<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 September 30, 1997

                                       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 October 31, 1997 was
90,257,708.
<PAGE>
 
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

 
                                                                September 30, 1997   December 31, 1996
                                                                ------------------   -----------------
<S>                                                              <C>                  <C>
ASSETS
Fixed Maturity Securities, Available-for-Sale                            $11,011.9           $ 9,298.2
Equity Securities                                                             31.0                36.9
Mortgage Loans on Real Estate                                              2,215.9             1,855.4
Real Estate and Leases                                                        76.2                77.5
Policy Loans                                                                 656.4               549.0
Other Invested Assets                                                         88.9                59.9
Short-Term Investments                                                       162.0               119.4
                                                                         ---------           ---------
  Total Investments                                                       14,242.3            11,996.3
Cash                                                                          26.1                32.4
Accounts and Notes Receivable                                                198.9               171.0
Reinsurance Receivable                                                       308.2               199.0
Deferred Policy Acquisition Costs                                          1,062.0             1,006.0
Present Value of Future Profits                                              512.7               220.2
Property and Equipment, Net                                                  114.1               121.3
Accrued Investment Income                                                    202.7               164.7
Other Assets                                                                 623.8               383.9
Participation Fund Account Assets                                            314.1               316.2
Assets Held in Separate Accounts                                           3,000.6             2,096.0
                                                                         ---------           ---------
   TOTAL ASSETS                                                          $20,605.5           $16,707.0
                                                                         =========           =========
 
LIABILITIES
Future Policy and Contract Benefits                                      $13,243.5           $11,332.2
Pending Policy Claims                                                        341.4               287.6
Other Policyholder Funds                                                     222.9               190.6
Notes and Mortgages Payable                                                  581.8               407.5
Income Taxes                                                                 194.1               133.8
Other Liabilities                                                            540.0               410.0
Participation Fund Account Liabilities                                       314.1               316.2
Liabilities Related to Separate Accounts                                   2,995.1             2,090.5
                                                                         ---------           ---------
   TOTAL LIABILITIES                                                      18,432.9            15,168.4
                                                                         ---------           ---------
 
Company-Obligated Mandatorily Redeemable Preferred
 Securities Issued by Consolidated Subsidiaries                              241.8               120.9
 
SHAREHOLDERS' EQUITY
Common Stock (Shares Issued: 1997, 98.1; 1996, 84.8)                            .9                  .4
Additional Paid-in Capital                                                 1,011.7               571.9
Note Receivable from ESOP                                                    (20.8)              (21.6)
Unamortized Restricted Stock Awards                                           (1.3)               (1.8)
Net Unrealized Investment Gains                                              204.6               140.8
Retained Earnings                                                            921.4               794.2
Less Treasury Common Stock, at Cost (Shares Held: 1997, 7.9;
1996, 4.8)                                                                  (185.7)              (66.2)
                                                                         ---------           ---------
   TOTAL SHAREHOLDERS' EQUITY                                              1,930.8             1,417.7
                                                                         ---------           ---------
 
   TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                                                  $20,605.5           $16,707.0
                                                                         =========           =========
</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 September 30  Nine Months Ended September 30
                                                                 -------------------------------  ------------------------------
                                                                      1997             1996            1997            1996
                                                                 ---------------  --------------  --------------  --------------
<S>                                                              <C>              <C>             <C>             <C>
REVENUES
Premiums                                                                  $229.1          $205.6        $  648.9        $  619.2
Net Investment Income                                                      274.7           233.7           749.4           703.2
Realized Investment Gains                                                    2.7               -             5.2             8.7
Policy and Contract Charges                                                100.7            61.2           230.3           181.8
Other Income                                                                69.2            44.1           186.6           111.8
                                                                          ------          ------        --------        --------
     Total                                                                 676.4           544.6         1,820.4         1,624.7
                                                                          ------          ------        --------        --------
 
BENEFITS AND EXPENSES
Benefits to Policyholders                                                  374.2           314.6         1,012.6           966.9
Sales and Operating Expenses                                               149.6           111.1           400.3           312.0
Amortization of Deferred Policy Acquisition Costs
    and Present Value of Future Profits                                     39.0            28.2            99.0            82.4
Interest Expense                                                             9.6             7.2            24.6            21.4
Dividends and Experience Refunds to Policyholders                            4.4             7.7            18.9            15.8
                                                                          ------          ------        --------        --------
     Total                                                                 576.8           468.8         1,555.4         1,398.5
                                                                          ------          ------        --------        --------
Income Before Income Taxes and Net Dividends on
     Preferred Securities of Subsidiaries                                   99.6            75.8           265.0           226.2
Income Tax Expense                                                          34.7            26.3            93.1            79.2
Dividends on Preferred Securities of Subsidiaries, Net of Tax                3.4             1.6             7.2             3.3
                                                                          ------          ------        --------        --------
Net Income                                                                $ 61.5          $ 47.9        $  164.7        $  143.7
                                                                          ======          ======        ========        ========
NET INCOME PER COMMON SHARE
Primary                                                                   $  .66          $  .63        $   1.92        $   1.87
                                                                          ======          ======        ========        ========
 
Fully Diluted                                                             $  .66          $  .59        $   1.92        $   1.77
                                                                          ======          ======        ========        ========
 
Net Income Available to Common Shareholders                               $ 61.5          $ 47.4        $  164.7        $  139.0
                                                                          ======          ======        ========        ========
Weighted Average Shares
  Common and Common Equivalent Shares (Primary)                             92.9            75.4            85.4            74.4
  Common Shares Assuming Maximum Dilution (Fully Diluted)                   93.1            80.6            85.7            79.6
 
</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>
                                                                        Nine Months Ended September 30
                                                                       --------------------------------
                                                                            1997             1996
                                                                       ---------------  ---------------
<S>                                                                      <C>              <C>
10% SENIOR CUMULATIVE PREFERRED STOCK
   Beginning of Year                                                         $      -         $   63.2
   Redeemed                                                                         -            (63.2)
                                                                             --------         --------
      End of Period                                                                 -                -
                                                                             --------         --------
ESOP CONVERTIBLE PREFERRED STOCK
   Beginning of Year                                                                -             28.9
   Redeemed                                                                         -              (.2)
                                                                             --------         --------
      End of Period                                                                 -             28.7
                                                                             --------         --------
COMMON STOCK
   Beginning of Year                                                               .4               .4
   Issued for Acquisition                                                          .1                -
   Issued for Common Stock Split                                                   .4                -
                                                                             --------         --------
      End of Period                                                                .9               .4
                                                                             --------         --------
 
ADDITIONAL PAID-IN CAPITAL
   Beginning of Year                                                            571.9            566.1
   Issued for Benefit Plans                                                      11.3                -
   Issued for Acquisition                                                       428.3                -
   Loss on Treasury Shares Reissued for Benefit Plans                            (5.9)            (2.9)
   Loss on Treasury Shares Reissued for Acquisition                                 -            (23.9)
   Tax Benefit on Stock Options Exercised                                         6.1              1.8
                                                                             --------         --------
      End of Period                                                           1,011.7            541.1
                                                                             --------         --------
NOTE RECEIVABLE FROM ESOP
   Beginning of Year                                                            (21.6)           (23.4)
   Repayments, Accrued or Paid                                                     .8              1.1
                                                                             --------         --------
      End of Period                                                             (20.8)           (22.3)
                                                                             --------         --------
UNAMORTIZED RESTRICTED STOCK AWARDS
   Beginning of Year                                                             (1.8)            (3.0)
   Awards, Net                                                                    (.2)             (.1)
   Amortization of Restricted Stock Awards                                         .7              1.1
                                                                             --------         --------
      End of Period                                                              (1.3)            (2.0)
                                                                             --------         --------
NET UNREALIZED INVESTMENT GAINS
   Beginning of Year                                                            140.8            246.8
   Change for the Period                                                         63.8           (157.7)
                                                                             --------         --------
      End of Period                                                             204.6             89.1
                                                                             --------         --------
RETAINED EARNINGS
   Beginning  of Year                                                           794.2            647.2
   Net Income                                                                   164.7            143.7
   Dividends to Shareholders:
      10% Senior Cumulative Preferred Stock (1996, $5.00 Per Share)                 -             (3.2)
      ESOP Convertible Preferred Stock (1996, $1.643 Per Share)                     -             (2.1)
      Common Stock (Per Share: 1997, $.45; 1996, $.405)                         (38.0)           (29.6)
   Other, Net                                                                      .5                -
                                                                             --------         --------
      End of Period                                                             921.4            756.0
                                                                             --------         --------
TREASURY COMMON STOCK
   Beginning of Year                                                            (66.2)          (106.1)
   Acquired                                                                    (125.0)               -
   Reissued for Acquisition                                                         -             25.2
   Acquired, Other                                                               (6.6)            (3.5)
   Reissued, Other                                                               12.1             15.9
                                                                             --------         --------
      End of Period                                                            (185.7)           (68.5)
                                                                             --------         --------
TOTAL SHAREHOLDERS' EQUITY                                                   $1,930.8         $1,322.5
                                                                             ========         ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                           RELIASTAR FINANCIAL CORP.
                Condensed Consolidated Statements of Cash Flows
                                 (in millions)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                        Nine Months Ended September 30
                                                                       --------------------------------
                                                                            1997             1996
                                                                       ---------------  ---------------
<S>                                                                    <C>              <C>
 
OPERATING ACTIVITIES
Net Income                                                                   $  164.7        $   143.7
Adjustments to Reconcile Net Income to Net Cash Provided by
  Operating Activities
     Interest Credited to Insurance Contracts                                   398.6            370.9
     Future Policy Benefits                                                    (238.8)          (180.4)
     Capitalization of Policy Acquisition Costs                                (149.8)          (149.0)
     Amortization of Deferred Policy Acquisition Costs and Present
        Value of Future Profits                                                  99.0             82.4
     Deferred Income Taxes                                                        7.1             14.3
     Net Change in Receivables and Payables                                     (11.8)            47.5
     Other Assets                                                              (103.2)           (50.2)
     Realized Investment Gains, Net                                              (5.2)            (8.7)
     Other                                                                       (2.7)             5.7
                                                                             --------        ---------
          Net Cash Provided by Operating Activities                             157.9            276.2
                                                                             --------        ---------
 
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities                                284.9            161.3
Proceeds from Maturities or Repayment of Fixed Maturity Securities              694.9            675.2
Cost of Fixed Maturity Securities Acquired                                     (957.8)        (1,140.8)
Sales (Purchase) of Equity Securities, Net                                       13.1             (1.0)
Proceeds of Mortgage Loans Sold, Matured or Repaid                              551.2            316.7
Cost of Mortgage Loans Acquired                                                (794.6)          (291.9)
Sales of Real Estate and Leases, Net                                             12.2             19.0
Policy Loans Issued, Net                                                        (34.6)           (39.6)
Sales (Purchases) of Other Invested Assets, Net                                 (13.7)              .5
Sales (Purchases) of Short-Term Investments, Net                                (42.6)             5.4
Cash Acquired with Acquisition of Security-Connecticut Corp.                     18.5                -
                                                                             --------        ---------
          Net Cash Used by Investing Activities                                (268.5)          (295.2)
                                                                             --------        ---------
 
FINANCING ACTIVITIES
Deposits to Insurance Contracts                                               1,000.2            855.4
Maturities and Withdrawals from Insurance Contracts                            (965.1)          (866.2)
Retirement of Senior Cumulative Preferred Stock                                     -            (63.2)
Net Proceeds from Issuance of Trust-Originated Preferred Securities             120.8            120.8
Increase in Notes and Mortgages Payable                                         115.6             51.3
Repayment of Notes and Mortgages Payable                                        (15.5)           (66.2)
Issuance of Common Stock Under Stock Option and Other Plans                      17.9             11.0
Dividends on 10% Senior Cumulative Preferred Stock                                  -             (3.2)
Dividends on ESOP Convertible Preferred Stock                                       -             (2.1)
Dividends on Common Stock                                                       (38.0)           (29.6)
Acquisition of Treasury Common Stock                                           (131.6)            (3.5)
                                                                             --------        ---------
          Net Cash Provided by Financing Activities                             104.3              4.5
                                                                             --------        ---------
Decrease in Cash                                                                 (6.3)           (14.5)
Cash at Beginning of Period                                                      32.4             48.5
                                                                             --------        ---------
Cash at End of Period                                                        $   26.1        $    34.0
                                                                             ========        =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

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

Note 1. Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and such principles were applied
on a basis consistent with that reflected in the Annual Report of ReliaStar
Financial Corp. (the Company or ReliaStar) for the year ended December 31, 1996
filed with the Securities and Exchange Commission (SEC) except for the
accounting change as described in Note 2.  The financial information included
herein, other than the condensed consolidated balance sheet as of December 31,
1996, has been prepared by management without audit by independent certified
public accountants.  The condensed consolidated balance sheet as of December 31,
1996 has been derived from, and does not include all the disclosures contained
in the audited consolidated financial statements for the year ended December 31,
1996.

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 Annual Report.

Note 2. Accounting Change

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities

Effective for transactions occurring on or after January 1, 1997, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which have not been 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 this standard did not have a
significant effect on the financial results of the Company for the reported
period.

Note 3. Impact of Accounting Pronouncements to be Adopted in the Future

Earnings Per Share

During February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share."  SFAS No. 128 replaces primary earnings per share
(EPS) with "Basic" EPS and replaces fully diluted EPS with "Diluted" EPS.  SFAS
No. 128 is effective for fourth quarter 1997 reporting with restatement of
previously reported EPS required.  Early adoption of SFAS No. 128 is not
permitted.  "Basic" EPS is defined as net income available to common
shareholders divided by the weighted average number of common shares outstanding
for the period.  "Diluted" EPS is computed in a manner similar to the current
fully diluted earnings per share calculation.  The Company does not expect that
"Diluted" EPS will be materially different than fully diluted EPS as currently
reported.

Note 4. Acquisition

On July 1, 1997, the Company completed the acquisition of Security-Connecticut
Corporation (SCC).  SCC is a holding company with two primary subsidiaries:
Security-Connecticut Life Insurance Company (Security-Connecticut) of Avon,
Connecticut, and Lincoln Security Life Insurance Company (Lincoln Security) of
Brewster, New York.  The acquisition was effected through a stock-for-stock
exchange whereby the Company issued 1.4734 shares of its common stock for each
issued and outstanding share of SCC common stock, or approximately 12.7 million
additional ReliaStar shares.  The transaction was accounted for as a purchase.
Accordingly, the results of SCC are included in ReliaStar's results beginning
July 1, 1997.

                                       6
<PAGE>
 
The purchase price was approximately $433 million, which includes
approximately $4 million of other direct costs of acquisition. The present
value of future profits (PVFP) associated with the acquisition, totaling $324
million was recorded. PVFP reflects the estimated fair value of acquired
insurance business in force and represents the portion of the acquisition cost
that was allocated to the value of future cash flows from insurance contracts
existing at the date of acquisition. Based on current conditions and
assumptions as to future events on acquired policies in force, the Company
expects that the net amortization of the initial PVFP balance for the business
in force acquired from SCC will be between 4% and 8% in each of the years 1998
through 2002. Goodwill totaling $140 million, representing the excess of the
amount paid to acquire SCC over the fair value of net assets acquired, was
recorded and is being amortized over a 40 year period. The initial valuation
of the assets and liabilities of SCC as of the acquisition date is reflected
in the Company's consolidated balance sheet as of September 30, 1997. These
initial valuations are subject to change for information obtained after the
acquisition date but prior to the end of the allocation period (usually not to
exceed one year).

During the third quarter of 1997, the Company repurchased 3,252,200 of its
common shares, completing the  $125.0 million common stock buyback program in
conjunction with the acquisition of SCC.  The repurchase was financed with the
proceeds of the 8.10% Preferred Securities issued on June 3, 1997 (See Note 5).

Pro forma unaudited revenues, net income and fully diluted earnings per common
share for the three months ended September 30, 1996 and the nine months ended
September 30, 1997 and 1996, assuming the acquisition had been completed at the
beginning of each period presented, were as follows (in millions, except per
share data):

<TABLE>
<CAPTION>
 
                                           Three Months Ended  Nine Months Ended
                                              September 30        September 30
                                                  1996           1997      1996
                                           ------------------  --------  --------
<S>                                        <C>                 <C>       <C>
 
Revenues                                         $627.8        $1,978.1  $1,877.9
Net Income                                         55.1           178.8     170.6
Fully Diluted Earnings per Common Share            0.59            1.90      1.81
</TABLE>

The unaudited pro forma financial information is not necessarily indicative of
either the results of operations that would have occurred had this acquisition
been completed at the beginning of each period presented or of future operations
of the combined companies.

Note 5. Company-Obligated Mandatorily Redeemable Preferred Securities Issued by
a Consolidated Subsidiary

On June 3, 1997, ReliaStar Financing II ( "Subsidiary Trust II"), a consolidated
wholly owned subsidiary of ReliaStar, completed the issuance of $125.0 million
of 8.10% Trust-Originated Preferred Securities (the "8.10% Preferred
Securities").  In connection with Subsidiary Trust II's issuance of the 8.10%
Preferred Securities and the related purchase by ReliaStar of all of Subsidiary
Trust II's common securities (the "Common Securities"), ReliaStar issued to
Subsidiary Trust II $128.9 million principal amount of its 8.10% Subordinated
Deferrable Interest Notes, due June 3, 2027 (the "8.10% Junior Subordinated Debt
Securities").  Under certain circumstances the stated maturity date may be
extended at any time by ReliaStar to any date not later than June 3, 2046.  The
sole assets of Subsidiary Trust II are and will be the 8.10% Junior Subordinated
Debt Securities.  The interest and other payment dates on the 8.10% Junior
Subordinated Debt Securities correspond to the distribution and other payment
dates on the 8.10% Preferred Securities and the Common Securities.  Under
certain circumstances, the 8.10% Junior Subordinated Debt Securities may be
distributed to holders of 8.10% Preferred Securities and holders of the Common
Securities in liquidation of Subsidiary Trust II.  The 8.10% Junior Subordinated
Debt Securities are redeemable at the option of ReliaStar on or after June 3,
2002, at a redemption price of $25 per 8.10% Junior Subordinated Debt Security
plus accrued and unpaid interest.  The 8.10% Preferred Securities and the Common
Securities will be redeemed on a pro rata basis to the same extent that the
8.10% Junior Subordinated Debt Securities are repaid, at $25 per 8.10% Preferred
Security and Common Security plus accumulated and unpaid distributions.
ReliaStar's obligations under the 8.10% Junior Subordinated Debt Securities and
related agreements, taken together, constitute a full and unconditional
guarantee by ReliaStar of payments due on the 8.10% Preferred Securities.  On
June 3, 1997, 5,000,000 shares of 8.10% Preferred Securities were issued and all
remain outstanding.

                                       7
<PAGE>
 
Note 6. Split of Common Stock

In August 1997, the Board of Directors approved a 2-for-1 split of the Company's
common stock.  The split was effected by a 100% dividend of the Company's common
stock on September 10, 1997 for each common share owned by shareholders of
record at the close of business August 19, 1997.  All share and per common share
amounts have been adjusted to reflect the 2-for-1 common stock split.


Note 7. Reclassification

Certain prior year balance sheet amounts have been reclassified to conform to
the current-year presentation due to an amendment to the certificate of
incorporation to change the Company's common stock from no par value to a par
value of $.01 per share.  The reclassification had no effect on previously
reported total assets, liabilities or equity.

                                       8
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                           RELIASTAR FINANCIAL CORP.


RESULTS OF OPERATIONS

Pretax results of operations by business segment are summarized below (in
millions):

<TABLE>
<CAPTION>
 
                                                                  Three Months          Nine Months
                                                               Ended September 30   Ended September 30
                                                               -------------------  -------------------
                                                                 1997      1996       1997      1996
                                                               --------  ---------  --------  ---------
<S>                                                            <C>       <C>        <C>       <C>
Pretax Operating Income (Loss)/1/
 Individual Insurance                                             $60.5     $52.2     $167.8    $151.6
 Employee Benefits                                                 15.0      12.4       39.8      34.4
 Life and Health Reinsurance                                       13.1      11.7       39.2      35.9
 Pension                                                            4.1       3.6       12.4      11.2
 Corporate and Other                                                4.7      (4.1)       2.1     (13.8)
                                                                  -----     -----     ------    ------
  Pretax Operating Income                                          97.4      75.8      261.3     219.3
Pretax Net Realized Investment Gains (Losses)                       2.2         -        3.7       6.9
                                                                  -----     -----     ------    ------
 Pretax Income Before Dividends
  on Preferred Securities of Subsidiary                            99.6      75.8      265.0     226.2
Income Tax Expense                                                 34.7      26.3       93.1      79.2
Dividends on Preferred Securities of Subsidiary, Net of Tax         3.4       1.6        7.2       3.3
                                                                  -----     -----     ------    ------
 Net Income                                                       $61.5     $47.9     $164.7    $143.7
                                                                  =====     =====     ======    ======
</TABLE>

1  Operating income 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).  Prior period information has been
restated to reflect this definition of operating income.

The discussion of business segment results that follows refers to the above
pretax segment results and, in each instance, amounts are before income taxes
unless otherwise noted.

Acquisition
-----------

On July 1, 1997, the Company completed the acquisition of Security-Connecticut
Corporation (SCC) (See Note 4 of Notes to Condensed Consolidated Financial
Statements).  The acquisition was accounted for using the purchase method of
accounting and, accordingly, the condensed consolidated financial statements
include the results of operations of the former SCC subsidiaries from the date
of acquisition.  The results of operations for periods prior to July 1, 1997 do
not include the operating results of the former SCC subsidiaries and, therefore,
current period operating results are not directly comparable with those of prior
periods.

Individual Insurance
--------------------

The Individual Insurance segment of the Company is composed of the individual
insurance division of ReliaStar Life Insurance Company (ReliaStar Life),
Northern Life Insurance Company (Northern), ReliaStar United Services Life
Insurance Company (United Services), ReliaStar Bankers Security Life Insurance
Company (Bankers Security), Security-Connecticut Life Insurance Company
(Security-Connecticut) and Lincoln Security Life Insurance Company (Lincoln
Security).  These subsidiaries are sometimes collectively referred to as the
Insurers.

Pretax operating income for the third quarter of 1997 increased $8.3 million, or
16%, compared with the same period in 1996.  The increase in earnings is
primarily due to the additional earnings in 1997 of Security-Connecticut and
Lincoln Security which totaled $11.6 million.  Excluding Security-Connecticut
and Lincoln Security, pretax operating income decreased $3.3 million compared
with the prior year.  The decrease was primarily due to a decrease in interest
spreads and increased noncapitalized expenses, including expenses related to new
product development and roll-out and technology investments.  Partially
offsetting these unfavorable variances was a 9% growth in assets under
management, excluding Security-Connecticut and Lincoln Security.  The average
interest 

                                       9
<PAGE>
 
spread of 243 basis points in the third quarter of 1997 compares to 248 basis
points in the third quarter of 1996. This decrease in spreads reflects a 13
basis point decrease in the portfolio yield and a 8 basis point reduction in the
average crediting rate. Assets under management grew from $11.0 billion as of
September 30, 1996 to $13.8 billion as of September 30, 1997. This growth
includes $1.8 billion of assets under management from the acquired operations of
Security-Connecticut and Lincoln Security. Year-to-date earnings increased 11%
over the comparable period in 1996 also primarily due to the additional earnings
contributed by Security-Connecticut and Lincoln Security. Excluding the $11.6
million of pretax operating income of Security-Connecticut and Lincoln Security,
year-to-date earnings increased 3% over the comparable period in 1996 due
primarily to growth in assets under management. 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 Individual Insurance 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.

Employee Benefits
-----------------

Pretax operating income for the third quarter of 1997 increased $2.6 million, or
21%, compared with the same period in 1996.  The increase in operating income
for the third quarter reflects improved operating expense ratios in the group
medical insurance operations.  Pretax operating income for the nine months ended
September 30, 1997 increased 16%, as compared to the same period last year, due
primarily to improved mortality experience and lower operating expenses.

Life and Health Reinsurance
---------------------------

Pretax operating income of the Life and Health Reinsurance segment for the third
quarter of 1997 increased $1.4 million, or 12%, when compared with the same
period in 1996.  Operating income for the segment was higher than 1996 due
primarily to a 15% increase in net earned premiums, partially offset by higher
commission expenses.  Pretax operating income for 1997 year-to-date increased 9%
over the same period in 1996 primarily due to a 17% growth in earned premiums,
partially offset by higher experience rating refunds and higher commission
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.

Pension
-------

Pretax operating income of the Pension segment for the third quarter of 1997
increased $.5 million, or 14%, when compared with the same period in 1996.
Pretax operating income from the small employer 401(k) line of business
increased $0.9 million to $2.2 million for the third quarter of 1997.  Income in
the 401(k) line of business increased primarily due to higher separate account
fees reflecting the growth in assets under management.  Pretax operating income
from the Company's closed block of pension contract liabilities decreased $0.4
million to $1.9 million for the third quarter of 1997 compared with the same
period last year.  Year-to-date pretax operating income for 1997 increased 11%
primarily due to increased assets under management in the 401(k) line of
business, partially offset by a decrease in earnings caused by the decline in
the closed block of pension contract liabilities.

Corporate and Other
-------------------

Pretax operating results for Corporate and Other for the third quarter of 1997
increased $8.8 million when compared with the same period in 1996.  This
favorable variance was primarily due to increased operating earnings from the
Company's mutual fund operations, increased recovery of corporate costs from
other business segments and a $3.9 million pretax gain on the sale of certain
assets of Washington Square Advisers, Inc. (WSA), the Company's fixed income
fund investment manager for unaffiliated institutions.  Partially offsetting
these favorable items were increased interest costs associated with debt assumed
from SCC.  Year-to-date pretax operating results for 1997 increased $15.9
million from the same period of 1996 primarily due to the improved operating
earnings from the 

                                       10
<PAGE>
 
Company's mutual fund and mortgage banking operations, increased recovery of
corporate costs from other business segments and the gain on the sale of WSA.

REALIZED INVESTMENT GAINS AND LOSSES

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

<TABLE>
<CAPTION>
                                                    Three Months           Nine Months
                                                 Ended September 30     Ended September 30
                                                ---------------------  --------------------
                                                    1997        1996      1997       1996
                                                -------------  ------  ----------  --------
<S>                                             <C>            <C>     <C>         <C>
Net Gains (Losses) on Sales of Investments
    Fixed Maturity Securities
      Gross Gains                                      $ 2.0   $   -       $ 4.6     $ 6.1
      Gross Losses                                       (.4)   (3.5)       (4.6)     (3.6)
    Equity Securities                                    1.5     1.6         3.9       1.7
    Mortgage Loans                                         -      .1          .1        .1
    Foreclosed Real Estate                                 -      .3          .1        .6
    Real Estate                                           .2     2.0          .3       2.7
    Other                                                1.1     1.6         6.7       7.3
Provision for Losses on Investments
    Fixed Maturity Securities                              -       -        (1.7)     (1.1)
    Mortgage Loans                                       (.5)    (.7)       (1.9)     (1.9)
    Foreclosed Real Estate                               (.5)   (1.3)       (1.6)     (2.7)
    Real Estate                                          (.7)    (.1)        (.7)      (.5)
                                                       -----   -----       -----     -----
        Pretax Realized Investment Gains                 2.7       -         5.2       8.7
DAC/PVFP Amortization /1/                                (.5)      -        (1.5)     (1.8)
                                                       -----   -----       -----     -----
        Pretax Net Realized Investment Gains           $ 2.2   $   -       $ 3.7     $ 6.9
                                                       =====   =====       =====     =====
</TABLE>
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 investments.  The Company's
recording of allowances and write-downs based upon a review of individual
problem assets results in fluctuations in the level of the provision for losses
on investments reported in each period.  The provision for losses on investments
is affected to a significant degree by general economic conditions and the
status of the real estate market.  While the Company believes it has set aside
appropriate reserves and allowances for problem investments, subsequent economic
and market conditions may require the establishment of additional reserves.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES - RELIASTAR FINANCIAL CORP.

ReliaStar, as parent, is dependent upon dividends, interest and payments for
other charges received from its subsidiaries to pay dividends to shareholders,
service its debt and pay other obligations.  The payment of dividends, interest
or other charges 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 

                                       11
<PAGE>

prior calendar year. For 1997, the amount of dividends which can be paid by
ReliaStar Life without Commissioner approval is $144.0 million.

On May 9, 1997, the Company filed a shelf registration with the Securities and
Exchange Commission for the issuance of up to $400.0 million of debt securities
and other securities.  This filing replaced and superseded the unused portion
($125.0 million) of the Company's December 18, 1995, shelf registration.  On
June 3, 1997, the Company completed the issuance of $125.0 million of 8.10%
Trust-Originated Preferred Securities.  On June 3, 1997, 5,000,000 shares of the
8.10% Preferred Securities were issued and all remain outstanding.

During the third quarter of 1997, the Company repurchased 3,252,200 of its
common shares, completing the  $125.0 million common stock buyback program in
conjunction with  the acquisition of SCC.  The repurchase was financed with the
proceeds of the 8.10% Preferred Securities issued on June 3, 1997.

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 September 30, 1997, the Insurers' investment portfolio included
$8.0 billion (39% of total assets) of short-term investments and investment
grade marketable bonds.  The September 30, 1997 investment portfolio also
included $2.6 billion of investment grade privately placed bonds which, while
not publicly traded, are an additional source of liquidity.

The policies and annuities issued by the Individual Insurance segment 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 a modest increase
in withdrawal and surrender activity attributable to their individual insurance
products, the surrender activity is within a reasonable range of the Company's
expectations and is well below a level which would have a material effect on
liquidity.

Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals.  In addition to the potential impact on liquidity,
unanticipated withdrawals in a changed interest rate environment could adversely
affect earnings if the Company were required to sell investments at reduced
values in order to meet liquidity demands.  The Company manages the asset and
liability portfolios in order to minimize the adverse earnings impact of
changing market interest rates.  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).  The Company closely monitors its derivative usage and has
procedures in place to manage counter-party risks and related exposures.

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 

                                       12
<PAGE>
 
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 minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC.  The
formulas for determining the amount of risk-based capital specify various
weighting factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk.  Regulatory compliance is
determined by a ratio of a company's regulatory total adjusted capital, as
defined, to its authorized control level risk-based capital, as defined.
Companies below specific trigger points or ratios are classified within certain
levels, each of which requires specified corrective action.  The risk-based
capital ratio of each of the Insurers significantly exceeds the ratios at which
regulatory corrective action would be required.

CONSOLIDATED CASH FLOWS

The Company's cash balance at September 30, 1997 was $26.1 million. During the
third quarter of 1997, net cash provided by operating and financing activities
was $157.9 million and $104.3 million, respectively, which was offset by net
cash used by investing activities of $268.5 million.

The $157.9 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 $104.3 million was primarily the result
of the issuance of the 8.10% Preferred Securities, proceeds from short-term
borrowings and issuance of commercial paper partially offset by the repurchase
of 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 1997 to the acquisition of investment grade marketable and
privately placed bonds.  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 commercial mortgages and below investment grade bonds subject
to overall limitations.

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

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

<TABLE>
<CAPTION>
                                    September 30, 1997    December 31, 1996
                                    -------------------  -------------------
                                     Amount    Percent    Amount    Percent
                                    ---------  --------  ---------  --------
<S>                                 <C>        <C>       <C>        <C>
Investment Grade Bonds:
    Marketables                     $ 7,798.7     54.8%  $ 6,604.9     55.0%
    Private Placements                2,551.5     17.9     2,156.2     18.0
                                    ---------    -----   ---------    -----
        Subtotal                     10,350.2     72.7     8,761.1     73.0
 
Below Investment Grade Bonds:
    Marketables                         319.0      2.2       279.7      2.4
    Private Placements                  337.6      2.4       255.4      2.1
                                    ---------    -----   ---------    -----
           Subtotal                     656.6      4.6       535.1      4.5
 
Equity Securities                        31.0       .2        36.9       .3
Commercial Mortgages                  1,519.1     10.7     1,359.6     11.3
Mortgages, Residential and Other        696.8      4.9       495.8      4.1
Real Estate                              76.2       .5        77.5       .7
Short-Term Investments                  162.0      1.1       119.4      1.0
Other                                   750.4      5.3       610.9      5.1
                                    ---------    -----   ---------    -----
    Total Invested Assets           $14,242.3    100.0%  $11,996.3    100.0%
                                    =========    =====   =========    =====
</TABLE>

FIXED MATURITY SECURITIES

The amounts invested in fixed maturity securities as of September 30, 1997 and
December 31, 1996 were $11.0 billion and $9.3 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 September 30, 1997 were $9.3
million and $6.7 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 NAICOs categories
closely follow the public rating agencies' definition 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 September 30, 1997, the weighted average book yields of the Company's
investment grade portfolio and below investment grade portfolio were 7.7% and
8.8%, respectively.  The weighted average book yield is not necessarily
reflective of the net investment income ultimately realized by the Company.
Investments with greater credit risk have a greater risk of default than
investment grade securities, and accordingly, some of the incremental book yield
of the below investment grade portfolio may not be realized.

                                       14
<PAGE>
 
The following tables identify the amortized cost and the fair value of the
Company's fixed maturity securities with respect to each NAIC credit
classification as of the indicated dates (in millions):
<TABLE>
<CAPTION>
 
                                         September 30, 1997
-----------------------------------------------------------------------------------------------
                             Marketables                          Private Placements
               ------------------------------------    ----------------------------------------
    NAIC       Amortized  Gross Unrealized     Fair    Amortized   Gross Unrealized      Fair
                          -----------------                       -------------------
   Rating        Cost      Gains   (Losses)   Value      Cost      Gains    (Losses)    Value
-------------  ---------  -------  --------  --------  ---------  --------  ---------  --------
<S>            <C>        <C>      <C>       <C>       <C>        <C>       <C>        <C>
 
1               $5,386.5   $232.4   $ (7.1)  $5,611.8   $  907.5    $ 38.4    $ (4.6)  $  941.3
2                2,094.1     94.9     (2.1)   2,186.9    1,552.6      59.5      (1.9)   1,610.2
3                  284.9     12.3      (.1)     297.1      213.7       5.0       (.6)     218.1
4                   18.9       .6      (.1)      19.4       88.3       3.1       (.2)      91.2
5                    2.4       .1        -        2.5       28.7        .2      (2.0)      26.9
6                      -        -        -          -        1.4         -         -        1.4
Redeemable
  Preferred
  Stock              3.2       .5        -        3.7        1.6         -       (.2)       1.4
                --------   ------   ------   --------   --------    ------    ------   --------
   Total        $7,790.0   $340.8   $ (9.4)  $8,121.4   $2,793.8    $106.2    $ (9.5)  $2,890.5
                ========   ======   ======   ========   ========    ======    ======   ========
 
 
                                       December 31, 1996
-----------------------------------------------------------------------------------------------
                            Marketables                           Private Placements
               ------------------------------------    ----------------------------------------
    NAIC       Amortized  Gross Unrealized     Fair    Amortized   Gross Unrealized      Fair
                          ----------------                         ----------------
   Rating        Cost      Gains   (Losses)   Value      Cost      Gains    (Losses)    Value
-------------  ---------  -------  -------   --------  ---------  --------  --------   --------
 
1               $4,738.4   $189.6   $(20.6)  $4,907.4   $  779.7    $ 29.4    $ (3.6)  $  805.5
2                1,633.7     70.2     (6.4)   1,697.5    1,311.3      43.0      (3.6)   1,350.7
3                  252.3      8.3     (1.6)     259.0      158.2       3.0      (1.4)     159.8
4                   18.9      0.3     (0.3)      18.9       58.7       1.5      (0.7)      59.5
5                    1.8      0.1     (0.1)       1.8       35.9       0.2      (2.5)      33.6
6                      -        -        -          -        2.5         -         -        2.5
Redeemable
  Preferred
  Stock              0.5        -        -        0.5        1.6         -      (0.1)       1.5
                --------   ------   ------   --------   --------    ------    ------   --------
   Total        $6,645.6   $268.5   $(29.0)  $6,885.1   $2,347.9    $ 77.1    $(11.9)  $2,413.1
                ========   ======   ======   ========   ========    ======    ======   ========
</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>
 
                                           September 30, 1997    December 31, 1996
                                          --------------------  -------------------
                                          Amortized    Fair     Amortized    Fair
                                            Cost       Value      Cost      Value
                                          ---------  ---------  ---------  --------
<S>                                       <C>        <C>        <C>        <C>
Due in One Year or Less                   $   193.9  $   195.6   $  155.8  $  157.4
Due After One Year Through Five Years       3,621.2    3,747.5    2,967.6   3,057.0
Due After Five Years Through Ten Years      2,947.1    3,090.4    2,622.4   2,723.6
Due After Ten Years                         1,347.0    1,416.4    1,055.3   1,108.7
Mortgage-Backed/Structured Finance
  Securities                                2,474.6    2,562.0    2,192.4   2,251.5
                                          ---------  ---------   --------  --------
     Total                                $10,583.8  $11,011.9   $8,993.5  $9,298.2
                                          =========  =========   ========  ========
</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 commercially
available 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 

                                       15
<PAGE>
 
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 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 its 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
                              -----------------------------  -----------------------------
                              September 30,   December 31,   September 30,   December 31,
                                   1997           1996            1997           1996
                              --------------  -------------  --------------  -------------
<S>                           <C>             <C>            <C>             <C>
 
Basic Materials                         6.9%           6.7%            8.5%           9.5%
Consumer Non-Cyclical                   6.0            6.0            17.9           18.4
Consumer Products/Services              8.1            7.3            19.1           18.4
Energy                                  5.8            6.2             6.2            6.9
Financial Services                     19.9           19.3            16.9           18.6
Government                              3.3            3.5              .7             .8
Industrial                              3.7            3.6            12.6           10.3
Mortgage-Backed/Structured
  Finance Securities                   31.3           32.2             1.4            1.2
Real Estate                              .5             .3             1.1            1.3
Retailing                               2.1            2.3             5.9            5.9
Technology                              2.1            2.5             2.9            3.2
Utilities                              10.3           10.1             6.8            5.5
                                      -----          -----           -----          -----
  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 September 30,
1997.  The largest investment in below investment grade bonds of any one
industry grouping was approximately 1.7% of invested assets at September 30,
1997.  The portfolio of below investment grade bonds is regularly analyzed and
managed in an effort to avoid concentration risks.

                                       16
<PAGE>
 
MORTGAGE-BACKED 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):

<TABLE>
<CAPTION>
                                                         September 30, 1997
                                                       -----------------------
                                                        Amortized
                                                           Cost     Fair Value
                                                        ---------   ----------
<S>                                             <C>                 <C>
Adjustable Rate Pass Through MBS Securities:
6% - 7%                                                   $  105.8    $  106.7
7% - 8%                                                      265.2       265.7
Above 8%                                                      61.5        62.4
 
Fixed Rate Pass Through MBS Securities:
Below 9%                                                     106.2       107.9
Above 9%                                                      11.0        11.6
 
Planned Amortization Class MBS Securities:
Below 7%                                                     307.7       323.2
7% - 8%                                                      393.1       413.0
8% - 9%                                                      133.5       139.8
Above 9%                                                       8.9         9.3
 
Other MBS Securities:
Below 7%                                                     222.9       234.7
7% - 8%                                                       93.7       101.9
8% - 9%                                                       29.4        31.1
Above 9%                                                      14.0        14.6
                                                          --------    --------
     Total MBS Securities                                 $1,752.9    $1,821.9
                                                          ========    ========
</TABLE>

The Company invests in asset-backed securities in addition to the MBS securities
described above.  As of September 30, 1997, the Insurers held asset-backed
securities with an amortized cost of $721.7 million and a fair value of $740.1
million.

MORTGAGE LOANS

The Company's commercial mortgage loans generally range in size from $1 million
to $10 million, with the average commercial mortgage loan investment as of
September 30, 1997 being approximately $2.4 million.

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

                     September 30,   December 31,
                          1997           1996
                     --------------  -------------

Property Type
-------------
Office                        21.6%          24.6%
Industrial                    21.6           23.5
Special Purpose               18.0           17.3
Retail                        17.3           16.1
Apartment                     20.1           15.7
Hotel/Motel                    1.4            2.8
                             -----          -----
     Total                   100.0%         100.0%
                             =====          =====

                                       17
<PAGE>
 
                     September 30,   December 31,
                          1997           1996
                     --------------  -------------

Geographic Region
-----------------

Midwest                       30.9%          31.6%
Pacific                       26.0           30.1
Southeast                     19.7           18.2
Northeast                     10.0            8.7
Mountain                       7.8            6.5
Southwest                      5.6            4.9
                             -----          -----
    Total                    100.0%         100.0%
                             =====          =====

The weighted average yield of the commercial mortgage loan portfolio as of
September 30, 1997 was 8.6%.  The weighted average maturity of these loans was
6.9 years.

The Company invests in individual and pools of individual residential mortgage
loans in addition to the structured finance securities backed by residential
mortgages (see Fixed Maturity Securities).  As of September 30, 1997 and
December 31, 1996, the Insurers held $695.4 and $493.9 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):

<TABLE>
<CAPTION>
 
                                     September 30,   December 31,
                                          1997           1996
                                     --------------  -------------
<S>                                  <C>             <C>
Unrealized Investment Gains                $ 435.6         $310.5
DAC/PVFP Adjustment                         (120.8)         (93.8)
Deferred Income Taxes                       (110.2)         (75.9)
                                           -------         ------
  Net Unrealized Investment Gains          $ 204.6         $140.8
                                           =======         ======
</TABLE>

Changes in net 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: 1) the Company has the present intent and
practice to hold most of its available-for-sale fixed maturity securities to
maturity and 2) 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 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.

                                       18
<PAGE>
 
The Company uses duration analysis to estimate the amount of sensitivity to
market interest rate changes. 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. Target durations 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.

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

<TABLE>
<CAPTION>
                                         September 30, 1997
                               ----------------------------------------
                                     Asset         Portfolio   Target
                                    Duration       Duration   Duration
                               ------------------  ---------  ---------
<S>                            <C>                 <C>        <C>
Individual Insurance                         3.91       4.05  3.5 - 5.0
Employee Benefits                            3.25       3.55  3.5 - 8.0
Life and Health Reinsurance                  4.29       4.38  3.5 - 8.0
Pension                                      2.17       2.89  2.5 - 3.5
</TABLE>

At September 30, 1997, the Company had 71 interest rate swap contracts in effect
with a notional amount of $1.16 billion.  At December 31, 1996, the Company had
69 interest rate swap contracts in effect with a notional amount of $1.11
billion.  During the nine months ended September 30, 1997, seven new interest
rate swap contracts were entered into with a notional amount of $140.0 million
and five interest rate swap contracts matured with a notional amount of $87.0
million.  There were no terminations of interest rate swap contracts prior to
maturity during the first nine months of 1997.  The Company had no deferred
gains or losses at September 30, 1997 related to interest rate swap contracts
terminated early.  The estimated fair value of the interest rate swap contracts
in effect at September 30, 1997 was an unrealized gain of $10.4 million.

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 September 30, 1997 (dollars in
millions).
<TABLE>
<CAPTION>
 
                                                 Notional  Range of Fixed
                                                  Amount   Rates Received
                                                 --------  ---------------
<S>                                              <C>       <C>
Maturing in One Year or Less                     $  305.0       7.0 - 8.7%
Maturing After One Year Through Three Years         350.0       5.2 - 6.9%
Maturing After Three Years Through Five Years       347.5       5.3 - 8.2%
Maturing After Five Years Through Seven Years       160.0       6.3 - 7.0%
                                                 --------
     Total Notional Amount                       $1,162.5
                                                 ========
</TABLE>

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 losses) 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 September 30, 1997, the Company held $1.5 billion of
adjustable rate invested assets, short-term investments and cash.

In addition, the Company 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 million as of September 30, 1997.

                                       19
<PAGE>
 
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, is shown below (in millions):

<TABLE>
<CAPTION>
                                        September 30,  December 31,
                                            1997           1996
                                        -------------  ------------
<S>                                     <C>            <C>
Fixed Maturity Securities/1/                    $15.7         $15.5
Commercial Mortgage Loans                        12.7          22.4
Residential and Other Mortgage Loans              4.0           4.2
Investment Real Estate/2/                         8.4          12.3
Foreclosed Real Estate                           43.1          37.4
                                                -----         -----
    Total                                       $83.9         $91.8
                                                =====         =====
</TABLE>
/1/   Problem fixed maturity securities that were marketables totaled $.9
      million as of September 30, 1997.

/2/   The amounts shown represent real estate acquired as an investment which
      the Company has determined to be Problem Investments.

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):

<TABLE>
<CAPTION>
 
                                        September 30,  December 31,
                                            1997           1996
                                        -------------  ------------
<S>                                     <C>            <C>
Fixed Maturity Securities                       $ 9.0         $ 8.3
Commercial Mortgage Loans                         8.7          10.5
Residential and Other Mortgage Loans               .9            .7
Foreclosed Real Estate                           25.8          24.7
</TABLE>

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 the
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 

                                       20
<PAGE>
 
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 following tables set forth the distribution of problem commercial mortgage
loans by property type and geographic region:

                    September 30,   December 31,
Property Type          1997           1996
-------------      --------------  -------------
Office                  68.8%          67.9%
Retail                  15.4           15.4
Industrial              12.3           13.2
Hotel/Motel              3.5            3.5
                       -----          -----
     Total             100.0%         100.0%
                       =====          =====
 
                     September 30,   December 31,
Geographic Region       1997           1996
-------------------  -------------   ------------
Midwest                56.0%          51.5%
Southeast              17.7           21.0
Pacific                16.3           17.2
Southwest               6.0            6.3
Northeast               2.8            2.7
Mountain                1.2            1.3
                      -----          -----
     Total            100.0%         100.0%
                      =====          =====

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 and mortgage loan Potential Problem Investments
were $43.9 million and $12.4 million, respectively, at September 30, 1997.

KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE REPORTED RESULTS

OPERATIONAL INTEGRATION

The Company is currently experiencing increased expenses in its Individual
Insurance operations. (See Results of Operations - Individual Insurance.) The
Company continues to review the administrative operations of its various
individual insurance businesses to determine whether consolidation or other
actions would create operating efficiencies. At the time these decisions are
made, the Company may be required to accrue certain costs associated with the
implementation of those actions.

Management has not made a final determination of, if or when any such actions
may be taken.

HEALTH CARE MARKETPLACE ENVIRONMENT

The market place 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 will market plans
maintained by third party managed care organizations through a series of
strategic alliances in selected markets.  The Company intends to jointly market
its group life coverage with its strategic partners in these markets.  The
Company expects that its book of insured health and health related business will
decline over the next several years and 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 earnings of the health insurance 

                                       21
<PAGE>
 
and managed care businesses of the Company represented approximately 8% of the
Company's after tax earnings in 1996.

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 result of operations
or financial position of the Company. Some life insurers 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. Because the Company currently provides insurance products for
sale by banks, the adoption of these proposals could have a positive impact on
the Company's sales through this venue. 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 the years 1997-1999 the Company expects to redirect certain internal and
external data processing resources to efforts which will enable these data
processing systems to process dates including the year 2000 and beyond.  The
Company does not believe the net affect of these efforts will materially affect
the Company's consolidated financial statements during the 1997-1999 period,
however, some additional expenditure for external resources will be incurred.

                                       22
<PAGE>
 
PART II. OTHER INFORMATION

Items 1, 2, 3, 4 and 5 of the Part II are either inapplicable or are answered in
the negative and are omitted pursuant to the instructions to Part II.

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 filed during the quarter ended September 30, 1997:

       Form 8-K dated July 1, 1997, with respect to the acquisition of Security-
       Connecticut Corporation

                                       23
<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   November 12, 1997
                               -----------------

                           RELIASTAR FINANCIAL CORP.



                                /s/ Wayne R. Huneke
                                -------------------
                                by Wayne R. Huneke
                                Senior Vice President, Chief Financial
                                Officer and Treasurer

                                       24
<PAGE>
 
                           ReliaStar Financial Corp.
                                 Exhibit Index

Description
-----------

(11)    Statement re Computation of Per Share Earnings

(27)    Financial Data Schedule
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q", "secsgml_size_bytes": 99009}]
{"company-data": {"conformed-name": "RELIASTAR FINANCIAL CORP", "cik": "0000841528", "assigned-sic": "6311", "irs-number": "411620373", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-10640", "film-number": "97719468"}, "business-address": {"street1": "20 WASHINGTON AVE S", "city": "MINNEAPOLIS", "state": "MN", "zip": "55401", "phone": "6123423514"}, "mail-address": {"street1": "20 WASHINGTON AVENUE SOUTH", "city": "MINNEAPOLIS", "state": "MN", "zip": "55401"}, "former-company": {"former-conformed-name": "NWNL COMPANIES INC", "date-changed": "19920703"}}
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 September 30, 1997

                                       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 October 31, 1997 was
90,257,708.
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                           RELIASTAR FINANCIAL CORP.
                     Condensed Consolidated Balance Sheets
                                 (in millions)
                                  (unaudited)
September 30, 1997   December 31, 1996
                                                                ------------------   -----------------
ASSETS
Fixed Maturity Securities, Available-for-Sale                            $11,011.9           $ 9,298.2
Equity Securities                                                             31.0                36.9
Mortgage Loans on Real Estate                                              2,215.9             1,855.4
Real Estate and Leases                                                        76.2                77.5
Policy Loans                                                                 656.4               549.0
Other Invested Assets                                                         88.9                59.9
Short-Term Investments                                                       162.0               119.4
                                                                         ---------           ---------
  Total Investments                                                       14,242.3            11,996.3
Cash                                                                          26.1                32.4
Accounts and Notes Receivable                                                198.9               171.0
Reinsurance Receivable                                                       308.2               199.0
Deferred Policy Acquisition Costs                                          1,062.0             1,006.0
Present Value of Future Profits                                              512.7               220.2
Property and Equipment, Net                                                  114.1               121.3
Accrued Investment Income                                                    202.7               164.7
Other Assets                                                                 623.8               383.9
Participation Fund Account Assets                                            314.1               316.2
Assets Held in Separate Accounts                                           3,000.6             2,096.0
                                                                         ---------           ---------
   TOTAL ASSETS                                                          $20,605.5           $16,707.0
                                                                         =========           =========
 
LIABILITIES
Future Policy and Contract Benefits                                      $13,243.5           $11,332.2
Pending Policy Claims                                                        341.4               287.6
Other Policyholder Funds                                                     222.9               190.6
Notes and Mortgages Payable                                                  581.8               407.5
Income Taxes                                                                 194.1               133.8
Other Liabilities                                                            540.0               410.0
Participation Fund Account Liabilities                                       314.1               316.2
Liabilities Related to Separate Accounts                                   2,995.1             2,090.5
                                                                         ---------           ---------
   TOTAL LIABILITIES                                                      18,432.9            15,168.4
                                                                         ---------           ---------
 
Company-Obligated Mandatorily Redeemable Preferred
 Securities Issued by Consolidated Subsidiaries                              241.8               120.9
 
SHAREHOLDERS' EQUITY
Common Stock (Shares Issued: 1997, 98.1; 1996, 84.8)                            .9                  .4
Additional Paid-in Capital                                                 1,011.7               571.9
Note Receivable from ESOP                                                    (20.8)              (21.6)
Unamortized Restricted Stock Awards                                           (1.3)               (1.8)
Net Unrealized Investment Gains                                              204.6               140.8
Retained Earnings                                                            921.4               794.2
Less Treasury Common Stock, at Cost (Shares Held: 1997, 7.9;
1996, 4.8)                                                                  (185.7)              (66.2)
                                                                         ---------           ---------
   TOTAL SHAREHOLDERS' EQUITY                                              1,930.8             1,417.7
                                                                         ---------           ---------
 
   TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                                                  $20,605.5           $16,707.0
                                                                         =========           =========
See accompanying notes to condensed consolidated financial statements.

                                       2
RELIASTAR FINANCIAL CORP.
                  Condensed Consolidated Statements of Income
                      (in millions, except per share data)
                                  (unaudited)
Three Months Ended September 30  Nine Months Ended September 30
                                                                 -------------------------------  ------------------------------
                                                                      1997             1996            1997            1996
                                                                 ---------------  --------------  --------------  --------------
REVENUES
Premiums                                                                  $229.1          $205.6        $  648.9        $  619.2
Net Investment Income                                                      274.7           233.7           749.4           703.2
Realized Investment Gains                                                    2.7               -             5.2             8.7
Policy and Contract Charges                                                100.7            61.2           230.3           181.8
Other Income                                                                69.2            44.1           186.6           111.8
                                                                          ------          ------        --------        --------
     Total                                                                 676.4           544.6         1,820.4         1,624.7
                                                                          ------          ------        --------        --------
 
BENEFITS AND EXPENSES
Benefits to Policyholders                                                  374.2           314.6         1,012.6           966.9
Sales and Operating Expenses                                               149.6           111.1           400.3           312.0
Amortization of Deferred Policy Acquisition Costs
    and Present Value of Future Profits                                     39.0            28.2            99.0            82.4
Interest Expense                                                             9.6             7.2            24.6            21.4
Dividends and Experience Refunds to Policyholders                            4.4             7.7            18.9            15.8
                                                                          ------          ------        --------        --------
     Total                                                                 576.8           468.8         1,555.4         1,398.5
                                                                          ------          ------        --------        --------
Income Before Income Taxes and Net Dividends on
     Preferred Securities of Subsidiaries                                   99.6            75.8           265.0           226.2
Income Tax Expense                                                          34.7            26.3            93.1            79.2
Dividends on Preferred Securities of Subsidiaries, Net of Tax                3.4             1.6             7.2             3.3
                                                                          ------          ------        --------        --------
Net Income                                                                $ 61.5          $ 47.9        $  164.7        $  143.7
                                                                          ======          ======        ========        ========
NET INCOME PER COMMON SHARE
Primary                                                                   $  .66          $  .63        $   1.92        $   1.87
                                                                          ======          ======        ========        ========
 
Fully Diluted                                                             $  .66          $  .59        $   1.92        $   1.77
                                                                          ======          ======        ========        ========
 
Net Income Available to Common Shareholders                               $ 61.5          $ 47.4        $  164.7        $  139.0
                                                                          ======          ======        ========        ========
Weighted Average Shares
  Common and Common Equivalent Shares (Primary)                             92.9            75.4            85.4            74.4
  Common Shares Assuming Maximum Dilution (Fully Diluted)                   93.1            80.6            85.7            79.6
See accompanying notes to condensed consolidated financial statements.

                                       3
RELIASTAR FINANCIAL CORP.
           Condensed Consolidated Statements of Shareholders' Equity
                      (in millions, except per share data)
                                  (unaudited)
Nine Months Ended September 30
                                                                       --------------------------------
                                                                            1997             1996
                                                                       ---------------  ---------------
10% SENIOR CUMULATIVE PREFERRED STOCK
   Beginning of Year                                                         $      -         $   63.2
   Redeemed                                                                         -            (63.2)
                                                                             --------         --------
      End of Period                                                                 -                -
                                                                             --------         --------
ESOP CONVERTIBLE PREFERRED STOCK
   Beginning of Year                                                                -             28.9
   Redeemed                                                                         -              (.2)
                                                                             --------         --------
      End of Period                                                                 -             28.7
                                                                             --------         --------
COMMON STOCK
   Beginning of Year                                                               .4               .4
   Issued for Acquisition                                                          .1                -
   Issued for Common Stock Split                                                   .4                -
                                                                             --------         --------
      End of Period                                                                .9               .4
                                                                             --------         --------
 
ADDITIONAL PAID-IN CAPITAL
   Beginning of Year                                                            571.9            566.1
   Issued for Benefit Plans                                                      11.3                -
   Issued for Acquisition                                                       428.3                -
   Loss on Treasury Shares Reissued for Benefit Plans                            (5.9)            (2.9)
   Loss on Treasury Shares Reissued for Acquisition                                 -            (23.9)
   Tax Benefit on Stock Options Exercised                                         6.1              1.8
                                                                             --------         --------
      End of Period                                                           1,011.7            541.1
                                                                             --------         --------
NOTE RECEIVABLE FROM ESOP
   Beginning of Year                                                            (21.6)           (23.4)
   Repayments, Accrued or Paid                                                     .8              1.1
                                                                             --------         --------
      End of Period                                                             (20.8)           (22.3)
                                                                             --------         --------
UNAMORTIZED RESTRICTED STOCK AWARDS
   Beginning of Year                                                             (1.8)            (3.0)
   Awards, Net                                                                    (.2)             (.1)
   Amortization of Restricted Stock Awards                                         .7              1.1
                                                                             --------         --------
      End of Period                                                              (1.3)            (2.0)
                                                                             --------         --------
NET UNREALIZED INVESTMENT GAINS
   Beginning of Year                                                            140.8            246.8
   Change for the Period                                                         63.8           (157.7)
                                                                             --------         --------
      End of Period                                                             204.6             89.1
                                                                             --------         --------
RETAINED EARNINGS
   Beginning  of Year                                                           794.2            647.2
   Net Income                                                                   164.7            143.7
   Dividends to Shareholders:
      10% Senior Cumulative Preferred Stock (1996, $5.00 Per Share)                 -             (3.2)
      ESOP Convertible Preferred Stock (1996, $1.643 Per Share)                     -             (2.1)
      Common Stock (Per Share: 1997, $.45; 1996, $.405)                         (38.0)           (29.6)
   Other, Net                                                                      .5                -
                                                                             --------         --------
      End of Period                                                             921.4            756.0
                                                                             --------         --------
TREASURY COMMON STOCK
   Beginning of Year                                                            (66.2)          (106.1)
   Acquired                                                                    (125.0)               -
   Reissued for Acquisition                                                         -             25.2
   Acquired, Other                                                               (6.6)            (3.5)
   Reissued, Other                                                               12.1             15.9
                                                                             --------         --------
      End of Period                                                            (185.7)           (68.5)
                                                                             --------         --------
TOTAL SHAREHOLDERS' EQUITY                                                   $1,930.8         $1,322.5
                                                                             ========         ========
See accompanying notes to condensed consolidated financial statements.

                                       4
RELIASTAR FINANCIAL CORP.
                Condensed Consolidated Statements of Cash Flows
                                 (in millions)
                                  (unaudited)
Nine Months Ended September 30
                                                                       --------------------------------
                                                                            1997             1996
                                                                       ---------------  ---------------
OPERATING ACTIVITIES
Net Income                                                                   $  164.7        $   143.7
Adjustments to Reconcile Net Income to Net Cash Provided by
  Operating Activities
     Interest Credited to Insurance Contracts                                   398.6            370.9
     Future Policy Benefits                                                    (238.8)          (180.4)
     Capitalization of Policy Acquisition Costs                                (149.8)          (149.0)
     Amortization of Deferred Policy Acquisition Costs and Present
        Value of Future Profits                                                  99.0             82.4
     Deferred Income Taxes                                                        7.1             14.3
     Net Change in Receivables and Payables                                     (11.8)            47.5
     Other Assets                                                              (103.2)           (50.2)
     Realized Investment Gains, Net                                              (5.2)            (8.7)
     Other                                                                       (2.7)             5.7
                                                                             --------        ---------
          Net Cash Provided by Operating Activities                             157.9            276.2
                                                                             --------        ---------
 
INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities                                284.9            161.3
Proceeds from Maturities or Repayment of Fixed Maturity Securities              694.9            675.2
Cost of Fixed Maturity Securities Acquired                                     (957.8)        (1,140.8)
Sales (Purchase) of Equity Securities, Net                                       13.1             (1.0)
Proceeds of Mortgage Loans Sold, Matured or Repaid                              551.2            316.7
Cost of Mortgage Loans Acquired                                                (794.6)          (291.9)
Sales of Real Estate and Leases, Net                                             12.2             19.0
Policy Loans Issued, Net                                                        (34.6)           (39.6)
Sales (Purchases) of Other Invested Assets, Net                                 (13.7)              .5
Sales (Purchases) of Short-Term Investments, Net                                (42.6)             5.4
Cash Acquired with Acquisition of Security-Connecticut Corp.                     18.5                -
                                                                             --------        ---------
          Net Cash Used by Investing Activities                                (268.5)          (295.2)
                                                                             --------        ---------
 
FINANCING ACTIVITIES
Deposits to Insurance Contracts                                               1,000.2            855.4
Maturities and Withdrawals from Insurance Contracts                            (965.1)          (866.2)
Retirement of Senior Cumulative Preferred Stock                                     -            (63.2)
Net Proceeds from Issuance of Trust-Originated Preferred Securities             120.8            120.8
Increase in Notes and Mortgages Payable                                         115.6             51.3
Repayment of Notes and Mortgages Payable                                        (15.5)           (66.2)
Issuance of Common Stock Under Stock Option and Other Plans                      17.9             11.0
Dividends on 10% Senior Cumulative Preferred Stock                                  -             (3.2)
Dividends on ESOP Convertible Preferred Stock                                       -             (2.1)
Dividends on Common Stock                                                       (38.0)           (29.6)
Acquisition of Treasury Common Stock                                           (131.6)            (3.5)
                                                                             --------        ---------
          Net Cash Provided by Financing Activities                             104.3              4.5
                                                                             --------        ---------
Decrease in Cash                                                                 (6.3)           (14.5)
Cash at Beginning of Period                                                      32.4             48.5
                                                                             --------        ---------
Cash at End of Period                                                        $   26.1        $    34.0
                                                                             ========        =========
See accompanying notes to condensed consolidated financial statements.

                                       5
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, 1996
filed with the Securities and Exchange Commission (SEC) except for the
accounting change as described in Note 2.  The financial information included
herein, other than the condensed consolidated balance sheet as of December 31,
1996, has been prepared by management without audit by independent certified
public accountants.  The condensed consolidated balance sheet as of December 31,
1996 has been derived from, and does not include all the disclosures contained
in the audited consolidated financial statements for the year ended December 31,
1996.

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 Annual Report.

Note 2. Accounting Change

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities

Effective for transactions occurring on or after January 1, 1997, the Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which have not been 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 this standard did not have a
significant effect on the financial results of the Company for the reported
period.

Note 3. Impact of Accounting Pronouncements to be Adopted in the Future

Earnings Per Share

During February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share."  SFAS No. 128 replaces primary earnings per share
(EPS) with "Basic" EPS and replaces fully diluted EPS with "Diluted" EPS.  SFAS
No. 128 is effective for fourth quarter 1997 reporting with restatement of
previously reported EPS required.  Early adoption of SFAS No. 128 is not
permitted.  "Basic" EPS is defined as net income available to common
shareholders divided by the weighted average number of common shares outstanding
for the period.  "Diluted" EPS is computed in a manner similar to the current
fully diluted earnings per share calculation.  The Company does not expect that
"Diluted" EPS will be materially different than fully diluted EPS as currently
reported.

Note 4. Acquisition

On July 1, 1997, the Company completed the acquisition of Security-Connecticut
Corporation (SCC).  SCC is a holding company with two primary subsidiaries:
Security-Connecticut Life Insurance Company (Security-Connecticut) of Avon,
Connecticut, and Lincoln Security Life Insurance Company (Lincoln Security) of
Brewster, New York.  The acquisition was effected through a stock-for-stock
exchange whereby the Company issued 1.4734 shares of its common stock for each
issued and outstanding share of SCC common stock, or approximately 12.7 million
additional ReliaStar shares.  The transaction was accounted for as a purchase.
Accordingly, the results of SCC are included in ReliaStar's results beginning
July 1, 1997.

                                       6
The purchase price was approximately $433 million, which includes
approximately $4 million of other direct costs of acquisition. The present
value of future profits (PVFP) associated with the acquisition, totaling $324
million was recorded. PVFP reflects the estimated fair value of acquired
insurance business in force and represents the portion of the acquisition cost
that was allocated to the value of future cash flows from insurance contracts
existing at the date of acquisition. Based on current conditions and
assumptions as to future events on acquired policies in force, the Company
expects that the net amortization of the initial PVFP balance for the business
in force acquired from SCC will be between 4% and 8% in each of the years 1998
through 2002. Goodwill totaling $140 million, representing the excess of the
amount paid to acquire SCC over the fair value of net assets acquired, was
recorded and is being amortized over a 40 year period. The initial valuation
of the assets and liabilities of SCC as of the acquisition date is reflected
in the Company's consolidated balance sheet as of September 30, 1997. These
initial valuations are subject to change for information obtained after the
acquisition date but prior to the end of the allocation period (usually not to
exceed one year).

During the third quarter of 1997, the Company repurchased 3,252,200 of its
common shares, completing the  $125.0 million common stock buyback program in
conjunction with the acquisition of SCC.  The repurchase was financed with the
proceeds of the 8.10% Preferred Securities issued on June 3, 1997 (See Note 5).

Pro forma unaudited revenues, net income and fully diluted earnings per common
share for the three months ended September 30, 1996 and the nine months ended
September 30, 1997 and 1996, assuming the acquisition had been completed at the
beginning of each period presented, were as follows (in millions, except per
share data):
Three Months Ended  Nine Months Ended
                                              September 30        September 30
                                                  1996           1997      1996
                                           ------------------  --------  --------
Revenues                                         $627.8        $1,978.1  $1,877.9
Net Income                                         55.1           178.8     170.6
Fully Diluted Earnings per Common Share            0.59            1.90      1.81
The unaudited pro forma financial information is not necessarily indicative of
either the results of operations that would have occurred had this acquisition
been completed at the beginning of each period presented or of future operations
of the combined companies.

Note 5. Company-Obligated Mandatorily Redeemable Preferred Securities Issued by
a Consolidated Subsidiary

On June 3, 1997, ReliaStar Financing II ( "Subsidiary Trust II"), a consolidated
wholly owned subsidiary of ReliaStar, completed the issuance of $125.0 million
of 8.10% Trust-Originated Preferred Securities (the "8.10% Preferred
Securities").  In connection with Subsidiary Trust II's issuance of the 8.10%
Preferred Securities and the related purchase by ReliaStar of all of Subsidiary
Trust II's common securities (the "Common Securities"), ReliaStar issued to
Subsidiary Trust II $128.9 million principal amount of its 8.10% Subordinated
Deferrable Interest Notes, due June 3, 2027 (the "8.10% Junior Subordinated Debt
Securities").  Under certain circumstances the stated maturity date may be
extended at any time by ReliaStar to any date not later than June 3, 2046.  The
sole assets of Subsidiary Trust II are and will be the 8.10% Junior Subordinated
Debt Securities.  The interest and other payment dates on the 8.10% Junior
Subordinated Debt Securities correspond to the distribution and other payment
dates on the 8.10% Preferred Securities and the Common Securities.  Under
certain circumstances, the 8.10% Junior Subordinated Debt Securities may be
distributed to holders of 8.10% Preferred Securities and holders of the Common
Securities in liquidation of Subsidiary Trust II.  The 8.10% Junior Subordinated
Debt Securities are redeemable at the option of ReliaStar on or after June 3,
2002, at a redemption price of $25 per 8.10% Junior Subordinated Debt Security
plus accrued and unpaid interest.  The 8.10% Preferred Securities and the Common
Securities will be redeemed on a pro rata basis to the same extent that the
8.10% Junior Subordinated Debt Securities are repaid, at $25 per 8.10% Preferred
Security and Common Security plus accumulated and unpaid distributions.
ReliaStar's obligations under the 8.10% Junior Subordinated Debt Securities and
related agreements, taken together, constitute a full and unconditional
guarantee by ReliaStar of payments due on the 8.10% Preferred Securities.  On
June 3, 1997, 5,000,000 shares of 8.10% Preferred Securities were issued and all
remain outstanding.

                                       7
Note 6. Split of Common Stock

In August 1997, the Board of Directors approved a 2-for-1 split of the Company's
common stock.  The split was effected by a 100% dividend of the Company's common
stock on September 10, 1997 for each common share owned by shareholders of
record at the close of business August 19, 1997.  All share and per common share
amounts have been adjusted to reflect the 2-for-1 common stock split.

Note 7. Reclassification

Certain prior year balance sheet amounts have been reclassified to conform to
the current-year presentation due to an amendment to the certificate of
incorporation to change the Company's common stock from no par value to a par
value of $.01 per share.  The reclassification had no effect on previously
reported total assets, liabilities or equity.

                                       8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                           RELIASTAR FINANCIAL CORP.

RESULTS OF OPERATIONS

Pretax results of operations by business segment are summarized below (in
millions):
Three Months          Nine Months
                                                               Ended September 30   Ended September 30
                                                               -------------------  -------------------
                                                                 1997      1996       1997      1996
                                                               --------  ---------  --------  ---------
Pretax Operating Income (Loss)/1/
 Individual Insurance                                             $60.5     $52.2     $167.8    $151.6
 Employee Benefits                                                 15.0      12.4       39.8      34.4
 Life and Health Reinsurance                                       13.1      11.7       39.2      35.9
 Pension                                                            4.1       3.6       12.4      11.2
 Corporate and Other                                                4.7      (4.1)       2.1     (13.8)
                                                                  -----     -----     ------    ------
  Pretax Operating Income                                          97.4      75.8      261.3     219.3
Pretax Net Realized Investment Gains (Losses)                       2.2         -        3.7       6.9
                                                                  -----     -----     ------    ------
 Pretax Income Before Dividends
  on Preferred Securities of Subsidiary                            99.6      75.8      265.0     226.2
Income Tax Expense                                                 34.7      26.3       93.1      79.2
Dividends on Preferred Securities of Subsidiary, Net of Tax         3.4       1.6        7.2       3.3
                                                                  -----     -----     ------    ------
 Net Income                                                       $61.5     $47.9     $164.7    $143.7
                                                                  =====     =====     ======    ======
1  Operating income 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).  Prior period information has been
restated to reflect this definition of operating income.

The discussion of business segment results that follows refers to the above
pretax segment results and, in each instance, amounts are before income taxes
unless otherwise noted.

Acquisition
-----------

On July 1, 1997, the Company completed the acquisition of Security-Connecticut
Corporation (SCC) (See Note 4 of Notes to Condensed Consolidated Financial
Statements).  The acquisition was accounted for using the purchase method of
accounting and, accordingly, the condensed consolidated financial statements
include the results of operations of the former SCC subsidiaries from the date
of acquisition.  The results of operations for periods prior to July 1, 1997 do
not include the operating results of the former SCC subsidiaries and, therefore,
current period operating results are not directly comparable with those of prior
periods.

Individual Insurance
--------------------

The Individual Insurance segment of the Company is composed of the individual
insurance division of ReliaStar Life Insurance Company (ReliaStar Life),
Northern Life Insurance Company (Northern), ReliaStar United Services Life
Insurance Company (United Services), ReliaStar Bankers Security Life Insurance
Company (Bankers Security), Security-Connecticut Life Insurance Company
(Security-Connecticut) and Lincoln Security Life Insurance Company (Lincoln
Security).  These subsidiaries are sometimes collectively referred to as the
Insurers.

Pretax operating income for the third quarter of 1997 increased $8.3 million, or
16%, compared with the same period in 1996.  The increase in earnings is
primarily due to the additional earnings in 1997 of Security-Connecticut and
Lincoln Security which totaled $11.6 million.  Excluding Security-Connecticut
and Lincoln Security, pretax operating income decreased $3.3 million compared
with the prior year.  The decrease was primarily due to a decrease in interest
spreads and increased noncapitalized expenses, including expenses related to new
product development and roll-out and technology investments.  Partially
offsetting these unfavorable variances was a 9% growth in assets under
management, excluding Security-Connecticut and Lincoln Security.  The average
interest 

                                       9
spread of 243 basis points in the third quarter of 1997 compares to 248 basis
points in the third quarter of 1996. This decrease in spreads reflects a 13
basis point decrease in the portfolio yield and a 8 basis point reduction in the
average crediting rate. Assets under management grew from $11.0 billion as of
September 30, 1996 to $13.8 billion as of September 30, 1997. This growth
includes $1.8 billion of assets under management from the acquired operations of
Security-Connecticut and Lincoln Security. Year-to-date earnings increased 11%
over the comparable period in 1996 also primarily due to the additional earnings
contributed by Security-Connecticut and Lincoln Security. Excluding the $11.6
million of pretax operating income of Security-Connecticut and Lincoln Security,
year-to-date earnings increased 3% over the comparable period in 1996 due
primarily to growth in assets under management. 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 Individual Insurance 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.

Employee Benefits
-----------------

Pretax operating income for the third quarter of 1997 increased $2.6 million, or
21%, compared with the same period in 1996.  The increase in operating income
for the third quarter reflects improved operating expense ratios in the group
medical insurance operations.  Pretax operating income for the nine months ended
September 30, 1997 increased 16%, as compared to the same period last year, due
primarily to improved mortality experience and lower operating expenses.

Life and Health Reinsurance
---------------------------

Pretax operating income of the Life and Health Reinsurance segment for the third
quarter of 1997 increased $1.4 million, or 12%, when compared with the same
period in 1996.  Operating income for the segment was higher than 1996 due
primarily to a 15% increase in net earned premiums, partially offset by higher
commission expenses.  Pretax operating income for 1997 year-to-date increased 9%
over the same period in 1996 primarily due to a 17% growth in earned premiums,
partially offset by higher experience rating refunds and higher commission
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.

Pension
-------

Pretax operating income of the Pension segment for the third quarter of 1997
increased $.5 million, or 14%, when compared with the same period in 1996.
Pretax operating income from the small employer 401(k) line of business
increased $0.9 million to $2.2 million for the third quarter of 1997.  Income in
the 401(k) line of business increased primarily due to higher separate account
fees reflecting the growth in assets under management.  Pretax operating income
from the Company's closed block of pension contract liabilities decreased $0.4
million to $1.9 million for the third quarter of 1997 compared with the same
period last year.  Year-to-date pretax operating income for 1997 increased 11%
primarily due to increased assets under management in the 401(k) line of
business, partially offset by a decrease in earnings caused by the decline in
the closed block of pension contract liabilities.

Corporate and Other
-------------------

Pretax operating results for Corporate and Other for the third quarter of 1997
increased $8.8 million when compared with the same period in 1996.  This
favorable variance was primarily due to increased operating earnings from the
Company's mutual fund operations, increased recovery of corporate costs from
other business segments and a $3.9 million pretax gain on the sale of certain
assets of Washington Square Advisers, Inc. (WSA), the Company's fixed income
fund investment manager for unaffiliated institutions.  Partially offsetting
these favorable items were increased interest costs associated with debt assumed
from SCC.  Year-to-date pretax operating results for 1997 increased $15.9
million from the same period of 1996 primarily due to the improved operating
earnings from the 

                                       10
Company's mutual fund and mortgage banking operations, increased recovery of
corporate costs from other business segments and the gain on the sale of WSA.

REALIZED INVESTMENT GAINS AND LOSSES

The sources of pretax realized investment gains (losses) were as follows (in
millions):
Three Months           Nine Months
                                                 Ended September 30     Ended September 30
                                                ---------------------  --------------------
                                                    1997        1996      1997       1996
                                                -------------  ------  ----------  --------
Net Gains (Losses) on Sales of Investments
    Fixed Maturity Securities
      Gross Gains                                      $ 2.0   $   -       $ 4.6     $ 6.1
      Gross Losses                                       (.4)   (3.5)       (4.6)     (3.6)
    Equity Securities                                    1.5     1.6         3.9       1.7
    Mortgage Loans                                         -      .1          .1        .1
    Foreclosed Real Estate                                 -      .3          .1        .6
    Real Estate                                           .2     2.0          .3       2.7
    Other                                                1.1     1.6         6.7       7.3
Provision for Losses on Investments
    Fixed Maturity Securities                              -       -        (1.7)     (1.1)
    Mortgage Loans                                       (.5)    (.7)       (1.9)     (1.9)
    Foreclosed Real Estate                               (.5)   (1.3)       (1.6)     (2.7)
    Real Estate                                          (.7)    (.1)        (.7)      (.5)
                                                       -----   -----       -----     -----
        Pretax Realized Investment Gains                 2.7       -         5.2       8.7
DAC/PVFP Amortization /1/                                (.5)      -        (1.5)     (1.8)
                                                       -----   -----       -----     -----
        Pretax Net Realized Investment Gains           $ 2.2   $   -       $ 3.7     $ 6.9
                                                       =====   =====       =====     =====
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 investments.  The Company's
recording of allowances and write-downs based upon a review of individual
problem assets results in fluctuations in the level of the provision for losses
on investments reported in each period.  The provision for losses on investments
is affected to a significant degree by general economic conditions and the
status of the real estate market.  While the Company believes it has set aside
appropriate reserves and allowances for problem investments, subsequent economic
and market conditions may require the establishment of additional reserves.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES - RELIASTAR FINANCIAL CORP.

ReliaStar, as parent, is dependent upon dividends, interest and payments for
other charges received from its subsidiaries to pay dividends to shareholders,
service its debt and pay other obligations.  The payment of dividends, interest
or other charges 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 

                                       11
prior calendar year. For 1997, the amount of dividends which can be paid by
ReliaStar Life without Commissioner approval is $144.0 million.

On May 9, 1997, the Company filed a shelf registration with the Securities and
Exchange Commission for the issuance of up to $400.0 million of debt securities
and other securities.  This filing replaced and superseded the unused portion
($125.0 million) of the Company's December 18, 1995, shelf registration.  On
June 3, 1997, the Company completed the issuance of $125.0 million of 8.10%
Trust-Originated Preferred Securities.  On June 3, 1997, 5,000,000 shares of the
8.10% Preferred Securities were issued and all remain outstanding.

During the third quarter of 1997, the Company repurchased 3,252,200 of its
common shares, completing the  $125.0 million common stock buyback program in
conjunction with  the acquisition of SCC.  The repurchase was financed with the
proceeds of the 8.10% Preferred Securities issued on June 3, 1997.

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 September 30, 1997, the Insurers' investment portfolio included
$8.0 billion (39% of total assets) of short-term investments and investment
grade marketable bonds.  The September 30, 1997 investment portfolio also
included $2.6 billion of investment grade privately placed bonds which, while
not publicly traded, are an additional source of liquidity.

The policies and annuities issued by the Individual Insurance segment 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 a modest increase
in withdrawal and surrender activity attributable to their individual insurance
products, the surrender activity is within a reasonable range of the Company's
expectations and is well below a level which would have a material effect on
liquidity.

Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals.  In addition to the potential impact on liquidity,
unanticipated withdrawals in a changed interest rate environment could adversely
affect earnings if the Company were required to sell investments at reduced
values in order to meet liquidity demands.  The Company manages the asset and
liability portfolios in order to minimize the adverse earnings impact of
changing market interest rates.  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).  The Company closely monitors its derivative usage and has
procedures in place to manage counter-party risks and related exposures.

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 

                                       12
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 minimum risk-based capital
requirements on insurance enterprises that were developed by the NAIC.  The
formulas for determining the amount of risk-based capital specify various
weighting factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk.  Regulatory compliance is
determined by a ratio of a company's regulatory total adjusted capital, as
defined, to its authorized control level risk-based capital, as defined.
Companies below specific trigger points or ratios are classified within certain
levels, each of which requires specified corrective action.  The risk-based
capital ratio of each of the Insurers significantly exceeds the ratios at which
regulatory corrective action would be required.

CONSOLIDATED CASH FLOWS

The Company's cash balance at September 30, 1997 was $26.1 million. During the
third quarter of 1997, net cash provided by operating and financing activities
was $157.9 million and $104.3 million, respectively, which was offset by net
cash used by investing activities of $268.5 million.

The $157.9 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 $104.3 million was primarily the result
of the issuance of the 8.10% Preferred Securities, proceeds from short-term
borrowings and issuance of commercial paper partially offset by the repurchase
of 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 1997 to the acquisition of investment grade marketable and
privately placed bonds.  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 commercial mortgages and below investment grade bonds subject
to overall limitations.

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

                                       13
The following table provides information regarding the composition of the
Company's invested assets as of the indicated dates (in millions):
September 30, 1997    December 31, 1996
                                    -------------------  -------------------
                                     Amount    Percent    Amount    Percent
                                    ---------  --------  ---------  --------
Investment Grade Bonds:
    Marketables                     $ 7,798.7     54.8%  $ 6,604.9     55.0%
    Private Placements                2,551.5     17.9     2,156.2     18.0
                                    ---------    -----   ---------    -----
        Subtotal                     10,350.2     72.7     8,761.1     73.0
 
Below Investment Grade Bonds:
    Marketables                         319.0      2.2       279.7      2.4
    Private Placements                  337.6      2.4       255.4      2.1
                                    ---------    -----   ---------    -----
           Subtotal                     656.6      4.6       535.1      4.5
 
Equity Securities                        31.0       .2        36.9       .3
Commercial Mortgages                  1,519.1     10.7     1,359.6     11.3
Mortgages, Residential and Other        696.8      4.9       495.8      4.1
Real Estate                              76.2       .5        77.5       .7
Short-Term Investments                  162.0      1.1       119.4      1.0
Other                                   750.4      5.3       610.9      5.1
                                    ---------    -----   ---------    -----
    Total Invested Assets           $14,242.3    100.0%  $11,996.3    100.0%
                                    =========    =====   =========    =====
FIXED MATURITY SECURITIES

The amounts invested in fixed maturity securities as of September 30, 1997 and
December 31, 1996 were $11.0 billion and $9.3 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 September 30, 1997 were $9.3
million and $6.7 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 NAICOs categories
closely follow the public rating agencies' definition 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 September 30, 1997, the weighted average book yields of the Company's
investment grade portfolio and below investment grade portfolio were 7.7% and
8.8%, respectively.  The weighted average book yield is not necessarily
reflective of the net investment income ultimately realized by the Company.
Investments with greater credit risk have a greater risk of default than
investment grade securities, and accordingly, some of the incremental book yield
of the below investment grade portfolio may not be realized.

                                       14
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):
September 30, 1997
-----------------------------------------------------------------------------------------------
                             Marketables                          Private Placements
               ------------------------------------    ----------------------------------------
    NAIC       Amortized  Gross Unrealized     Fair    Amortized   Gross Unrealized      Fair
                          -----------------                       -------------------
   Rating        Cost      Gains   (Losses)   Value      Cost      Gains    (Losses)    Value
-------------  ---------  -------  --------  --------  ---------  --------  ---------  --------
1               $5,386.5   $232.4   $ (7.1)  $5,611.8   $  907.5    $ 38.4    $ (4.6)  $  941.3
2                2,094.1     94.9     (2.1)   2,186.9    1,552.6      59.5      (1.9)   1,610.2
3                  284.9     12.3      (.1)     297.1      213.7       5.0       (.6)     218.1
4                   18.9       .6      (.1)      19.4       88.3       3.1       (.2)      91.2
5                    2.4       .1        -        2.5       28.7        .2      (2.0)      26.9
6                      -        -        -          -        1.4         -         -        1.4
Redeemable
  Preferred
  Stock              3.2       .5        -        3.7        1.6         -       (.2)       1.4
                --------   ------   ------   --------   --------    ------    ------   --------
   Total        $7,790.0   $340.8   $ (9.4)  $8,121.4   $2,793.8    $106.2    $ (9.5)  $2,890.5
                ========   ======   ======   ========   ========    ======    ======   ========
 
 
                                       December 31, 1996
-----------------------------------------------------------------------------------------------
                            Marketables                           Private Placements
               ------------------------------------    ----------------------------------------
    NAIC       Amortized  Gross Unrealized     Fair    Amortized   Gross Unrealized      Fair
                          ----------------                         ----------------
   Rating        Cost      Gains   (Losses)   Value      Cost      Gains    (Losses)    Value
-------------  ---------  -------  -------   --------  ---------  --------  --------   --------
 
1               $4,738.4   $189.6   $(20.6)  $4,907.4   $  779.7    $ 29.4    $ (3.6)  $  805.5
2                1,633.7     70.2     (6.4)   1,697.5    1,311.3      43.0      (3.6)   1,350.7
3                  252.3      8.3     (1.6)     259.0      158.2       3.0      (1.4)     159.8
4                   18.9      0.3     (0.3)      18.9       58.7       1.5      (0.7)      59.5
5                    1.8      0.1     (0.1)       1.8       35.9       0.2      (2.5)      33.6
6                      -        -        -          -        2.5         -         -        2.5
Redeemable
  Preferred
  Stock              0.5        -        -        0.5        1.6         -      (0.1)       1.5
                --------   ------   ------   --------   --------    ------    ------   --------
   Total        $6,645.6   $268.5   $(29.0)  $6,885.1   $2,347.9    $ 77.1    $(11.9)  $2,413.1
                ========   ======   ======   ========   ========    ======    ======   ========
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).
September 30, 1997    December 31, 1996
                                          --------------------  -------------------
                                          Amortized    Fair     Amortized    Fair
                                            Cost       Value      Cost      Value
                                          ---------  ---------  ---------  --------
Due in One Year or Less                   $   193.9  $   195.6   $  155.8  $  157.4
Due After One Year Through Five Years       3,621.2    3,747.5    2,967.6   3,057.0
Due After Five Years Through Ten Years      2,947.1    3,090.4    2,622.4   2,723.6
Due After Ten Years                         1,347.0    1,416.4    1,055.3   1,108.7
Mortgage-Backed/Structured Finance
  Securities                                2,474.6    2,562.0    2,192.4   2,251.5
                                          ---------  ---------   --------  --------
     Total                                $10,583.8  $11,011.9   $8,993.5  $9,298.2
                                          =========  =========   ========  ========
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 commercially
available 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 

                                       15
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 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 its 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:
Marketables                Private Placements
                              -----------------------------  -----------------------------
                              September 30,   December 31,   September 30,   December 31,
                                   1997           1996            1997           1996
                              --------------  -------------  --------------  -------------
Basic Materials                         6.9%           6.7%            8.5%           9.5%
Consumer Non-Cyclical                   6.0            6.0            17.9           18.4
Consumer Products/Services              8.1            7.3            19.1           18.4
Energy                                  5.8            6.2             6.2            6.9
Financial Services                     19.9           19.3            16.9           18.6
Government                              3.3            3.5              .7             .8
Industrial                              3.7            3.6            12.6           10.3
Mortgage-Backed/Structured
  Finance Securities                   31.3           32.2             1.4            1.2
Real Estate                              .5             .3             1.1            1.3
Retailing                               2.1            2.3             5.9            5.9
Technology                              2.1            2.5             2.9            3.2
Utilities                              10.3           10.1             6.8            5.5
                                      -----          -----           -----          -----
  Total                               100.0%         100.0%          100.0%         100.0%
                                      =====          =====           =====          =====
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 September 30,
1997.  The largest investment in below investment grade bonds of any one
industry grouping was approximately 1.7% of invested assets at September 30,
1997.  The portfolio of below investment grade bonds is regularly analyzed and
managed in an effort to avoid concentration risks.

                                       16
MORTGAGE-BACKED 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):
September 30, 1997
                                                       -----------------------
                                                        Amortized
                                                           Cost     Fair Value
                                                        ---------   ----------
Adjustable Rate Pass Through MBS Securities:
6% - 7%                                                   $  105.8    $  106.7
7% - 8%                                                      265.2       265.7
Above 8%                                                      61.5        62.4
 
Fixed Rate Pass Through MBS Securities:
Below 9%                                                     106.2       107.9
Above 9%                                                      11.0        11.6
 
Planned Amortization Class MBS Securities:
Below 7%                                                     307.7       323.2
7% - 8%                                                      393.1       413.0
8% - 9%                                                      133.5       139.8
Above 9%                                                       8.9         9.3
 
Other MBS Securities:
Below 7%                                                     222.9       234.7
7% - 8%                                                       93.7       101.9
8% - 9%                                                       29.4        31.1
Above 9%                                                      14.0        14.6
                                                          --------    --------
     Total MBS Securities                                 $1,752.9    $1,821.9
                                                          ========    ========
The Company invests in asset-backed securities in addition to the MBS securities
described above.  As of September 30, 1997, the Insurers held asset-backed
securities with an amortized cost of $721.7 million and a fair value of $740.1
million.

MORTGAGE LOANS

The Company's commercial mortgage loans generally range in size from $1 million
to $10 million, with the average commercial mortgage loan investment as of
September 30, 1997 being approximately $2.4 million.

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

                     September 30,   December 31,
                          1997           1996
                     --------------  -------------

Property Type
-------------
Office                        21.6%          24.6%
Industrial                    21.6           23.5
Special Purpose               18.0           17.3
Retail                        17.3           16.1
Apartment                     20.1           15.7
Hotel/Motel                    1.4            2.8
                             -----          -----
     Total                   100.0%         100.0%
                             =====          =====

                                       17
September 30,   December 31,
                          1997           1996
                     --------------  -------------

Geographic Region
-----------------

Midwest                       30.9%          31.6%
Pacific                       26.0           30.1
Southeast                     19.7           18.2
Northeast                     10.0            8.7
Mountain                       7.8            6.5
Southwest                      5.6            4.9
                             -----          -----
    Total                    100.0%         100.0%
                             =====          =====

The weighted average yield of the commercial mortgage loan portfolio as of
September 30, 1997 was 8.6%.  The weighted average maturity of these loans was
6.9 years.

The Company invests in individual and pools of individual residential mortgage
loans in addition to the structured finance securities backed by residential
mortgages (see Fixed Maturity Securities).  As of September 30, 1997 and
December 31, 1996, the Insurers held $695.4 and $493.9 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):
September 30,   December 31,
                                          1997           1996
                                     --------------  -------------
Unrealized Investment Gains                $ 435.6         $310.5
DAC/PVFP Adjustment                         (120.8)         (93.8)
Deferred Income Taxes                       (110.2)         (75.9)
                                           -------         ------
  Net Unrealized Investment Gains          $ 204.6         $140.8
                                           =======         ======
Changes in net 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: 1) the Company has the present intent and
practice to hold most of its available-for-sale fixed maturity securities to
maturity and 2) 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 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.

                                       18
The Company uses duration analysis to estimate the amount of sensitivity to
market interest rate changes. 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. Target durations 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.

The following table sets forth the asset duration, portfolio duration and target
duration for the investment portfolio of each business segment (in years):
September 30, 1997
                               ----------------------------------------
                                     Asset         Portfolio   Target
                                    Duration       Duration   Duration
                               ------------------  ---------  ---------
Individual Insurance                         3.91       4.05  3.5 - 5.0
Employee Benefits                            3.25       3.55  3.5 - 8.0
Life and Health Reinsurance                  4.29       4.38  3.5 - 8.0
Pension                                      2.17       2.89  2.5 - 3.5
At September 30, 1997, the Company had 71 interest rate swap contracts in effect
with a notional amount of $1.16 billion.  At December 31, 1996, the Company had
69 interest rate swap contracts in effect with a notional amount of $1.11
billion.  During the nine months ended September 30, 1997, seven new interest
rate swap contracts were entered into with a notional amount of $140.0 million
and five interest rate swap contracts matured with a notional amount of $87.0
million.  There were no terminations of interest rate swap contracts prior to
maturity during the first nine months of 1997.  The Company had no deferred
gains or losses at September 30, 1997 related to interest rate swap contracts
terminated early.  The estimated fair value of the interest rate swap contracts
in effect at September 30, 1997 was an unrealized gain of $10.4 million.

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 September 30, 1997 (dollars in
millions).
Notional  Range of Fixed
                                                  Amount   Rates Received
                                                 --------  ---------------
Maturing in One Year or Less                     $  305.0       7.0 - 8.7%
Maturing After One Year Through Three Years         350.0       5.2 - 6.9%
Maturing After Three Years Through Five Years       347.5       5.3 - 8.2%
Maturing After Five Years Through Seven Years       160.0       6.3 - 7.0%
                                                 --------
     Total Notional Amount                       $1,162.5
                                                 ========
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 losses) 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 September 30, 1997, the Company held $1.5 billion of
adjustable rate invested assets, short-term investments and cash.

In addition, the Company 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 million as of September 30, 1997.

                                       19
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, is shown below (in millions):
September 30,  December 31,
                                            1997           1996
                                        -------------  ------------
Fixed Maturity Securities/1/                    $15.7         $15.5
Commercial Mortgage Loans                        12.7          22.4
Residential and Other Mortgage Loans              4.0           4.2
Investment Real Estate/2/                         8.4          12.3
Foreclosed Real Estate                           43.1          37.4
                                                -----         -----
    Total                                       $83.9         $91.8
                                                =====         =====
/1/   Problem fixed maturity securities that were marketables totaled $.9
      million as of September 30, 1997.

/2/   The amounts shown represent real estate acquired as an investment which
      the Company has determined to be Problem Investments.

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):
September 30,  December 31,
                                            1997           1996
                                        -------------  ------------
Fixed Maturity Securities                       $ 9.0         $ 8.3
Commercial Mortgage Loans                         8.7          10.5
Residential and Other Mortgage Loans               .9            .7
Foreclosed Real Estate                           25.8          24.7
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 the
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 

                                       20
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 following tables set forth the distribution of problem commercial mortgage
loans by property type and geographic region:

                    September 30,   December 31,
Property Type          1997           1996
-------------      --------------  -------------
Office                  68.8%          67.9%
Retail                  15.4           15.4
Industrial              12.3           13.2
Hotel/Motel              3.5            3.5
                       -----          -----
     Total             100.0%         100.0%
                       =====          =====
 
                     September 30,   December 31,
Geographic Region       1997           1996
-------------------  -------------   ------------
Midwest                56.0%          51.5%
Southeast              17.7           21.0
Pacific                16.3           17.2
Southwest               6.0            6.3
Northeast               2.8            2.7
Mountain                1.2            1.3
                      -----          -----
     Total            100.0%         100.0%
                      =====          =====

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 and mortgage loan Potential Problem Investments
were $43.9 million and $12.4 million, respectively, at September 30, 1997.

KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE REPORTED RESULTS

OPERATIONAL INTEGRATION

The Company is currently experiencing increased expenses in its Individual
Insurance operations. (See Results of Operations - Individual Insurance.) The
Company continues to review the administrative operations of its various
individual insurance businesses to determine whether consolidation or other
actions would create operating efficiencies. At the time these decisions are
made, the Company may be required to accrue certain costs associated with the
implementation of those actions.

Management has not made a final determination of, if or when any such actions
may be taken.

HEALTH CARE MARKETPLACE ENVIRONMENT

The market place 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 will market plans
maintained by third party managed care organizations through a series of
strategic alliances in selected markets.  The Company intends to jointly market
its group life coverage with its strategic partners in these markets.  The
Company expects that its book of insured health and health related business will
decline over the next several years and 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 earnings of the health insurance 

                                       21
and managed care businesses of the Company represented approximately 8% of the
Company's after tax earnings in 1996.

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 result of operations
or financial position of the Company. Some life insurers 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. Because the Company currently provides insurance products for
sale by banks, the adoption of these proposals could have a positive impact on
the Company's sales through this venue. 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 the years 1997-1999 the Company expects to redirect certain internal and
external data processing resources to efforts which will enable these data
processing systems to process dates including the year 2000 and beyond.  The
Company does not believe the net affect of these efforts will materially affect
the Company's consolidated financial statements during the 1997-1999 period,
however, some additional expenditure for external resources will be incurred.

                                       22
PART II. OTHER INFORMATION

Items 1, 2, 3, 4 and 5 of the Part II are either inapplicable or are answered in
the negative and are omitted pursuant to the instructions to Part II.

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 filed during the quarter ended September 30, 1997:

       Form 8-K dated July 1, 1997, with respect to the acquisition of Security-
       Connecticut Corporation

                                       23
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   November 12, 1997
                               -----------------

                           RELIASTAR FINANCIAL CORP.

                                /s/ Wayne R. Huneke
                                -------------------
                                by Wayne R. Huneke
                                Senior Vice President, Chief Financial
                                Officer and Treasurer

                                       24
ReliaStar Financial Corp.
                                 Exhibit Index

Description
-----------

(11)    Statement re Computation of Per Share Earnings

(27)    Financial Data Schedule