<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, 1998

                                       OR

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

For the Transition period from __________________ to _________________.

Commission File Number  1-10640

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

          DELAWARE                                                41-1620373
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 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, 1998 was
91,208,691.
<PAGE>
 
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                            RELIASTAR FINANCIAL CORP.
                      Condensed Consolidated Balance Sheets
                                  (in millions)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                           March 31, 1998         December 31, 1997
                                                           --------------         -----------------
<S>                                                       <C>                     <C>
ASSETS
Fixed Maturity Securities                                     $  11,246.3               $  11,146.7
Equity Securities                                                    40.4                      27.0
Mortgage Loans on Real Estate                                     2,214.1                   2,270.7
Real Estate and Leases                                               75.1                      74.5
Policy Loans                                                        669.3                     663.3
Other Invested Assets                                                76.0                      81.1
Short-Term Investments                                              209.3                     157.2
                                                             ------------              ------------
     Total Investments                                           14,530.5                  14,420.5
Cash                                                                 49.8                      46.4
Accounts and Notes Receivable                                       304.8                     217.5
Reinsurance Receivable                                              330.7                     324.4
Deferred Policy Acquisition Costs                                 1,119.6                   1,091.9
Present Value of Future Profits                                     469.0                     480.0
Property and Equipment, Net                                         113.4                     112.4
Accrued Investment Income                                           205.3                     200.6
Other Assets                                                        738.8                     641.2
Participation Fund Account Assets                                   315.1                     316.6
Assets Held in Separate Accounts                                  3,555.8                   3,149.3
                                                             ------------              ------------
       TOTAL ASSETS                                          $   21,732.8              $   21,000.8
                                                             ============              ============

LIABILITIES
Future Policy and Contract Benefits                          $   13,383.8              $   13,329.4
Pending Policy Claims                                               352.5                     340.5
Other Policyholder Funds                                            293.2                     286.5
Notes and Mortgages Payable                                         630.3                     593.5
Income Taxes                                                        220.6                     192.1
Other Liabilities                                                   671.3                     545.5
Participation Fund Account Liabilities                              315.1                     316.6
Liabilities Related to Separate Accounts                          3,550.3                   3,143.8
                                                             ------------              ------------
       TOTAL LIABILITIES                                         19,417.1                  18,747.9
                                                             ------------              ------------

Company-Obligated Mandatorily Redeemable Preferred
   Securities Issued by Consolidated Subsidiaries                   242.0                     241.9
                                                             ------------              ------------

SHAREHOLDERS' EQUITY
Common Stock (Shares Issued: 1998, 98.1; 1997, 98.1)                   .9                        .9
Additional Paid-in Capital                                        1,012.4                   1,019.8
Retained Earnings                                                 1,014.9                     964.8
Net Unrealized Investment Gains                                     228.5                     226.2
Note Receivable from ESOP                                           (20.4)                    (20.8)
Unamortized Restricted Stock Awards                                  (1.2)                     (1.0)
Treasury Common Stock, at Cost (Shares Held: 1998, 
 7.1; 1997, 7.7)                                                   (161.4)                   (178.9)
                                                             ------------              ------------
       TOTAL SHAREHOLDERS' EQUITY                                 2,073.7                   2,011.0
                                                             ------------              ------------

       TOTAL LIABILITIES AND
       SHAREHOLDERS' EQUITY                                  $   21,732.8              $   21,000.8
                                                             ============              ============
</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
                                                              -------------------------------
                                                                  1998               1997
                                                              ------------      -------------
<S>                                                           <C>               <C>
REVENUES
Premiums                                                      $      235.0      $       204.7
Net Investment Income                                                281.7              234.7
Realized Investment Gains, Net                                         7.2                2.2
Policy and Contract Charges                                          100.6               64.9
Other Income                                                          73.8               56.7
                                                              ------------      -------------
     Total                                                           698.3              563.2
                                                              ------------      -------------

BENEFITS AND EXPENSES
Benefits to Policyholders                                            380.3              317.5
Sales and Operating Expenses                                         153.9              121.4
Amortization of Deferred Policy Acquisition 
     Costs and Present Value of Future Profits                        41.9               28.4
Interest Expense                                                      10.4                7.4
Dividends and Experience Refunds to Policyholders                      5.9                7.1
                                                              ------------      -------------
     Total                                                           592.4              481.8
                                                              ------------      -------------

Income Before Income Taxes and Dividends on 
     Preferred Securities of Subsidiaries                            105.9               81.4
Income Tax Expense                                                    38.0               28.4
Dividends on Preferred Securities of 
     Subsidiaries, Net of Tax                                          3.3                1.7
                                                              ------------      -------------

Net Income                                                    $       64.6      $        51.3
                                                              ============      =============

NET INCOME PER COMMON SHARE
Basic                                                         $       0.71      $        0.64
                                                              ============      =============

Diluted                                                       $       0.70      $        0.63
                                                              ============      =============


Weighted Average Common Shares
     Basic                                                            91.0               80.2
     Diluted                                                          92.8               81.4
</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
                                                            -------------------------
                                                               1998           1997
                                                            ----------     ----------
<S>                                                         <C>            <C>
COMMON STOCK
   Beginning and End of Period                              $       .9     $       .4
                                                            ----------     ----------

ADDITIONAL PAID-IN CAPITAL
   Beginning of Year                                           1,019.8          571.9
   Issued for Benefit Plans                                         --            5.3
   Gain (Loss) on Treasury Shares
      Reissued for Benefit Plans                                 (13.4)            .4
   Loss on Treasury Shares Reissued
      for Acquisitions                                             (.9)            --
   Tax Benefit on Stock Options Exercised                          6.9             .9
                                                            ----------     ----------
      End of Period                                            1,012.4          578.5
                                                            ----------     ----------

RETAINED EARNINGS
   Beginning  of Year                                            964.8          794.2
   Net Income                                                     64.6           51.3
   Common Dividends to Shareholders: (Per Share: 1998,
      $.155; 1997, $.14)                                         (14.1)         (11.2)
   Other, Net                                                      (.4)            .2
                                                            ----------     ----------
      End of Period                                            1,014.9          834.5
                                                            ----------     ----------

NET UNREALIZED INVESTMENT GAINS
   Beginning of Year                                             226.2          140.8
   Change for the Period                                           2.3          (80.7)
                                                            ----------     ----------
      End of Period                                              228.5           60.1
                                                            ----------     ----------

NOTE RECEIVABLE FROM ESOP
   Beginning of Year                                             (20.8)         (21.6)
   Repayments, Accrued or Paid                                      .4             .4
                                                            ----------     ----------
      End of Period                                              (20.4)         (21.2)
                                                            ----------     ----------

UNAMORTIZED RESTRICTED STOCK AWARDS
   Beginning of Year                                              (1.0)          (1.8)
   Awards, Net                                                     (.3)           (.2)
   Amortization of Restricted Stock Awards                          .1             .3
                                                            ----------     ----------
      End of Period                                               (1.2)          (1.7)
                                                            ----------     ----------

TREASURY COMMON STOCK
   Beginning of Year                                            (178.9)         (66.2)
   Acquired                                                      (32.5)          (1.7)
   Reissued for Acquisitions                                      21.2             --
   Reissued, Other                                                28.8            1.6
                                                            ----------     ----------
      End of Period                                             (161.4)         (66.3)
                                                            ----------     ----------

TOTAL SHAREHOLDERS' EQUITY                                  $  2,073.7     $  1,384.3
                                                            ==========     ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
                 Condensed Consolidated Statements of Cash Flows
                                  (in millions)
                                   (unaudited)
                                                          Three Months Ended 
                                                                March 31
                                                         ---------------------
                                                           1998         1997
                                                         --------     --------
OPERATING ACTIVITIES
Net Income                                               $   64.6     $   51.3
Adjustments to Reconcile Net Income to Net
  Cash Provided by Operating Activities
     Interest Credited to Insurance Contracts               145.6        122.9
     Future Policy Benefits                                (153.4)       (58.5)
     Capitalization of Policy Acquisition Costs             (54.6)       (50.5)
     Amortization of Deferred Policy Acquisition
        Costs and Present Value of Future Profits            41.9         28.4
     Deferred Income Taxes                                    3.4          3.9
     Net Change in Receivables and Payables                  46.2           .5
     Other Assets                                           (43.0)       (50.7)
     Realized Investment Gains, Net                          (7.2)        (2.2)
     Other                                                   (4.7)         1.6
                                                         --------     --------
          Net Cash Provided by Operating Activities          38.8         46.7
                                                         --------     --------

INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities             73.1         83.8
Proceeds from Maturities or Repayment of
   Fixed Maturity Securities                                279.3        173.5
Cost of Fixed Maturity Securities Acquired                 (462.2)      (353.1)
Sales (Purchases) of Equity Securities, Net                 (11.6)        13.6
Proceeds of Mortgage Loans Sold, Matured or Repaid          118.9        124.5
Cost of Mortgage Loans Acquired                             (63.0)      (132.5)
Sales of Real Estate and Leases, Net                           .3          2.7
Policy Loans Issued, Net                                     (6.0)        (6.1)
Sales (Purchases) of Other Invested Assets, Net              21.8         (3.1)
Purchases of Short-Term Investments, Net                    (51.4)        (4.3)
Cash Acquired with Acquisitions, Net                          1.3           --
                                                         --------     --------
          Net Cash Used by Investing Activities             (99.5)      (101.0)
                                                         --------     --------

FINANCING ACTIVITIES
Deposits to Insurance Contracts                             405.4        311.2
Maturities and Withdrawals from Insurance Contracts        (343.1)      (304.5)
Increase in Notes and Mortgages Payable                      42.6         41.7
Repayment of Notes and Mortgages Payable                     (6.2)         (.1)
Issuance of Common Stock Under Stock Option
   and Other Plans                                           12.0          6.4
Dividends on Common Stock                                   (14.1)       (11.2)
Acquisition of Treasury Common Stock                        (32.5)        (1.7)
                                                         --------     --------
          Net Cash Provided by Financing Activities          64.1         41.8
                                                         --------     --------
Increase (Decrease) in Cash                                   3.4        (12.5)
Cash at Beginning of Period                                  46.4         32.4
                                                         --------     --------
Cash at End of Period                                    $   49.8     $   19.9
                                                         ========     ========

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, 1997
filed with the Securities and Exchange Commission (SEC) except for the
accounting changes as described in Note 2. The financial information included
herein, other than the condensed consolidated balance sheet as of December 31,
1997, has been prepared by management without audit by independent certified
public accountants. The condensed consolidated balance sheet as of December 31,
1997 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, 1997.

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 1997 Annual Report.

Note 2. Accounting Changes

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES

Effective for transactions occurring on or after January 1, 1998, the Company
adopted those provisions of Statement of Financial Accounting Standards (SFAS)
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which were deferred by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No.
125 requires a company to recognize the financial and servicing assets it
controls and the liabilities it has incurred and to derecognize financial assets
when control has been surrendered in accordance with the criteria provided in
SFAS No. 125. The adoption of these provisions had no effect on the financial
results of the Company.

REPORTING COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a company's full set of
financial statements. SFAS No. 130 defines comprehensive income as "the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners." Comprehensive income (loss)
for the three month periods ended March 31, 1998 and 1997 was as follows (in
millions):

                                             1998       1997
                                           -------    -------
Net Income                                 $  64.6    $  51.3
Change in Net Unrealized Investment Gains      2.3      (80.7)
                                           -------    -------
     Comprehensive Income (Loss)           $  66.9    $ (29.4)
                                           =======    =======

                                       6
<PAGE>
 
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information. " SFAS No. 131 establishes
standards for the way that a company reports information about operating
segments in financial statements using a "management approach" to aggregate
operating segments. The Company operates in four reportable segments: Personal
Financial Services, which represents the Company's individual life insurance
products; Worksite Financial Services, which sells group and individual
insurance products, retirement plans and financial services to employers and
their employees at the worksite; Tax-Sheltered and Fixed Annuities, which sells
403(b) annuities and other retirement products, primarily to the K-12
schoolteacher market; and Reinsurance, which sells group life, health and
special risk reinsurance and specialty insurance products in the United States
and internationally.

Note 3. Acquisitions

In January 1998, the Company completed the acquisitions of ReliaStar Bancshares,
Inc., formerly known as Citizens Community Bancshares Co. and ReliaStar Managing
Underwriters, Inc., formerly known as LaMar & Phillips, Inc.

ReliaStar Bancshares, Inc. is a bank holding company whose subsidiary, ReliaStar
Bank, is based in St. Cloud, Minnesota. ReliaStar Bank is a federally chartered
savings bank that provides consumer banking products. This acquisition was
accounted for using the purchase method of accounting and was effected through a
stock-for-stock exchange whereby the Company issued approximately 228,000 shares
of ReliaStar common stock from treasury. Goodwill recorded as a result of this
transaction was approximately $3 million.

ReliaStar Managing Underwriters, Inc. is a managing general underwriter, located
in Brentwood, Tennessee, specializing in the HMO reinsurance and provider excess
business. This acquisition was accounted for using the purchase method of
accounting and was effected through a stock-for-stock exchange whereby the
Company issued approximately 330,000 shares of ReliaStar common stock from
treasury. Goodwill recorded as a result of this transaction was approximately
$14 million.

The pro forma effect of these transactions on prior period consolidated results
is not material.

During the first quarter of 1998, the Company repurchased 560,000 of its common 
shares in a common stock buyback program completed in conjunction with these 
acquisitions.

                                       7
<PAGE>
 
ITEM 2.
                            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
                                                  -------------------
                                                   1998         1997
                                                  -------     -------
Operating Income (Loss) 1
   Personal Financial Services Segment            $  21.4     $  12.5
   Worksite Financial Services Segment               13.9        10.2
   Tax-Sheltered and Fixed Annuities Segment         17.8        20.4
   Reinsurance Segment                                9.4         8.7
   Other Business Units                               3.8         1.3
   Corporate                                         (5.1)       (2.8)
                                                  -------     -------
       Operating Income                              61.2        50.3
Net Realized Investment Gains, Net of Tax             3.4         1.0
                                                  -------     -------
   Net Income                                     $  64.6     $  51.3
                                                  =======     =======

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).

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." As a result, the Company now
reports its segment results consistent with the way it manages its businesses.
The Company has four reportable operating segments: Personal Financial Services,
Worksite Financial Services, Tax-Sheltered and Fixed Annuities, and Reinsurance
(see Note 2 to Notes to Condensed Consolidated Financial Statements). Prior
period segment information has been restated to conform to the current
presentation.

The Company conducts its operations primarily through its life insurance
subsidiaries: ReliaStar Life Insurance Company (ReliaStar Life), Northern Life
Insurance Company (Northern), ReliaStar United Services Life Insurance Company
(United Services), 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.

On July 1, 1997, ReliaStar completed the acquisition of Security-Connecticut
Corporation (SCC). The acquisition was accounted for using the purchase method
of accounting and, accordingly, the results of operations prior to July 1, 1997
do not include the results of SCC or its former subsidiaries.

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
---------------------------

Operating income of the Personal Financial Services segment for the first three
months of 1998 increased $8.9 million, or 71%, compared with the same period in
1997. The increase in operating income is primarily due to the additional
earnings in 1998 from the SCC life insurance subsidiaries which totaled $7.1
million. The remaining increase in operating income was primarily due to an
increase in interest spreads and increased fee income resulting from growth in
separate account assets under management. The interest spread of 248 basis
points in the first quarter of 1998 compares to 237 basis points in the first
quarter of 1997. This increase in spreads reflects an 8 basis point increase in
the portfolio yield and a 3 basis point reduction in the average crediting rate.
We expect that the average interest spread for the remainder of 1998 will be
lower than the rate experienced in the first 

                                       8
<PAGE>
 
quarter of 1998, primarily as a result of declining investment 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 some of the business included in the Personal Financial
Services 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
on most new premiums received to the end of the calendar year.

Separate account assets under management increased to $1.8 billion as of March
31, 1998 from $1.2 billion as of March 31, 1997. Total assets under management
increased to $6.8 billion as of March 31, 1998 from $4.6 billion as of March 31,
1997. This increase includes $1.8 billion of general account assets under
management from the SCC life insurance subsidiaries.

Total sales (annualized new premiums and deposits) for the first three months of
1998 were $104.3 million compared to $84.0 million in the same period of 1997.
Sales from the SCC life insurance subsidiaries totaled $13.5 million in the
first three months of 1998. Excluding sales from the SCC life insurance
subsidiaries, sales for the first three months of 1998 increased 8% compared
with the same period in 1997, reflecting a 14% increase in individual life
insurance sales and an 11% increase in variable annuity sales, partially offset
by a 35% decrease in fixed annuity sales.

Worksite Financial Services
---------------------------

Operating income of the Worksite Financial Services segment for the first three
months of 1998 increased $3.7 million, or 36%, compared with the same period in
1997. The increase in operating income is primarily due to increased investment
income and lower expense levels compared with the first three months of 1997.
Operating income in the group life, individual life sold at the worksite and
retirement plan lines of business increased in the first three months of 1998 by
$1.4 million, $.6 million and $.6 million, respectively, compared with the same
period in 1997. Operating income from the Company's closed block of pension
contract liabilities increased $.7 million in the first three months of 1998
compared with the same period of 1997.

Total sales for the first three months of 1998 were $157.0 million compared with
$160.5 million in the same period of 1997. Group life, group health and
retirement plan sales decreased slightly in the first quarter of 1998 compared
with the same period in 1997. Sales of individual life products sold at the
worksite were down 26% in the first three months of 1998 compared to the first
three months of 1997.

Tax-Sheltered and Fixed Annuities
---------------------------------

Operating income of the Tax-Sheltered and Fixed Annuities segment for the first
three months of 1998 decreased $2.6 million, or 13%, compared with the same
period in 1997. The decrease in operating income is primarily due to strong
first quarter 1997 results, which included a favorable DAC catch-up adjustment,
and compared with the first three months of 1997, higher levels of non-
deferrable expenses and a decrease in interest spreads. The interest spread of
258 basis points in the first quarter of 1998 compares to 264 basis points in
the first quarter of 1997. This decrease in spreads reflects a 14 basis point
decrease in the portfolio yield, offset in part by an 8 basis point reduction in
the average crediting rate. We expect that the average interest spread for the
remainder of 1998 will be lower than the rate experienced in the first quarter
of 1998, primarily as a result of declining investment 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 some of the business included in the Tax-Sheltered and
Fixed Annuities 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 on most new premiums received to the end of the calendar year.

Assets under management increased 9% to $7.0 billion as of March 31, 1998 from
$6.4 billion as of March 31, 1997.

Total sales for the first three months of 1998 were $131.6 million compared with
$127.2 million in the same period of 1997. The increase in sales reflects a 65%
increase in sales of variable annuities and a 10% decrease in fixed annuity
sales.

Reinsurance
-----------

                                       9
<PAGE>
 
Operating income of the Reinsurance segment for the first three months of 1998
increased $.7 million, or 8%, compared with the same period in 1997. The
increase in operating income is primarily due to a 34% increase in earned
premiums, partially offset by a higher overall loss ratio and higher commissions
expenses. 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 1998 were $52.0 million compared with
$26.6 million in the same period of 1997, an increase of 95%, primarily due to
strong sales of special risk, group health and international reinsurance.

Other Business Units
--------------------

Other Business Units include the Company's mutual fund operations, mortgage
banking operations, broker/dealer operations and personal finance education
company. Operating income of the Other Business Units for the first three months
of 1998 increased $2.5 million, or 192%, compared with the same period in 1997.
The increase in operating income is primarily due to improved operating earnings
from the Company's mutual fund operations, which included a $2.7 million pretax
gain on the sale of 12b-1 fees attributable to a portion of their Class B
shares.

Corporate
---------

Corporate includes financing costs, goodwill amortization and other unallocated
costs. Operating losses of Corporate for the first three months of 1998
increased $2.3 million compared with the same period in 1997. The increase in
operating losses is primarily due to increased financing costs and goodwill
amortization related to the acquisition of SCC.

REALIZED INVESTMENT GAINS AND LOSSES

The sources of net realized investment gains (losses) were as follows (in
millions):

                                                  Three Months
                                                 Ended March 31
                                                -----------------
                                                 1998       1997
                                                ------     ------
Net Gains (Losses) on Sales of Investments
    Fixed Maturity Securities
     Gross Gains                                $  0.9     $  0.6
     Gross Losses                                 (0.2)      (3.2)
    Equity Securities                               .6        2.2
    Foreclosed Real Estate                          --         .2
    Real Estate                                     --         .1
    Other                                          9.7        5.4
Provision for Losses on Investments
   Fixed Maturity Securities                      (3.5)       (.7)
   Mortgage Loans                                   --       (1.4)
   Foreclosed Real Estate                          (.3)      (1.0)
                                                ------     ------
Pretax Realized Investment Gains                   7.2        2.2
DAC/PVFP Amortization 1                           (2.0)       (.6)
Income Taxes                                      (1.8)       (.6)
                                                ------     ------
       Net Realized Investment Gains,
        Net of Tax                              $  3.4     $  1.0
                                                ======     ======

1 Due to pretax realized investment gains and losses.

The Company establishes allowances and writes down the value of specific assets
based upon its continuing review of individual problem investments. The
Company's recording of allowances and write-downs based upon a review of
individual problem investments 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

                                       10
<PAGE>
 
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 by the Insurers is subject to restrictions imposed by
applicable insurance laws and regulations.

The payment of future dividends by ReliaStar 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 1998, the amount of dividends which can be paid by ReliaStar Life without
Commissioner approval is $186.4 million.

The Company maintains a $75.0 million unsecured revolving credit facility with a
group of banks. As of March 31, 1998, $44.0 million remained available for
borrowing under this facility.

During the first quarter of 1998, the Company repurchased 560,000 of its common
shares at an average price of $46.58 per share in a common stock buyback program
completed in conjunction with the acquisition of ReliaStar Managing
Underwriters, Inc. and ReliaStar Bancshares, Inc.

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, 1998, the Insurers' investment portfolios included $8.0
billion (37% of consolidated assets) of short-term investments and investment
grade marketable bonds. The March 31, 1998 investment portfolio also included
$2.6 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 recently 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.

                                       11
<PAGE>
 
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-Derivative
Financial Instruments).

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.

The Company's long-term growth goals contemplate continued growth in its
insurance businesses. To achieve these growth goals, the Insurers will need to
increase their statutory surplus. Additional statutory surplus may be secured
through various sources such as internally generated statutory earnings or
equity infusions by the Company 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 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, 1998 was $49.8 million. During the first
quarter of 1998, net cash provided by operating and financing activities was
$38.8 million and $64.1 million, respectively, which was offset by net cash used
by investing activities of $99.5 million.

The $38.8 million of net cash provided by operating activities was primarily the
result of positive cash flow from premiums and investment income in excess of
cash outflows for insurance benefits and sales and operating expenses. Net cash
provided by financing activities of $64.1 million was primarily the result of
proceeds from net deposits to insurance contracts, short-term borrowings and
issuance of commercial paper, partially offset by funds used to acquire
ReliaStar common stock.

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 for the
remainder of 1998 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 

                                       12
<PAGE>
 
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.

The following table provides information regarding the composition of the
Company's invested assets as of the indicated dates (in millions):

<TABLE>
<CAPTION>
                                           March 31, 1998           December 31, 1997
                                      ----------------------     ----------------------
                                        Amount       Percent        Amount      Percent
                                      -----------    -------     -----------    -------
<S>                                   <C>            <C>         <C>            <C>
Investment Grade Bonds:
    Marketables                       $   7,823.6       53.8%    $   7,824.4       54.2%
    Private Placements                    2,609.1       18.0         2,619.4       18.2
                                      -----------    -------     -----------    -------
        Subtotal                         10,432.7       71.8        10,443.8       72.4

Below Investment Grade Bonds:
    Marketables                             348.9        2.4           296.7        2.0
    Private Placements                      459.0        3.2           400.6        2.8
                                      -----------    -------     -----------    -------
           Subtotal                         807.9        5.6           697.3        4.8

Equity Securities                            40.4         .3            27.0         .2
Commercial Mortgages                      1,589.0       10.9         1,594.9       11.1
Mortgages, Residential and Other            625.1        4.3           675.8        4.7
Real Estate                                  75.1         .5            74.5         .5
Short-Term Investments                      209.3        1.4           157.2        1.1
Other                                       751.0        5.2           750.0        5.2
                                      -----------    -------     -----------    -------
    Total Invested Assets                14,530.5      100.0%    $  14,420.5      100.0%
                                      ===========    =======     ===========    =======
</TABLE>

FIXED MATURITY SECURITIES

The amounts invested in fixed maturity securities as of March 31, 1998 and
December 31, 1997 were $11.2 billion and $11.1 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, 1998 were $9.2
million and $7.0 million, respectively.

All of the Company's 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, 1998, the weighted average book yields of the Company's
investment grade portfolio and below investment grade portfolio were 7.6% and
8.5%, 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.








The following tables identify the amortized cost and the fair value of the
Company's fixed maturity securities with respect to each NAIC credit
classification as of the indicated dates (in millions):

                                       13
<PAGE>
 
<TABLE>
<CAPTION>
                                                     March 31, 1998
----------------------------------------------------------------------------------------------------------
                                Marketables                                Private Placements
                -------------------------------------------    -------------------------------------------
                                Gross Unrealized                               Gross Unrealized
NAIC            Amortized     -------------------      Fair    Amortized      ----------------        Fair
Rating            Cost        Gains      (Losses)     Value       Cost        Gains    (Losses)      Value
------            ----        -----      --------     -----       ----        -----    --------      -----
<S>             <C>           <C>        <C>        <C>        <C>           <C>      <C>         <C>
1               $5,300.8      $257.9       $(6.9)   $5,551.8   $  843.6       $39.5    $  (1.8)   $  881.3
2                2,169.1       106.6        (3.9)    2,271.8    1,657.3        72.0       (1.5)    1,727.8
3                  305.2        12.1        (2.2)      315.1      283.2         7.6       (1.0)      289.8
4                   30.7         1.2        (0.4)       31.5      155.6         4.1       (1.8)      157.9
5                    1.6           -        (0.1)        1.5       10.0          .6       (0.1)       10.5
6                     .8           -           -          .8         .8           -          -          .8
Redeemable
  Preferred
  Stock              3.7          .5           -         4.2        1.5           -          -         1.5
                --------      ------      -------   --------   --------      ------      ------   --------
    Total       $7,811.9      $378.3      $(13.5)   $8,176.7   $2,952.0      $123.8      $(6.2)   $3,069.6
                ========      ======      =======   ========   ========      ======      ======   ========

</TABLE>

<TABLE>
<CAPTION>
                                            December 31, 1997
----------------------------------------------------------------------------------------------------------
                                Marketables                                Private Placements
                -------------------------------------------    -------------------------------------------
                                Gross Unrealized                               Gross Unrealized
NAIC            Amortized     -------------------      Fair    Amortized      ----------------        Fair
Rating            Cost        Gains      (Losses)     Value       Cost        Gains    (Losses)      Value
------            ----        -----      --------     -----       ----        -----    --------      -----
<S>             <C>           <C>        <C>        <C>        <C>           <C>      <C>         <C>

1               $5,306.0      $260.8       $(6.6)   $5,560.2   $  877.0       $41.6    $  (2.0)   $  916.6
2                2,154.5       114.1        (4.4)    2,264.2    1,634.2        71.7       (3.1)    1,702.8
3                  264.2        11.5        (0.8)      274.9      244.7         5.2       (0.6)      249.3
4                   19.0         0.5        (0.2)       19.3      137.5         3.9       (1.2)      140.2
5                    1.6         0.1        (0.1)        1.6       10.2         0.1       (0.1)       10.2
6                    0.9           -           -         0.9        0.9           -          -         0.9
Redeemable
  Preferred
  Stock              3.7         0.4           -         4.1        1.5           -          -         1.5
                --------      ------      -------   --------   --------      ------      ------   --------
    Total       $7,749.9      $387.4      $(12.1)   $8,125.2   $2,906.0      $122.5      $(7.0)   $3,021.5
                ========      ======      =======   ========   ========      ======      ======   ========
</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 call or prepayment penalties (in millions).

<TABLE>
<CAPTION>
                                               March 31, 1998              December 31, 1997
                                        --------------------------    --------------------------
                                          Amortized       Fair         Amortized         Fair
                                            Cost          Value          Cost           Value
                                        -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>
Maturing in:
   One Year or Less                     $     177.7    $     179.2    $     199.9    $     200.9
   One to Five Years                        3,666.1        3,805.3        3,651.3        3,789.2
   Five to Ten Years                        3,021.5        3,194.0        3,006.4        3,180.7
   Ten Years or Later                       1,200.0        1,273.6        1,244.0        1,324.4
Mortgage-Backed/Structured Finance          2,698.6        2,794.2        2,554.3        2,651.5
                                        -----------    -----------    -----------    -----------
     Total                              $  10,763.9    $  11,246.3    $  10,655.9    $  11,146.7
                                        ===========    ===========    ===========    ===========
</TABLE>

The fair values for the marketable bonds are based upon the quoted market prices
for bonds actively traded. 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. Utilizing these 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 through consideration of factors such as the
net worth of borrower, the value of collateral, the capital 

                                       14
<PAGE>
 
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 of the indicated dates as set forth
in the following table:

<TABLE>
<CAPTION>
                                      Marketables                  Private Placements
                               --------------------------       ---------------------------
                               March 31,     December 31,       March 31,      December 31,
                                 1998            1997             1998             1997
                                 ----            ----             ----             ----
<S>                            <C>           <C>                <C>            <C>
Basic Materials                   6.6%            6.7%             8.3%             8.9%
Consumer Non-Cyclical             5.7             5.7             16.6             18.0
Consumer Products/Services        7.7             7.5             17.6             16.8
Energy                            6.0             5.7              6.5              6.6
Financial Services               20.7            20.8             16.8             20.5
Government                        3.1             3.2              0.6              0.6
Industrial                        4.3             3.9             10.4              9.3
Mortgage-Backed/Structured
   Finance                       31.3            31.4              8.5              4.3
Real Estate                       0.7             0.7              1.4              1.5
Retailing                         2.0             2.1              5.7              5.6
Technology                        1.7             1.8              2.3              2.5
Utilities                        10.2            10.5              5.3              5.4
                                -----           -----            -----            -----
    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 two-tenths of one percent of invested assets at March 31, 1998.
The largest investment in below investment grade bonds of any one industry
grouping was approximately 1.9% of invested assets at March 31, 1998. The
portfolio of below investment grade bonds is regularly analyzed and managed in
an effort to avoid concentration risks.

                                       15
<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 comprised of the following (in millions):

                                              March 31, 1998
                                         ----------------------------
                                         Amortized    
                                           Cost           Fair Value
                                         ---------        ----------
Adjustable Rate Pass Through:
    Below 6%                             $   15.4         $   15.6
    6% - 7%                                  82.4             83.0
    7% - 8%                                 214.5            213.9
    Above 8%                                 32.9             33.2

Fixed Rate Pass Through:
    Below 9%                                 95.6             97.9
    Above 9%                                  9.6             10.2

Planned Amortization Class:
    Below 7%                                302.3            320.6
    7% - 8%                                 387.0            407.7
    8% - 9%                                 111.3            116.5
    Above 9%                                  4.9              5.1

Other:
    Below 7%                                221.8            235.9
    7% - 8%                                  91.9            100.0
    8% - 9%                                  26.9             28.3
    Above 9%                                 11.8             12.2
                                         --------         --------
      Total                              $1,608.3         $1,680.1
                                         ========         ========

The Company invests in asset-backed securities in addition to the MBS securities
described above. As of March 31, 1998, the Insurers held asset-backed securities
with an amortized cost of $1,090.3 million and a fair value of $1,114.1 million.

                                       16
<PAGE>
 
MORTGAGE LOANS

The Company's commercial mortgage loans generally range in size from $4 million
to $7 million, with the average commercial mortgage loan investment as of March
31, 1998 being approximately $2.6 million.

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

                                    March 31,       December 31,
Property Type                         1998              1997
-------------                       ---------       -----------
Apartment                             22.2%             20.9%
Industrial                            20.6              20.8
Office                                19.6              20.4
Retail                                18.4              18.4
Special Purpose                       18.2              18.2
Hotel/Motel                            1.0               1.3
                                     -----             -----
     Total                           100.0%            100.0%
                                     =====             =====

                                    March 31,       December 31,
Geographic Region                     1998              1997
-----------------                   ---------       -----------
Midwest                               32.0%             32.7%
Pacific                               26.1              25.3
Southeast                             18.1              18.5
Northeast                             10.0               9.9
Mountain                               7.7               7.5
Southwest                              6.1               6.1
                                     -----             -----
     Total                           100.0%            100.0%
                                     =====             =====

The weighted average yield of the commercial mortgage loan portfolio as of March
31, 1998 was 8.4%. The weighted average maturity of these loans was 7.5 years.

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, 1998 and December 31, 1997, the Insurers held $624.0
and $674.6 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 separate component of shareholders' equity.

The components of net unrealized investment gains reported in shareholders'
equity are shown below (in millions):

                                          March 31,   December 31,
                                            1998         1997
                                          --------     --------
Unrealized Investment Gains               $  485.8     $  489.1
DAC/PVFP Adjustment                         (134.5)      (138.8)
Deferred Income Taxes                       (122.8)      (124.1)
                                          --------     --------
     Net Unrealized Investment Gains      $  228.5     $  226.2
                                          ========     ========

Changes in unrealized investment gains or losses are primarily the result of
fluctuations in market interest rates which 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 securities to

                                       17
<PAGE>
 
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.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company has an established program prescribing the use of derivatives in its
asset/liability management activity. The investment policy of each of the
Insurers expressly precludes the use of such instruments for speculative
purposes. The policy details permissible uses and instruments and contains
accounting and management controls designed to assure compliance with these
policies. The Company is not a party to leveraged derivatives.

The insurance liabilities of the Company are sensitive to changes in market
interest rates. The Company has established procedures for evaluating these
liabilities and attempts to structure investment asset portfolios with
compatible characteristics. Investment assets are selected in an effort to
provide yield, cash flow and interest rate sensitivities appropriate to support
the insurance products.

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. 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 operating segment (in years):

<TABLE>
<CAPTION>
                                                            March 31, 1998
                                           -------------------------------------------
                                             Asset           Portfolio        Target
                                           Duration          Duration        Duration
                                           --------          --------        ---------
<S>                                        <C>               <C>             <C>
Personal Financial Services                   3.9              4.0           3.5 - 5.0
Worksite Financial Services                   2.9              3.3           3.0 - 6.0
Tax-Sheltered and Fixed Annuities             3.9              4.1           3.5 - 5.0
Reinsurance                                   4.2              4.3           3.5 - 8.0
</TABLE>

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, 1998, the Company had 65 interest rate swap contracts in effect
with a notional amount of $1.06 billion. At December 31, 1997, the Company had
71 interest rate swap contracts in effect with a notional amount of $1.16
billion. During the first quarter of 1998, six interest rate swap contracts
matured with a notional amount of $105.0 million. There were no terminations of
interest rate swap contracts prior to maturity during the first quarter of 1998.
The Company had no deferred gains or losses at March 31, 1998 related to
interest rate swap contracts terminated early. The estimated fair value of the
interest rate swap contracts in effect at March 31, 1998 was an unrealized gain
of $13.6 million.

                                       18
<PAGE>
 
All 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, 1998 (dollars in millions).

                                           Notional             Range of Fixed
                                            Amount              Rates Received
                                         ----------             --------------
Maturing in:
   One Year or Less                          $215.0                5.2 - 8.7%
   One to Three Years                         472.5                5.3 - 6.9%
   Three to Five Years                        240.0                6.3 - 8.2%
   Five to Seven Years                        130.0                6.6 - 6.8%
                                         ----------
     Total                                 $1,057.5
                                         ==========

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, 1998, the Company held $1.5 billion of adjustable
rate invested assets, short-term investments and cash.

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 eight interest rate caps with a notional
amount of $510.0 million and a fair value of $0.1 million as of March 31, 1998.

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) the 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,
                                                  1998             1997
                                                ---------       -----------
Private Placement Bonds                          $  8.1           $  6.2
Marketable Bonds                                    2.7              2.7
Commercial Mortgage Loans                          14.2             12.5
Residential and Other Mortgage Loans                5.5              7.3
Investment Real Estate 1                            8.4              8.4
Foreclosed Real Estate                             42.5             42.3
                                                  -----            -----
    Total                                         $81.4            $79.4
                                                  =====            =====

1 The amounts shown represent real estate acquired as an investment which the
Company has determined to be Problem Investments.

                                       19
<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 on the Condensed Consolidated Balance Sheets were as follows (in
millions):

                                                March 31,       December 31,
                                                  1998              1997
                                                --------        -----------
Private Placement Bonds                           $9.5             $6.0
Marketable Bonds                                    .8               .8
Commercial Mortgage Loans                          9.0              9.0
Residential and Other Mortgage Loans               1.1              1.1
Foreclosed Real Estate                            23.9             23.6

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 $29.7 million, $2.4 million and $14.5 million,
respectively, at March 31, 1998.

KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE REPORTED RESULTS

HEALTH CARE MARKETPLACE ENVIRONMENT

The marketplace for the provision of health care employee benefits is changing
in response to legislative and regulatory initiatives and a market trend toward
capitated and managed care plans. The Company has determined that it will not
seek to directly provide capitated plans, but rather has marketed plans
maintained by third party managed care organizations through a series of
strategic alliances in selected markets. The Worksite Financial Services segment
has experienced a significant decline in sales of insured health and health
related products and expects that its insured health and health related business
will decline over the next several years. The Company does not expect
significant new sales of insured health and health related products. The Company
cannot predict the impact that these market developments will have on future
reported earnings. The health insurance and health 

                                       20
<PAGE>
 
related businesses of the Worksite Financial Services segment represented
approximately 5% of the Company's after tax earnings in 1997.

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, including several class action suits which seek both
compensatory and punitive damages. The Company believes the results of
litigation will not have a material adverse effect on the financial position of
the Company. Some financial services companies have recently been subjected to
significant awards in connection with class actions and/or suits seeking
punitive damages. While the Company is not aware of any actions or allegations
which should reasonably give rise to any material adverse effect, it is possible
that the Company could be subjected to such a claim in an amount which could be
material.

FINANCIAL SERVICES DEREGULATION

The United States Congress is currently considering a number of legislative
proposals intended to reduce or eliminate restrictions on affiliations among
financial services organizations. Proposals are extant which would allow banks
to own or affiliate with insurers and securities firms. An increased presence of
banks in the life insurance and annuity businesses may increase competition in
these markets. 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 production
of new business and to service business after it is sold. Many of the Company's
data processing systems require modifications to enable them to process dates
including the year 2000 and beyond. The Company has a thorough and complete plan
to address the year 2000 issue and that work is progressing on schedule.

During 1998, the Company expects to redirect certain internal and external data
processing resources to efforts which will enable its data processing systems to
process dates including the year 2000 and beyond. The Company expects its Year
2000 work will be substantially complete by the end of 1998. The Company
believes the net effect of these efforts will not materially impact the
Company's 1998 consolidated financial statements, however, some additional
expenditures for external resources will be incurred.

IMPACT OF ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED IN THE FUTURE

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP No. 98-1 provides guidance
on accounting for costs associated with computer software developed or obtained
for internal use and is effective for fiscal years beginning after December 15,
1998, with earlier adoption permitted. The Company has not yet completed its
analysis of the impact of this pronouncement.

                                       21
<PAGE>
 
PART II.  OTHER INFORMATION

                            RELIASTAR FINANCIAL CORP.

ITEM 2.   CHANGES IN SECURITIES:

     (c)  Recent Sales of Unregistered Securities:

          Since January 1, 1998, the Registrant has issued and sold an aggregate
          of 558,272 shares of common stock that were not registered under the
          Securities Act of 1933, as amended ("Securities Act"). 227,888 of
          these shares were issued to the former shareholders of Citizens
          Community Bancshares Co. in connection with the acquisition by the
          Registrant of such company and its wholly-owned subsidiary, Citizens
          Community Bank (now known as ReliaStar Bank). In addition, 330,384 of
          these shares were issued to the former shareholders of LaMar &
          Phillips, Inc. in connection with the acquisition of that company (now
          known as ReliaStar Managing Underwriters, Inc.) These issuances were
          made by the Registrant in reliance upon Sections 4(2) and 4(6) of the
          Securities Act. With respect to such issuances, the certificates
          representing such shares were printed with a legend restricting their
          transfer and a stop transfer order was given to the Registrant's
          transfer agent with respect to such shares.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K:

     (a)  Exhibits:

          (11) Statement re Computation of Per Share Earnings

          (27) Financial Data Schedule

     (b)  Reports on Form 8-K:

              None.

                                       22
<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 14, 1998
                                        ----------------------------------
                                  RELIASTAR FINANCIAL CORP.




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

                                       23