 31, 1998. Separate account assets under management
increased to $439 million as of March 31, 1999 from $195 million as of March 31,
1998.

                                       9
<PAGE>
 
Total sales for the first three months of 1999 were $148.4 million compared with
$135.9 million in the same period of 1998. The increase in sales reflects a 55%
increase in sales of variable annuities, partially offset by a 9% decrease in
fixed annuity sales.

Reinsurance

The Reinsurance segment sells group life, health, and specialty reinsurance
products in the United States and internationally. Operating income of the
Reinsurance segment for the first three months of 1999 decreased $2.7 million,
or 29%, compared with the same period in 1998. The decrease in operating income
was primarily due to less favorable claims experience. The ratio of claims to
net earned premium was 69.3% in the first quarter of 1999, compared with 58.9%
in the first quarter of 1998. Less favorable mortality and morbidity loss ratios
were experienced in the group life, group medical, and long-term disability
lines of reinsurance business. Claims experience and overall profitability of
workers compensation carve-out reinsurance in the first quarter of 1999 were
consistent with those of the same period in 1998. The less favorable claims
experience was partially offset by a 62% increase in earned premiums in the
first quarter of 1999 compared with the first quarter of 1998. Earnings in the
reinsurance business can fluctuate based upon a number of factors, including
pricing, market capacity, the availability and pricing of retrocessional
programs, loss experience and the risk profile of the book of business included
in this segment.

Total sales for the first three months of 1999 were $81.4 million compared with
$52.0 million in the same period of 1998, an increase of 57%, primarily due to
increased sales of group life, long-term disability and group medical
reinsurance lines, and special insurance product sales.

Other Business Units

Other Business Units include the Company's mutual fund operation, broker/dealer
operations, banking operation and personal finance education company. These
business units are not large enough to be classified as reportable segments.
Operating income of the Other Business Units for the first three months of 1999
decreased $1.1 million, or 30%, compared with the same period in 1998. The
decrease in operating income was primarily due to lower earnings in the mutual
fund operation as a result of a gain recorded in the first quarter of 1998 on
the sale of 12b-1 fees attributable to a portion of the mutual fund operation's
Class B shares.

Corporate

Corporate includes financing costs, goodwill amortization and other unallocated
costs. Operating losses of Corporate for the first three months of 1999
increased $1.9 million compared with the same period in 1998. The increase in
operating losses was primarily due to interest expense related to the $200
million of notes payable issued in the fourth quarter of 1998.



                                       10
<PAGE>
 
Realized Investment Gains and Losses

The sources of net realized investment gains (losses) were as follows (in
millions):
                                                           Three Months
                                                          Ended March 31     
                                                       ----------------------
                                                       1999              1998
                                                       -----            -----
Net Gains (Losses) on Sales of Investments
    Fixed Maturity Securities
     Gross Gains                                       $ 6.0            $ 0.9
     Gross Losses                                       (2.4)            (0.2)
    Equity Securities                                    1.3               .6
    Foreclosed Real Estate                               (.2)              -
    Real Estate                                           .6               -
    Other                                                1.0              9.7
Provision for Losses on Investments
   Fixed Maturity Securities                            (3.4)            (3.5)
   Foreclosed Real Estate                                (.4)             (.3)
                                                       -----            -----
Pretax Realized Investment Gains                         2.5              7.2
DAC/PVFP Amortization(1)                                 (.1)            (2.0)
Income Taxes                                             (.8)            (1.8)
                                                       -----            -----
       Net Realized Investment Gains, Net of Tax       $ 1.6            $ 3.4
                                                       =====            =====

(1)      Due to pretax realized investment gains and losses.


The Company establishes allowances and writes down the value of specific assets
based upon its periodic review of individual problem investments. The Company's
recording of allowances and write-downs based upon a review of individual
problem assets results in fluctuations in the level of the provision for losses
on investments reported in each period. The provision for losses on investments
is affected to a significant degree by general economic conditions and the
status of the real estate market. While the Company believes it has set aside
appropriate reserves and allowances for problem investments, subsequent economic
and market conditions may require the establishment of additional reserves.

FINANCIAL CONDITION

Liquidity and Capital Resources - ReliaStar Financial Corp.

ReliaStar, as parent, is dependent upon dividends, interest and payments for
other charges received from its subsidiaries to pay dividends to shareholders,
service its debt and pay other obligations. The payment of dividends, interest
or other charges is subject to restrictions imposed by applicable insurance laws
and regulations.

The payment of future dividends by ReliaStar to its shareholders will be largely
dependent upon the ability of ReliaStar Life to pay dividends to the Company.
Under Minnesota insurance law regulating the payment of dividends by ReliaStar
Life, any such payment must be in an amount deemed prudent by ReliaStar Life's
Board of Directors and, unless otherwise approved by the Commissioner of the
Minnesota Department of Commerce (the Commissioner), must be paid solely from
the adjusted earned surplus of ReliaStar Life. Adjusted earned surplus means the
earned surplus as determined in accordance with statutory accounting practices
(unassigned funds) less 25% of the amount of such earned surplus which is
attributable to net unrealized capital gains. Further, without approval of the
Commissioner, ReliaStar Life may not pay in any calendar year any dividend
which, when combined with other dividends paid within the preceding 12 months,
exceeds the greater of (i) 10% of ReliaStar Life's statutory surplus at the
prior year-end or (ii) 100% of ReliaStar Life's statutory net gain from
operations (not including realized capital gains) for the prior calendar year.
For 1999, the amount of dividends which can be paid by ReliaStar Life without
Commissioner approval is $156.4 million.

On March 3, 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission (SEC) for the issuance of up to $500 million
of debt and equity securities. The registration statement was declared 


                                       11
<PAGE>
 
effective on April 30,1999 by the SEC. As of April 30, 1999, $500 million of
debt and equity securities remain available for issuance under this shelf
registration.

As of March 31, 1999, the Company had unsecured revolving credit facilities with
banks totaling $225 million for general corporate purposes and $205 million
remained available for borrowing under these facilities.

During the first quarter of 1999, the Company began a systematic program to
repurchase shares of stock in open market transactions. The shares repurchased
will be used for the Company's stock option plans, stock compensation programs
and dividend reinvestment program. Through March 31, 1999, the Company had
repurchased 515,000 of its common shares at an average price of $46.22 per
share. This program may be terminated at any time.

Liquidity and Capital Resources - Insurers

Liquidity for life insurance companies is measured by their ability to pay
scheduled contractual benefits, pay operating expenses and fund investment
commitments. Sources of liquidity include scheduled and unscheduled principal
and interest payments on investments, premium payments and deposits and the sale
of liquid investments. These sources of liquidity for the Insurers significantly
exceed scheduled uses.

Liquidity is also affected by unscheduled benefit payments, including death
benefits, benefits under insured accident and health policies and contract
withdrawals and surrenders. The amount of withdrawals and surrenders is affected
by a variety of factors such as credited interest rates for competing products,
general economic conditions, the Insurers' claims paying ratings and events in
the industry which affect policyholders' confidence.

The Insurers' investment portfolios represent a significant source of liquid
assets. As of March 31, 1999, the Insurers' investment portfolios included $7.9
billion (34% of consolidated assets) of short-term investments and investment
grade marketable bonds. The March 31, 1999 investment portfolio also included
$2.8 billion of investment grade privately placed bonds which, while not
publicly traded, are a source of liquidity.

Some of the policies and annuities issued by the Insurers contain provisions
which allow contractholders to withdraw or surrender their contracts under
defined circumstances. These policies and annuities generally contain provisions
which apply penalties or otherwise restrict the ability of contractholders to
make such withdrawals or surrenders. The Insurers monitor the surrender and
policy loan activity of their insurance products and manage the composition of
their investment portfolios, including liquidity, in light of such activity.
While the Insurers have experienced an increase in withdrawal and surrender
activity attributable to their individual fixed annuity products, the surrender
activity is well below a level which would have a material effect on liquidity.

Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals. In addition to the potential impact on liquidity,
unanticipated withdrawals in a changed interest rate environment could adversely
affect earnings if the Company were required to sell investments at reduced
values in order to meet liquidity demands. The Company seeks assets which have
duration characteristics similar to the liabilities which they support. The
Company also uses derivative instruments, such as interest rate swaps, to adjust
the duration of the asset and liability portfolios (see
Investments-Market-Sensitive Instruments and Risk Management).

The Company's long-term goals contemplate continued growth in its insurance
businesses. To achieve these growth goals, the Insurers will need to increase
their statutory surplus. Statutory surplus is computed according to rules
prescribed by the National Association of Insurance Commissioners (NAIC), as
modified by each Insurer's state of domicile. Statutory accounting rules are
different from generally accepted accounting principles (GAAP) and are intended
to reflect a more conservative perspective by, for example, requiring immediate
recognition of selling expenses. Additional statutory surplus may be secured
through various sources such as internally generated statutory earnings or
equity infusions by ReliaStar with funds generated through debt or equity
offerings.

The state of domicile of each of the Insurers imposes NAIC-developed minimum
risk-based capital requirements on insurance enterprises. The formulas for
determining the amount of risk-based capital specify various weighting factors
that are applied to financial balances and various levels of activity, based
upon the nature and perceived degree of risk associated with such balances and
levels of activity. Regulatory compliance is measured by a company's risk-based
capital ratio, which is calculated as a company's regulatory total adjusted
capital, as defined, divided by its authorized control level risk-based capital,
as defined. Companies with ratios below specific trigger 


                                       12
<PAGE>
 
points are classified within certain regulatory action levels, each of which
requires specified corrective action. The risk-based capital ratio of each of
the Insurers significantly exceeds the ratio at which regulatory corrective
action would be required.

Consolidated Cash Flows

The Company's cash balance at March 31, 1999 was $1.6 million. During the first
quarter of 1999, net cash used by operating and investing activities was $13.5 
million and $87.8 million, respectively, which was offset by net cash provided 
by financing activities of $81.4 million.

The $13.5 million of net cash used by operating activities was primarily the
result of cash outflows for insurance benefits and sales and operating expenses
in excess of positive cash flow from premiums and investment income. Net cash
provided by financing activities of $81.4 million was primarily the result of
proceeds from net deposits to insurance contracts.

INVESTMENTS

The current investment strategy for the Company is designed to maintain the
overall quality of the portfolios, to maintain an appropriate liquidity
position, to assure appropriate asset/liability structures, to achieve asset
type diversification and to avoid issuer concentration.

The Company intends to direct most of its new investment cash flow during 1999
to the acquisition of investment grade marketable and privately placed bonds and
commercial mortgages. The marketable bonds category includes both corporate
issues and structured finance securities such as collateralized mortgage
obligations (CMOs) and other mortgage-backed securities. The Company will make
new investments in below investment grade bonds subject to overall limitations.

The assets held by each of the Insurers are legally segregated and support only
their respective contractual obligations. The investment portfolios of each
Insurer are structured to reflect the characteristics of the liabilities which
they support. The Company internally allocates assets within the Insurers to
facilitate segment asset/liability matching. These segment allocations are
solely for portfolio management purposes, and generally all of the assets
allocated to a segment are available to satisfy the respective liabilities of
all segments within each Insurer. Assets within these portfolios are selected to
provide duration, cash flow and return characteristics which are compatible with
the liabilities they support. All of the investments in the Insurers' portfolios
are subject to diversification, quality and reserving requirements of state laws
regulating the Insurers.



                                       13
<PAGE>
 
The following table provides information regarding the composition of the
Company's invested assets (in millions):

<TABLE>
<CAPTION>
                                                         March 31, 1999             December 31, 1998
                                                      ---------------------      ----------------------
                                                       Amount      Percent        Amount        Percent
                                                      --------     -------       ---------      -------
<S>                                                   <C>             <C>        <C>             <C>  
Investment Grade Bonds:
    Marketables                                       $ 7,730.5       52.3%      $ 7,823.4       52.5%
    Private Placements                                  2,795.3       18.9         2,881.6       19.3
                                                      ---------    -------       ---------      -----
        Subtotal                                       10,525.8       71.2        10,705.0       71.8

Below Investment Grade Bonds:
    Marketables                                           448.4        3.0           391.3        2.6
    Private Placements                                    484.0        3.3           510.4        3.4
                                                      ---------    -------       ---------      -----
           Subtotal                                       932.4        6.3           901.7        6.0

Equity Securities                                          61.2         .4            60.3         .4
Commercial Mortgages                                    1,767.4       12.0         1,726.8       11.6
Mortgages, Residential and Other                          440.3        3.0           428.0        2.9
Real Estate                                                50.4         .3            53.3         .3
Short-Term Investments                                    137.8         .9           168.7        1.2
Other                                                     875.0        5.9           865.3        5.8
                                                      ---------    -------       ---------      -----
    Total Invested Assets                             $14,790.3      100.0%      $14,909.1        100%
                                                      =========    =======       =========      =====
</TABLE>

Fixed Maturity Securities

The amounts invested in fixed maturity securities as of March 31, 1999 and
December 31, 1998 were $11.5 billion and $11.6 billion, respectively. The
average marketable and private placement bond investments in a single corporate
issuer (excluding structured finance securities such as CMOs, mortgage-backed
pass throughs and asset-backed securities) as of March 31, 1999 were $9.4
million and $7.4 million, respectively.

All of the Insurers' marketable and privately placed bonds are required to be
evaluated by the Securities Valuation Office (SVO) of the NAIC. The SVO
evaluates the investments of insurers for regulatory reporting purposes and
assigns securities to one of six investment categories. The NAIC's categories
closely follow the public rating agencies' categories for marketable bonds. NAIC
categories 1 and 2 include bonds considered investment grade (BBB or higher) by
the public rating agencies. Categories 3 through 6 are referred to as below
investment grade (BB or lower).

As of March 31, 1999, the weighted average book yields of the Company's
investment grade portfolio and below investment grade portfolio were 7.5% and
8.6%, respectively. The weighted average book yield is not necessarily
reflective of the net investment income ultimately realized by the Company.
Investments with greater credit risk have a greater risk of default than
investment grade securities, and accordingly, some of the incremental book yield
of the below investment grade portfolio may not be realized.


                                       14
<PAGE>
 
The following tables identify the amortized cost and the fair value of the
Company's fixed maturity securities with respect to each NAIC credit rating
category (in millions):

<TABLE>
<CAPTION>
                                                      March 31, 1999
--------------------------------------------------------------------------------------------------------- 
                                Marketables                                Private Placements  
                ---------------------------------------------  ------------------------------------------          
NAIC            Amortized     Gross Unrealized                                    Gross Unrealized       
                              ----------------       Fair      Amortized     ----------------       Fair
Rating            Cost        Gains     (Losses)     Value       Cost        Gains    (Losses)      Value
------            ----        -----     --------     -----       ----        -----    --------      -----

<S>              <C>          <C>         <C>       <C>        <C>            <C>       <C>       <C>      
1               $5,170.2     $ 212.6     $ (21.1)  $ 5,361.7   $  878.0       $32.9    $  (4.6)  $   906.3
2                2,311.6        75.8       (18.6)    2,368.8    1,856.0        46.8      (13.8)    1,889.0
3                  349.7         5.6        (7.6)      347.7      343.9         4.7       (3.2)      345.4
4                  103.5         2.0        (9.5)       96.0      106.6         1.2       (2.9)      104.9
5                    9.4           -        (5.1)        4.3       32.2          .1       (1.6)       30.7
6                     .4           -           -          .4        3.3           -        (.3)        3.0
Redeemable
  Preferred
  Stock             16.3          .7       (1.0)        16.0       12.7           -        (.4)       12.3
                --------     -------     ------    ---------  ---------       -----    -------    --------
    Total       $7,961.1     $ 296.7     $(62.9)   $ 8,194.9   $3,232.7       $85.7    $ (26.8)   $3,291.6
                ========     =======     ======    =========   ========       =====    =======    ========

                                                     December 31, 1998                                   
---------------------------------------------------------------------------------------------------------                   
                                Marketables                                Private Placements  
                ---------------------------------------------  ------------------------------------------          
NAIC            Amortized     Gross Unrealized                                    Gross Unrealized       
                              ----------------       Fair      Amortized     ----------------       Fair
Rating            Cost        Gains     (Losses)     Value       Cost        Gains    (Losses)      Value
------            ----        -----     --------     -----       ----        -----    --------      -----

1               $5,183.4      $284.8      $(17.1)   $5,451.1   $  849.4      $ 56.1     $  (.6)   $  904.9
2                2,279.0       107.9       (14.6)    2,372.3    1,884.1        93.8       (1.2)    1,976.7
3                  301.8         6.9        (5.4)      303.3      352.2         7.1       (1.5)      357.8
4                   97.5         1.1       (11.2)       87.4      113.0         1.6       (1.8)      112.8
5                     .3           -         (.1)         .2       35.3          .2       (1.6)       33.9
6                     .4           -           -          .4        6.6           -        (.7)        5.9
Redeemable
  Preferred
  Stock             16.3          .3        (5.9)       10.7        7.7           -          -         7.7
                --------     -------      ------   ---------   --------      ------     ------    --------
    Total       $7,878.7      $401.0      $(54.3)   $8,225.4   $3,248.3      $158.8     $ (7.4)   $3,399.7
                ========      ======      ======    ========   ========      ======     ======    ========
</TABLE>

The amortized cost and fair value of fixed maturity securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without prepayment penalties (in millions).

<TABLE>
<CAPTION>
                                                         March 31, 1999                December 31, 1998
                                                    ------------------------        ------------------------
                                                      Amortized     Fair             Amortized       Fair
                                                        Cost        Value              Cost          Value
                                                    ----------    ----------        ----------    ----------
<S>                                                 <C>           <C>               <C>           <C>       
Maturing in:                                                                                     
   One Year or Less                                  $   485.1     $   489.1         $   459.5     $   462.9
   One to Five Years                                   3,539.8       3,649.8           3,555.5       3,710.1
   Five to Ten Years                                   3,004.0       3,082.9           3,022.9       3,191.1
   Ten Years or Later                                  1,247.1       1,290.7           1,296.1       1,375.8
Mortgage-Backed/Structured Finance                     2,917.8       2,974.0           2,793.0       2,885.2
                                                     ---------     ---------         ---------     ---------
     Total                                           $11,193.8     $11,486.5         $11,127.0     $11,625.1
                                                     =========     =========         =========     =========
</TABLE>                                                               

The fair values for actively traded marketable bonds are based upon quoted
market prices. The fair values for marketable bonds without an active market are
obtained through several commercial pricing services which provide the estimated
fair values. Fair market values for privately placed bonds which are not
considered problems are determined utilizing a matrix-based pricing model. The
model considers the current level of risk-free interest rates, current corporate
spreads, the credit quality of the issuer and cash flow characteristics of the
security. Using this data, the model generates estimated market values which the
Company considers reflective of the fair value of each privately placed bond.
Fair values for privately placed bonds which are considered problems are
determined 

                                       15
<PAGE>
 
through consideration of factors such as the net worth of borrower, the value of
collateral, the capital structure of the borrower, the presence of guarantees
and the Company's evaluation of the borrower's ability to compete in their
relevant market (see Problem Investments).

Fair values of fixed income securities fluctuate due to a number of factors,
including the market level of interest rates, fluctuations in the corporate
spreads over the risk-free rate and changes in the credit quality of specific
investments.

The Company's marketable and private placement bond portfolios were diversified
by industry (based upon amortized cost) as set forth in the following table:

<TABLE>
<CAPTION>
                                                     Marketables                  Private Placements 
                                              --------------------------       ---------------------------    
                                              March 31,     December 31,       March 31,      December 31,
                                                1999            1998             1999             1998
                                              ---------     ------------       ---------      ------------
<S>                                              <C>             <C>              <C>              <C> 
Basic Materials                                  6.7%            6.5%             6.5%             7.0%
Consumer Non-Cyclical                            5.4             5.8             14.8             14.6
Consumer Products/Services                       8.7             8.4             18.0             18.7
Energy                                           5.8             6.0              7.9              7.3
Financial Services                              20.0            20.2             15.2             15.8
Government                                       2.6             2.8               .2               .2
Industrial                                       4.7             5.0             11.0             11.1
Mortgage-Backed/Structured
   Finance                                      31.8            30.8             13.2             11.4
Real Estate                                      1.4             1.4              2.0              2.2
Retailing                                        1.8             1.9              4.6              4.7
Technology                                       2.0             2.0              1.8              2.1
Utilities                                        9.1             9.2              4.8              4.9
                                               -----           -----            -----            -----
    Total                                      100.0%          100.0%           100.0%           100.0%
                                               =====           =====            =====            =====
</TABLE>

Below Investment Grade Investments

Issuers of below investment grade debt frequently have relatively high levels of
indebtedness and are more sensitive to adverse economic conditions, such as
recession or increasing interest rates, than are issuers of investment grade
securities.

The largest investment in below investment grade bonds of any one borrower was
approximately one-tenth of one percent of invested assets at March 31, 1999. The
largest investment in below investment grade bonds of any one industry grouping
was approximately 1.6% of invested assets at March 31, 1999. The portfolio of
below investment grade bonds is regularly analyzed and managed in an effort to
avoid concentration risks.



                                       16
<PAGE>
 
Mortgage-Backed/Structured Finance Securities

The Company's investment policy permits the acquisition of mortgage-backed
securities and collateralized mortgage obligations (collectively referred to as
MBS securities) provided that the Company's aggregate investment in MBS
securities shall not exceed 50% of its statutory assets and the Company shall
not acquire any interests in residual, interest only, principal only or inverse
floater tranches of MBS securities. The Company's investment strategy has been
to invest primarily in actively traded MBS securities which are structured to
reduce prepayment risk as compared to direct investments in the underlying
mortgage collateral. The amortized cost and estimated fair value of investments
in MBS securities, categorized by interest rates on the underlying collateral,
were as follows (in millions):

                                              March 31, 1999
                                         ------------------------
                                         Amortized
                                           Cost        Fair Value
                                         --------      ----------
Adjustable Rate Pass Through:
    Below 6%                             $    23.6      $    23.6
    6% - 7%                                   32.6           32.5
    7% - 8%                                  119.0          118.4

Fixed Rate Pass Through:
    Below 9%                                  72.0           73.9
    Above 9%                                   6.5            6.9

Planned Amortization Class:
    Below 7%                                 322.4          337.8
    7% - 8%                                  362.9          379.2
    8% - 9%                                   23.2           23.7
    Above 9%                                   1.5            1.6

Other:
    Below 7%                                 272.3          284.4
    7% - 8%                                   90.9           97.8
    8% - 9%                                   10.9           11.3
    Above 9%                                   2.8            2.8
                                          --------       --------
      Total                               $1,340.6       $1,393.9
                                          ========       ========

The Company invests in public and private asset-backed securities in addition to
the MBS securities described above. As of March 31, 1999, the Insurers held
asset-backed securities with an amortized cost of $1,577.2 million and a fair
value of $1,580.1 million. These securities are collateralized by diversified
pools of manufactured housing loans, credit card receivables, automobile loans,
home equity loans, commercial mortgage loans, and high yield bank loans and
corporate bonds. The investment strategy has been to purchase primarily senior
structures and tranches that minimize prepayment and default risk. As of March
31, 1999, approximately 98% of the Company's asset-backed securities had
investment grade ratings. Approximately 36% of these securities are
collateralized by manufactured housing loans, 21% by commercial mortgage loans,
21% by high yield bank loans and corporate bonds and 10% by home equity loans.
None of the remaining collateral types exceed, on an individual basis, 10% of
total asset-backed securities.

Mortgage Loans

The Company's commercial mortgage loans range in size from $2 million to $26
million, with the average commercial mortgage loan investment as of March 31,
1999 being approximately $2.9 million.



                                       17
<PAGE>
 
The commercial mortgage loan portfolio diversification by property type and
geographic region of the United States was as follows:


                                      March 31,       December 31,
                                        1999              1998
                                      ---------       ------------
Property Type
Apartment                               24.8%             24.5%
Industrial                              19.6              20.6
Retail                                  20.2              19.6
Special Purpose                         19.9              19.1
Office                                  13.5              14.1
Hotel/Motel                              2.0               2.1
                                       -----             -----
     Total                             100.0%            100.0%
                                       =====             =====

                                      March 31,       December 31,
                                        1999              1998
                                      ---------       ------------
Geographic Region
Midwest                                 37.8%             37.4%
Pacific                                 23.7              24.2
Southeast                               15.1              14.7
Northeast                                9.9              10.1
Mountain                                 8.4               8.3
Southwest                                5.1               5.3
                                       -----             -----
     Total                             100.0%            100.0%
                                       =====             =====

The weighted average yield and the weighted average maturity of the loans in the
commercial mortgage loan portfolio as of March 31, 1999 were 7.9% and 8.4 years,
respectively.

The Company invests in individual and pools of individual residential mortgage
loans in addition to the structured finance securities backed by residential
mortgages. As of March 31, 1999 and December 31, 1998, the Insurers held $439.8
and $427.1 million, respectively, of non-securitized residential mortgage loans.

Unrealized Investment Gains and Losses

All of the Company's debt and equity securities are classified as
available-for-sale and carried at fair value on the Condensed Consolidated
Balance Sheets with unrealized investment gains and losses excluded from income
and reported as a component of accumulated other comprehensive income in
shareholders' equity.

Unrealized investment gains, net of unrealized investment losses, are reported
net of related DAC, PVFP and tax effects in accumulated other comprehensive
income as shown below (in millions).

                                                    March 31,      December 31,
                                                      1999             1998
                                                    ---------      ------------
Unrealized Investment Gains                          $314.3           $526.2
DAC/PVFP Adjustment                                   (79.2)          (128.6)
Deferred Income Taxes                                 (80.9)          (140.4)
                                                     ------           ------
     Net Unrealized Investment Gains                 $154.2           $257.2
                                                     ======           ======

Market-Sensitive Instruments and Risk Management

The Company's market risk-sensitive instruments include those financial
instruments as defined by Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures about Financial Instruments," and are all considered to be
entered into for other than trading purposes. The Company's primary market risk
exposure associated with these instruments is the risk associated with changes
in market interest rates.

Changes in interest rates impact the market value of fixed interest rate
securities. The change in market value of the Company's fixed maturity
securities is not expected to have a significant effect on results of operations
or liquidity because: (i) the Company has the present intent and practice to
hold most of its available-for-sale fixed maturity


                                       18
<PAGE>
 
securities to maturity and (ii) the Company's asset/liability management
activity is designed to monitor and adjust for the effects of changes in market
interest rates.

The insurance liabilities of the Company are also sensitive to changes in market
interest rates. Changes in interest rates may affect the incidence of policy
surrenders and other withdrawals. In addition to the potential impact on
liquidity, unanticipated withdrawals in a changed interest rate environment
could adversely affect earnings if the Company were required to sell investments
at reduced values in order to meet liquidity demands.

The Company has established procedures for evaluating these liabilities and
attempts to structure investment asset portfolios with yield, cash flow and
interest rate sensitivities appropriate to support the insurance liabilities.
The Company also uses derivative instruments, such as interest rate swaps, to
adjust the duration of the asset and liability portfolios. In addition, the
Insurers monitor the surrender and policy loan activity of their insurance
products and manage the composition of their investment portfolios in light of
such activity.

The Company manages the composition of its long-term capital by considering
factors such as market conditions and the ratio of long-term debt and
trust-originated preferred securities to total long-term capital.

The Company manages its interest rate risk by managing its assets within target
duration ranges, based on the Company's liability profile. The Company uses
duration analysis to estimate the amount of sensitivity to market interest rate
changes. The duration of a bond or portfolio can be thought of as the life, in
years, of a notional zero-coupon bond whose fair value would change by the same
amount in response to any change in market interest rates. The portfolio
duration includes the duration impact added by interest rate swaps and caps and
equity-indexed call options.

The target duration ranges are determined by the Company based upon the
subjective evaluation of a number of characteristics of the liabilities,
including such factors as the ability of the Company to modify interest
crediting rates, the presence and magnitude of surrender charges, historical and
projected lapse experience, the level of market interest rates and competition.
A goal of this risk control process is to optimize portfolio performance
relative to the product liability requirements.

The following table sets forth the asset duration, portfolio duration and target
duration for the investment portfolio of each business segment (in years):


                                                   March 31, 1999  
                                       -------------------------------------- 
                                         Asset         Portfolio      Target
                                       Duration        Duration      Duration
                                       --------        --------      --------
Personal Financial Services               4.2            4.2          3.5-5.0
Worksite Financial Services               3.1            3.3          3.0-6.0
Tax-Sheltered and Fixed Annuities         3.9            4.1          4.0-5.5
Reinsurance                               4.4            4.4          3.5-8.0

The Company uses interest rate swaps as part of this asset/liability management
program. The Company has acquired a significant amount of certain shorter
duration investments, such as floating rate or adjustable rate investments.
Acquisition of these assets shortens the duration of an asset portfolio. The
Company uses interest rate swaps to extend the duration of these portfolios as
an alternative to purchasing longer duration investments.

At March 31, 1999, the Company had 60 interest rate swap contracts in effect
with a notional amount of $1.12 billion. At December 31, 1998, the Company had
60 interest rate swap contracts in effect with a notional amount of $897.5
million. During the first quarter of 1999, one interest rate swap contract was
entered into with a notional amount of $275.0 million and one interest rate swap
contract matured with a notional amount of $5.0 million. There were no
terminations of interest rate swap contracts prior to maturity during the first
quarter of 1999. The Company had no deferred gains or losses at March 31, 1999
related to interest rate swap contracts terminated early. The estimated fair
value of the interest rate swap contracts in effect at March 31, 1999 was an
unrealized gain of $17.9 million, which is reported with other invested assets
in the Condensed Consolidated Balance Sheets.


                                       19
<PAGE>
 
Most of the interest rate swap contracts are standard contracts whereby the
Company pays a floating rate of interest (generally based upon the LIBOR rate as
determined from time to time) and receives a fixed rate (generally a specified
contract rate). The following table details the characteristics of the Company's
interest rate swap contracts at March 31, 1999 (dollars in millions).


                                        Notional        Range of Fixed
                                         Amount         Rates Received
                                        --------        --------------
Maturing in:
   One Year or Less                     $  383.0          5.5 - 6.9%
   One to Three Years                      494.5          5.3 - 8.2%
   Three to Five Years                     240.0          6.0 - 7.0%
                                        --------
     Total                              $1,117.5
                                        ========

The Company monitors the effect of the swap position on reported income. The
Company's investment portfolio includes a substantial amount of floating rate
investments. Changes in market interest rates have an opposite (and
approximately offsetting) effect on the reported income from the swap portfolio.
Accordingly, the reported investment income (or loss) attributable to the
Company's swap position will be approximately offset by the changed investment
income of the Company's floating or adjustable rate investments in a changing
rate environment. At March 31, 1999, the Company held $1.0 billion of adjustable
rate invested assets, short-term investments and cash.

The Company holds certain call option contracts indexed to the performance of
the S&P 500 Index as part of its asset/liability management strategy for its
equity-indexed annuity products. The Company held 40 call options with a
notional amount of $40.2 million and an estimated fair value of $13.6 million as
of March 31, 1999.

The Company also uses interest rate caps as part of its overall interest rate
risk management strategy for certain annuity products primarily to hedge the
risk of investment losses due to product surrenders in an increasing interest
rate environment. The Company held nine interest rate caps with a notional
amount of $735.0 million and a fair value of less than $0.1 million as of March
31, 1999.

Problem Investments

The Company classifies invested assets of the Insurers as problem investments
where: (i) an asset is delinquent in a required payment of principal or
interest; (ii) an asset is the subject of a foreclosure action or the borrower
is in bankruptcy; (iii) a loan has been restructured; or (iv) a loan has been
foreclosed and the collateral is owned (Problem Investments). The Company
reports a mortgage loan as delinquent when a required payment of principal or
interest is 60 days past due. Fixed maturity securities are reported as
delinquent following the contractual grace period allowed for any required
payment of principal or interest. The Company generally considers a loan as
restructured when one or more of the following terms is changed for the benefit
of the borrower: (i) interest rate for a specified period of time or for the
life of the loan; (ii) maturity date; (iii) principal face amount or timing of
principal repayments on a contingent or absolute basis; or (iv) amount or timing
of payment of accrued interest.

The amortized cost of Problem Investments, net of related write-offs and
allowances and non-recourse debt, was as follows (in millions):


                                               March 31,      December 31,
                                                 1999             1998     
                                               ---------      ------------
Private Placement Bonds                         $   6.0          $  9.5
Marketable Bonds                                     .7             1.1
Commercial Mortgage Loans                           5.5             8.7
Residential and Other Mortgage Loans                3.8             6.1
Investment Real Estate(1)                           8.4             8.3
Foreclosed Real Estate                             28.7            30.5
Other                                                .4              .4
                                                -------          ------
     Total                                      $  53.5          $ 64.6
                                                =======          ======
                                                          
(1)  The amounts shown represent real estate acquired as an investment which the
     Company has determined to be Problem Investments.


                                       20
<PAGE>
 
The amortized cost of Problem Investments in the preceding table reflects
reductions for write-offs and allowances taken by the Company. The cumulative
amounts of such write-offs and allowances on problem invested assets of the
Insurers in the Condensed Consolidated Balance Sheets were as follows (in
millions):

                                                   March 31,    December 31,
                                                     1999           1998 
                                                   ---------    ------------    
Private Placement Bonds                               $12.4          $9.0
Marketable Bonds                                        1.6           2.0
Commercial Mortgage Loans                               7.2           7.6
Residential and Other Mortgage Loans                    1.1           1.1
Foreclosed Real Estate                                 20.7          21.3
Other                                                   4.4           4.4

The Company establishes the carrying value of all Problem Investments. For
problem marketable securities, the fair value is the quoted market value. For
problem private placement debt securities, the fair value is determined through
consideration of factors such as the net worth of the borrower, the value of
collateral, the capital structure of the borrower, the presence of guarantees
and the Company's evaluation of the borrower's ability to compete in their
relevant market.

For problem and potential problem securities, the Company determines whether a
decline in fair value below the amortized cost is other than temporary. If the
decline in fair value is determined to be other than temporary, the Company
writes down the cost basis to fair value and the amount of the write-down is
recorded as a realized loss. Subsequent changes in the fair value of problem
available-for-sale securities which are determined to be temporary are reflected
directly in equity as unrealized investment gains or losses.

Fair value for problem real estate and problem mortgage loans is determined
taking into consideration one or more of the following factors, depending on the
circumstances for each property, including: (i) property valuation techniques
utilizing discounted cash flows at the time of stabilization including capital
expenditures and stabilization costs; (ii) sales of comparable properties; (iii)
geographic location of the property and related market conditions; and (iv)
disposition costs. In many instances, there is not an active market for such
properties. Therefore, the fair value determined by the Company may be greater
than the price which may be realized if the Company were forced to liquidate
such properties on an immediate sale basis. If fair value of a problem mortgage
loan or real estate investment is less than the carrying value, the Company
records a write-off or an increase in the allowance for uncollectible amounts.
Foreclosed properties are managed by the Company in order to maximize net
realizable value. The Company has the intent and ability to hold these assets
until appropriate sales opportunities arise.

The Company also monitors its portfolios in an attempt to identify loans which
are not currently classified as Problem Investments, but where the Company has
knowledge which causes it to have serious doubts as to the ability of borrowers
to comply with the present loan repayment terms. These loans (Potential Problem
Investments) are subject to increased scrutiny and review by the Company. The
amounts of private placements, marketable bonds, and mortgage loan Potential
Problem Investments were $41.6 million, $21.8 million and $.5 million,
respectively, at March 31, 1999.



                                       21
<PAGE>
 
KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE REPORTED RESULTS

Guaranty Association Assessments

The Insurers are subject to state guaranty association assessments in all states
in which they are admitted. Generally, these associations guarantee specified
amounts (commonly $100,000 of surrender values or $300,000 of other benefits)
payable to residents of the state under policies of insolvent insurers. State
laws vary widely on coverage (and inclusion in the assessment base) of GICs.
Most state laws permit assessments or some portion thereof to be credited
against future premium taxes. However, several states do not permit such a
credit. While the Company believes that it has accrued appropriate amounts based
upon currently available information, the Company could be subject to additional
future assessments in amounts which may be material.

Litigation

The Company is a defendant in a number of lawsuits arising out of the normal
course of its businesses. Some of the claims seek to be granted class action
status and many of the claims seek both compensatory and punitive damages. It
should be noted that a number of financial services companies have been
subjected to significant awards in connection with punitive damages claims and
the Company can make no assurances that it will not be subjected to such an
award. During the first quarter of 1999, ReliaStar was sued for an alleged
breach of contract to provide workers compensation reinsurance. The Company has
denied the existence of any such contract. The Company believes the results of
litigation will not have a material adverse effect on the financial position of 
the Company.

Financial Services Deregulation

The United States Congress is considering legislation which will allow banks and
other financial services companies to affiliate with insurance companies. The
integration of financial services may impact competition for the products
distributed by the Company. The Company cannot predict the impact of these
proposals on the earnings of the Company.

Year 2000 Systems Modifications

The Company's business units utilize data processing systems in the
administration of the insurance and financial services products which they
market. Most of the Company's data processing systems have required
modifications to enable them to process dates including the year 2000 and
beyond.

In 1995, the Company initiated an enterprise wide program of identifying and
modifying systems affected by the year 2000. The Company developed a plan
whereby all systems would be identified, modified and tested for Year 2000
compliance by the end of 1998. The Company initiated a structured review and
reporting system whereby senior management is regularly advised of the status of
the project. As of March 31, 1999, ReliaStar had converted, tested for Year 2000
compliance and put into production 241 (96%) of its 250 core business
applications. Of the remaining core business applications, 5 (2%) were in final
date simulation testing, and 4 (2%) were in the process of being upgraded to, or
replaced with, Year 2000-compliant systems. By the end of the second quarter of
1999, the Company expects that all core business applications will be converted,
tested for Year 2000 compliance and put into production.

The Company conducts business with a multitude of business entities whose
ability to comply with Year 2000 systems issues may affect the business
operations of the Company. The Company has made an attempt to determine whether
such entities have adequate plans for Year 2000 compliance, and the Company is
not aware of any instances where a key supplier or vendor will not be compliant.
The Company does not have the ability to assure with any certainty the
compliance capacity of third parties.

Since the inception of the Year 2000 program and for the remainder of the
program, the Company has and expects to continue to redirect certain internal
and external data processing resources to its Year 2000 efforts. The Company
estimates that during the year ended December 31, 1999, its total Year 2000
project costs will be approximately $2.5 million (pre-tax) for external and
redirected internal resources. The Company believes that the 



                                       22
<PAGE>
 
completion of the Year 2000 project will not have a material impact on the level
of spending for information systems in future periods.

The Company's business would be adversely affected if it does not meet its goals
relative to Year 2000 preparedness, and the Company's plans reflect the
importance of this project. Due to the Company's dependence on data processing
for the operation of its business, the Company cannot reasonably develop
contingency plans which would comprehensively address widespread systems
failures.

Certain Forward-Looking Information

All statements contained in this Form 10-Q, press releases and other public
disclosures relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "expect," and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors that may cause actual results to
be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: general economic
conditions and other factors, including prevailing interest rate levels and
stock market performance, which may affect the Company's ability to sell its
products, the market value of the Company's investments and the lapse rate and
profitability of the Company's policies; the Company's ability to achieve
anticipated levels of operating efficiencies; mortality and morbidity; changes
in federal income tax laws that may affect the relative tax advantages of some
of the Company's products; and regulatory changes or actions, including those
relating to regulation of financial services affecting bank sales and
underwriting of insurance products and regulation of the sale, underwriting and
pricing of insurance products.





                                       23
<PAGE>
 
Part II. Other Information


                            RELIASTAR FINANCIAL CORP.

Item 5.  Other Information:

ReliaStar announced on April 8, 1999 that the board of directors named Robert C.
Salipante president and chief operating officer, effective July 1, 1999. Mr.
Salipante has been head of the Personal Financial Services (PFS) division since
1996. Mr. Salipante joined ReliaStar in 1992 as chief financial officer and was
named head of strategic marketing and technology in 1994. He succeeds John H.
Flittie, who announced in December that he would retire on June 30, 1999.

ReliaStar announced on April 15, 1999 that Wayne R. Huneke has been named senior
executive vice president of the Company. In addition to his current
responsibilities as head of ReliaStar Financial Markets, Mr. Huneke's role
within the enterprise has been expended to include Corporate Financial and
Information Technology. ReliaStar Financial Markets includes Successful Money
Management Seminars, ReliaStar Bank, ReliaStar Trust, ReliaStar Financial
Lifeline (our direct services operation), Washington Square Securities and
PRIMEVEST. Mr. Huneke joined ReliaStar in 1986 and was named chief financial
officer in 1994. He was given the responsibilities of chief information officer
in 1996. He moved to his current position in ReliaStar Financial Markets in
1997.


Item 6.  Exhibits and Reports on Form 8-K:

         (a)  Exhibits:
                  (3)  Bylaws

                  (11) Statement re Computation of Per Share Earnings

                  (27) Financial Data Schedule

         (b) Reports on Form 8-K:

                  None.




                                       24
<PAGE>
 
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                  Dated May 13, 1999        

                                  RELIASTAR FINANCIAL CORP.








                                  /s/ James R. Miller    
                                  -------------------------
                                  by James R. Miller
                                  Senior Vice President, Chief Financial
                                  Officer and Treasurer