ILIAC's home office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. All Company office space is leased or subleased by ILIAC or other affiliates. ILIAC pays substantially all expenses associated with its leased and subleased office properties. Expenses not paid directly by ILIAC are paid by an affiliate and allocated back to ILIAC.
On June 30, 2000, HOLDCO contributed AIS to the Company. Refer to Note 2 of the Notes to Consolidated Financial Statements.
(1) Year-ended 2000 reflects an aggregation of the pre-acquisition period of the eleven months ended November 30, 2000 and the post acquisition period of one month ended December 31, 2000. (2) Includes $75.0 million in 2001, $107.8 million in 2000 and $71.5 million in 1999 for annuity premiums on contracts converting from the accumulation phase to payout options with life contingencies. (3) Represents consolidating adjustment related to the assets under management reported in the Worksite Products and Individual Products segments and also in the Investment Management Services segment. (4) Includes $11,272.2 million, $13,492.1 million and $13,472.4 million at December 31, 2001, 2000 and 1999, respectively, of assets invested through the Company's products in unaffiliated mutual funds. (5) Assets under management relating to fixed options excludes net unrealized capital gains of $291.0 million at December 31, 2001, net unrealized capital losses of $126.9 million at December 31, 2000 and net unrealized capital gains of $247.9 million at December 31, 1999. (6) As of December 31, 2001, 2000 and 1999, amounts included $2,648.1 million, $5,837.1 million and $6,986.3 million, respectively, of assets managed for Aetna Life Insurance Company, a former affiliate of the Company (refer to Note 1 of the Notes to Consolidated Financial Statements). (7) Represents assets for which the Company provides administrative services only.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) CONSOLIDATED RESULTS (continued) CONTINUING OPERATIONS
Income from continuing operations decreased $84 million in 2001 and increased $2 million in 2000. Income from continuing operations includes Year 2000 costs of $18 million in 1999. Excluding amortization of goodwill and the restructuring charge in 2001 and net realized capital losses, income from continuing operations decreased $2 million in 2001 and increased $11 million in 2000.
The decrease in income in 2001 is primarily due to a decrease in charges assessed against policyholders resulting from lower levels of assets under management and an increase in the effective tax rate substantially offset by a decrease in operating expenses and an increase in other income.
The increase in income in 2000 primarily reflects an increase in charges assessed against policyholders and other income resulting from higher levels of assets under management and administration partially offset by higher operating expenses.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) CONSOLIDATED RESULTS (continued) The increase in the effective tax rate for the year-ended December 31, 2001 primarily relates to the disallowance of goodwill amortization as a deduction and a decrease in the deduction for dividends received.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) WORKSITE PRODUCTS (continued) decrease in charges assessed against policyholders primarily offset by a decrease in operating expenses. The decrease in 2000 net income excluding net realized capital losses primarily reflects an increase in operating expenses partially offset by an increase in charges assessed against policyholders and other income.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) INDIVIDUAL PRODUCTS
(1) Year-ended 2000 data reflects an aggregation of the pre-acquisition period of the eleven months ended November 30, 2000 and the post acquisition period of one month ended December 31, 2000. (2) Restructuring charges and amortization of goodwill incurred in 2001 and Year 2000 costs incurred in 1999 are not allocated to segment expenses; and, therefore, are excluded in the determination of segment net income. (3) Includes $2,482.6 million, $4,409.7 million, and $4,185.6 million of assets under management at December 31, 2001, 2000 and 1999, respectively, that are also reported in the Investment Management Services segment (refer to "Consolidated Results"). (4) Excludes net unrealized capital gains of $37.4 million and $20.1 million at December 31, 2001 and 2000, respectively, and net unrealized capital losses of $30.1 million at December 31, 1999. (5) Includes $2,726.1 million at December 31, 2001, $3,423.7 million at December 31, 2000, and $3,537.0 million at December 31, 1999 related to assets invested through the Company's products in unaffiliated mutual funds.
Individual Products' net income was level in 2001 and increased $9 million in 2000 when compared to the prior year. Excluding net realized capital gains and losses, net income decreased $9 million, or 27%, in 2001 and increased $11 million, or 49%, in 2000. The decrease in 2001 net income excluding net realized capital gains and losses is primarily due to a decrease in charges assessed against policyholders and an increase in operating expenses. The increase in 2000 net income excluding net realized capital losses primarily reflects an increase in charges assessed against policyholders and other income partially offset by an increase in operating expenses.
Compared to the previous year, charges assessed against policyholders for the year-ended December 31, 2001 decreased because assets under management were lower throughout most of 2001
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) INVESTMENT MANAGEMENT SERVICES (continued) OPERATING SUMMARY
For the Investment Management Services segment, net income excluding realized capital gains in 2001 and 2000 increased $18 million, or over 100%, for the year-ended December 31, 2001, and decreased $18 million, or 65%, for the year-ended December 31, 2000. The increase for 2001 primarily reflects a decrease in operating expenses partially offset by a decrease in investment advisory fees. The decrease for 2000 primarily reflects an increase in operating expenses partially offset by an increase in investment advisory fees.
Investment advisory fees, reported in "other income" are calculated based on assets under management. Assets under management were 25% lower at December 31, 2001 than the prior year primarily due to the change in the advisory agreements previously discussed and a decline in the stock market. At December 31, 2000, assets under management were relatively level when compared to the prior year.
Refer to "Overview" and Notes 2 and 16 of the Notes to Consolidated Financial Statements.
On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln. Refer to Note 3 of the Notes to Consolidated Financial Statements for further discussion on the sale.
The Company's investment strategies and portfolios are intended to match the cashflow characteristics of the related liabilities and provide sufficient cash flow to meet obligations while maintaining a competitive rate of return. The duration of the investment portfolios supporting the Company's liabilities is regularly monitored and adjusted in order to maintain an aggregate duration that is within 0.5 years of the target duration. Customers assume the risks associated with the investments supporting "experience rated" products subject to, among other things, principal and interest guarantees.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) GENERAL ACCOUNT INVESTMENTS (continued) The Company's invested assets were comprised of the following:
(1) Includes $467.2 million and $126.7 million of debt securities pledged to creditors at December 31, 2001 and 2000, respectively. Refer to "Investments" in Note 1 of Notes to Consolidated Financial Statements. (2) Includes $2.3 million of short-term investments pledged to creditors at December 31, 2000. Refer to "Investments" in Note 1 of Notes to Consolidated Financial Statements
At December 31, 2001 and 2000, the Company's carrying value of available for sale debt securities including debt securities pledged to creditors (herein after referred to as "total debt securities") represented 95% of the general account invested assets. For the same periods, $11.4 billion, or 81% of total debt securities, and $8.9 billion, or 79% of total debt securities supported experience rated products. Total debt securities reflected net unrealized capital gains of $291.0 million and $126.9 million at December 31, 2001 and 2000, respectively.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) GENERAL ACCOUNT INVESTMENTS (continued) The portfolio of debt securities at December 31, 2001 and 2000 included $735 million (5.3% of the total debt securities) and $482 million (4.3% of the total debt securities), respectively, of investments that are considered "below investment grade". "Below investment grade" securities are defined to be securities that carry a rating below BBB- and Baa3, by Standard & Poor's and Moody's Investors Services, respectively.
Assuming an immediate increase of 100 basis points in interest rates, the net hypothetical loss in fair value of shareholder's equity related to financial and derivative instruments is estimated to be $28 million (after tax) at December 31, 2001 and $44 million (after tax) at December 31, 2000. The Company believes that an interest rate shift of this magnitude represents a moderately adverse scenario, and is approximately equal to the historical annual volatility of interest rate movements for the Company's intermediate term available-for-sale debt securities. The Company has included corresponding changes in certain insurance liabilities in this sensitivity analysis.
The risks associated with investments supporting experience rated pension and annuity products are assumed by those contractholders, not by the Company (subject to, among other things, principal and interest guarantees). Risks associated with the investments and liabilities related to experience-rated pension and annuity products are not included in the sensitivity analysis presented below.
The Company's available-for-sale equity securities are comprised primarily of domestic stocks. Assuming an immediate decrease of 10% in equity prices for domestic equity securities, the hypothetical loss in fair value of shareholder's equity related to financial and derivative instruments is estimated to be $2 million (after tax) at December 31, 2001 and 2000.
We amortize our deferred policy acquisition costs and value of business acquired on our annuity and pension contracts in proportion to estimated gross profits and adjusted to reflect actual gross profits over the life of the contracts (up to 30 years for annuity and pension contracts). Our estimated gross profits are computed based on assumptions related to the underlying contracts including, but not limited to, charges assessed against policyholders, margins, lapse, persistency, expenses and asset growth rates.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) CRITICAL ACCOUNTING POLICIES (continued) Our current estimated gross profits include certain judgments concerning charges assessed against policyholders, margins, lapse, persistency, expenses and asset growth that are based on a combination of actual company experience and historical market experience of equity and fixed income returns. Estimated gross profits are adjusted periodically to take into consideration the actual experience to date and changes in future assumptions. Short-term variances of actual results from the judgments made by management can impact quarter to quarter earnings.
These forward-looking statements rely on a number of assumptions concerning future events, and are subject to a number of significant uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from these statements. You should not put undue reliance on these forward-looking statements. We disclaim any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS (continued) FORWARD-LOOKING INFORMATION/RISK FACTORS (continued) CERTAIN FACTORS PARTICULAR TO THE COMPANY'S OPERATIONS
LITIGATION CAN ADVERSELY AFFECT US. Litigation also could adversely affect us, both through costs of defense and adverse results or settlements. Refer to Note 15 of the Notes to Consolidated Financial Statements and Legal Proceedings for information regarding litigation.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ING Life Insurance and Annuity Company and Subsidiaries at December 31, 2001, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.
As discussed in Note 1, the Company adopted Financial Accounting Standards (FAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and FAS No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
In our opinion, the Successor Company's consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the period from December 1, 2000 to December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Preacquisition Company's consolidated financial statements referred to above present fairly, in all material respects, the results of their operations and their cash flows for the period from January 1, 2000 to November 30, 2000, and the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.
ING LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (Formerly known as Aetna Life Insurance and Annuity Company, a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
The allocation of the purchase price to assets and liabilities has been subjected to further refinement throughout 2001 as additional information has become available to more precisely estimate the fair values of the Company's respective assets and liabilities at the purchase date. The refinements to the Company's purchase price allocations are as follows:
The Company determined that the establishment of a liability for certain noncancellable operating leases that existed prior to or at the acquisition date but are no longer providing a benefit to the Company's operations, was warranted; and
Unaudited proforma consolidated income from continuing operations and net income of the Company for the period from January 1, 2000 to November 30, 2000 and for the year-ended December 31, 1999, assuming that the acquisition of the Company occurred at the beginning of each period, would have been approximately $118.1 million and $123.5 million, respectively. The pro forma adjustments, which do not affect revenues, reflect primarily goodwill amortization, amortization of the favorable lease asset and the elimination of amortization of the deferred gain on sale associated with the life business.
Investment Management Services provides: investment advisory services to affiliated and unaffiliated institutional and retail clients on a fee-for-service basis; underwriting services to the ING Series Fund, Inc. (formerly known as the Aetna Series Fund, Inc.), and the ING Variable
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The contributions of AIS and IA Holdco to the Company were accounted for in a manner similar to that of a pooling-of-interests and, accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of both companies.
Certain reclassifications have been made to 2000 and 1999 financial information to conform to the 2001 presentation.
Warrants are carried at fair value and are recorded as either derivative instruments or FAS No. 115 available for sale securities. Warrants that are considered derivatives are carried at fair value if they are readily convertible to cash. The values of these warrants can fluctuate given that the companies which underlie the warrants are non-public companies. At December 31, 2001, the estimated value of these warrants was immaterial. These warrants will be revalued each quarter and the change in the value of the warrants will be included in the consolidated statements of income.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) longer be amortized but will be subject to annual impairment tests in accordance with the new standard. Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on the accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the new standard is expected to result in an increase in net income; however, the Company is still assessing the impact of the new standard. During 2002, the Company will perform the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.
All of the Company's fixed maturity and equity securities are currently designated as available-for-sale. Available-for-sale securities are reported at fair value.
Fair values for fixed maturity securities are obtained from independent pricing services or broker/ dealer quotations. Fair values for privately placed bonds are determined using a matrix-based model. The matrix-based model considers the level of risk-free interest rates, current corporate spreads, the credit quality of the issuer and cash flow characteristics of the security. The fair values for equity securities are based on quoted market prices. For equity securities not actively traded, estimated fair values are based upon values of issues of comparable yield and quality or conversion value where applicable.
In September 2000, the FASB issued FAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. In accordance with this new standard, general account securities on loan are reflected on the Consolidated Balance Sheet as "Securities pledged to creditors", which includes the following:
Total securities pledged to creditors at December 31, 2001 consisted entirely of debt securities.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The investment in affiliated mutual funds represents an investment in funds managed by Aeltus Investment Management, Inc. ("Aeltus"), an indirect wholly owned subsidiary of HOLDCO. Funds managed by ILIAC and subadvised by outside investment advisers, and funds managed by ING Pilgrim Investments, LLC, and is carried at fair value.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Periodically, modifications may be made to deferred annuity contract features, such as shortening the surrender charge period, waiving the surrender charge, or changing the mortality and expense fees. Unamortized deferred policy acquisition costs associated with these modified contracts are not written off, but rather, continue to be associated with the original block of business to which these costs were previously recorded. Such costs are amortized based on revised estimates of expected gross profits based upon the contract after the modification.
Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related expenses.
VOBA is an asset and represents the present value of estimated net cash flows embedded in the Company's contracts acquired by ING. VOBA is amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits over the contracts (up to 30 years for annuity contracts and pension contracts). VOBA is written off to the extent that it is determined that gross profits are not adequate to recover the asset.
Reserves for immediate annuities with life contingent payout contracts are computed on the basis of assumed investment yield, mortality, and expenses, including a margin for adverse deviations. Such assumptions generally vary by plan, year of issue and policy duration. Reserve interest rates
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) range from 2.0% to 9.5% for all years presented. Investment yield is based on the Company's experience.
Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) which are managed by the Company, or other selected mutual funds not managed by the Company.
The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverable balances deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on the Consolidated Balance Sheets, $3.0 billion at both December 31, 2001 and 2000 is related to the reinsurance recoverable from Lincoln arising from the sale of the Company's domestic life insurance business (refer to Note 3).
On June 30, 2000, HOLDCO contributed AIS to the Company. AIS is registered with the Securities and Exchange Commission as a broker/dealer and is a member of the National Association of Securities Dealers, Inc. It is also registered with the appropriate state securities authorities as a broker/dealer and is a Registered Investment Advisor. The principal operation of AIS is acting as underwriter for ILIAC's manufactured products, as well as the sale of fixed and variable annuities and mutual funds through its registered representatives.
Debt securities available for sale as of December 31 were as follows:
4. INVESTMENTS (continued) The amortized cost and fair value of total debt securities for the year-ended December 31, 2001 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
At December 31, 2001 and 2000, debt securities with carrying values of $9.0 million and $8.6 million, respectively, were on deposit as required by regulatory authorities.
5. FINANCIAL INSTRUMENTS (continued) Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company's management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.
MORTGAGE LOANS: The fair values for commercial mortgages are estimated using a discounted cash flow approach. Commercial loans in good standing are discounted using interest rates determined by U.S. Treasury yields on each December 31 and spreads required on new loans with similar characteristics. The amortizing features of all loans are incorporated into the valuation. Where data on option features was available, option values were determined using a binomial valuation method and were incorporated into the mortgage valuation.
WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts.
WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand.
Included in common stocks are warrants which are instruments giving the Company the right, but not the obligation to buy a security at a given price during a specified period. The carrying values and estimated fair values of the Company's warrants to purchase equity securities at December 31, 2001 and 2000 were both $0.3 million.
The Company also had investments in certain debt instruments that contain embedded derivatives, including those whose market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short- or long-term), exchange rates, prepayment rates, equity markets or credit ratings/spreads. The estimated fair value of the embedded derivatives within such securities as of December 31, 2001 was ($15.5) million.
7. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY (continued) accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net (loss) income was $(92.3) million, $100.6 million and $133.9 million for the years-ended December 31, 2001, 2000, and 1999, respectively. Statutory capital and surplus was $826.2 million and $931.1 million as of December 31, 2001 and 2000, respectively.
Proceeds from the sale of total debt securities and the related gross gains and losses were as follows:
Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. As of December 31, 2001 and 2000, no valuation allowance was required for unrealized capital gains and losses.
As of December 31, 2001, the Transition Pension Plan merged into the ING Americas Retirement Plan ("ING Pension Plan"), which is sponsored by ING North America Insurance Corporation ("ING North America"), an affiliate of ILIAC. The ING Pension Plan covers substantially all U.S. employees. Accordingly, the Company transferred $17.4 million of net assets ($11.3 million after tax) related to the movement of the Transition Pension Plan to ING North America. The Company reported this transfer of net assets as a $11.3 million reduction in paid in capital. The new plan's benefits are based on years of service and the employee's average annual compensation during the last five years of employment. Contributions are determined using the Projected Unit Credit Method and are limited to the amounts that are tax-deductible.
In addition to providing pension benefits, ILIAC, in conjunction with ING, provides certain health care and life insurance benefits for retired employees. Retirees are generally required to contribute to the plans based on their years of service with the Company. The costs to the Company associated with the former Aetna postretirement plans for 2001, 2000, and 1999 were $0.6 million, $1.2 million and $2.1 million, respectively.
11. BENEFIT PLANS (continued) postretirement plans for 2001, 2000, and 1999 were $0.5 million, $1.4 million and $2.1 million, respectively.
ILIAC, in conjunction with ING, also has a Savings Plan. Substantially all employees are eligible to participate in the savings plan under which designated contributions, which may be invested in a variety of financial instruments, are matched up to 5% of compensation by ING. Pretax charges to operations for the former Aetna incentive savings plan were $11.0 million, $9.0 million and $7.7 million in 2001, 2000, and 1999, respectively.
ILIAC maintains a reciprocal loan agreement with ING AIH, a Delaware corporation and affiliate, to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Under this agreement, which became effective in June 2001 and expires in April, 2011, ILIAC and ING AIH can borrow up to 3% of ILIAC's statutory admitted assets as of the preceding December 31 from one another. Interest on any ILIAC borrowings is charged at the rate of ING AIH's cost of funds for the interest period plus 0.15%. Interest on any ING AIH borrowings is charged at a rate based on the prevailing interest rate of U.S. commercial paper available for purchase with a similar duration. Under this agreement, ILIAC incurred interest expense of $0.1 million and earned interest income of $3.3 million for the year-ended December 31, 2001. At December 31, 2001, ILIAC had $191.1 million of receivables and no outstanding borrowings from ING AIH under this agreement.
In 2000, the Company received capital contributions in the form of cash and assets of $73.5 million, and $56.0 million, respectively from HOLDCO. The Company received no capital contributions in 1999 or 2001.
Premiums due and other receivables include $1.0 million and $4.7 million due from affiliates in 2001 and 2000, respectively. Other liabilities include $0.6 million and $4.1 million due to affiliates for 2001 and 2000, respectively.
On October 1, 1998, the Company sold its domestic individual life insurance business to Lincoln for $1 billion in cash. The transaction is generally in the form of an indemnity reinsurance arrangement, under which Lincoln contractually assumed from the Company certain policyholder liabilities and obligations, although the Company remains directly obligated to policyholders (Refer to Note 3).
(1) Worksite Products include deferred annuity contracts that fund defined contribution and deferred compensation plans; immediate annuity contracts; mutual funds; distribution services for annuities and mutual funds; programs offered to defined contribution plans and deferred compensation plans that package administrative and recordkeeping services along with a menu of investment options; wrapper agreements containing certain benefit response guarantees that are entered into with retirement plans, whose assets are not invested with the Company; investment advisory services and pension plan administrative services. Individual Products include deferred and immediate annuity contracts, both qualified and nonqualified, that are sold to individuals and provide variable or fixed investment options or a combination of both. Investment Management Services include: investment advisory services to affiliated and unaffiliated institutional and retail clients; underwriting; distribution for Company mutual funds and a former affiliate's separate accounts; and trustee, administrative and other services to retirement plans (Refer to Notes 1 and 2). Other includes consolidating adjustments, amortization of goodwill, ING corporate expense, restructuring charges, and taxes not allocated back to the segments. (2) Operating earnings is comprised of net income (loss) excluding net realized capital gains and losses. While operating earnings is the measure of profit or loss used by the Company's management when assessing performance or making operating decisions, it does not replace operating income or net income as a measure of profitability. (3) Segment assets exclude goodwill. (4) Expenditures of long-lived assets represent additions to property and equipment not allocable to business.
Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments. At December 31, 2001, the Company had off-balance sheet commitments to purchase investments of $4.8 million with an estimated fair value of $4.8 million. At December 31, 2000 and 1999, there were no off-balance sheet commitments.
Effective February 28, 2002, the Company distributed 100% of the stock of IA Holdco to HOLDCO. The transaction was accounted for as a dividend. Refer to Note 2 for further information about IA Holdco.