SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended December 31, 1997
Commission File Number 0-3216
INVESTORS HERITAGE LIFE INSURANCE COMPANY, INC.
(Exact name of registrant as specified in Charter)
KENTUCKY 61-0574893
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
200 Capital Avenue, Frankfort, Kentucky 40601
(Address of Principal Executive Offices)
Registrant's telephone number, including area code 502 223-2361
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common $1 Par Value
Name of Each Exchange on Which Registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
Common Capital Stock Par Value $1.00 Per Share
(Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K. (X)
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant $5,016,897 as of December 31, 1997.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class
Common Capital Stock
Outstanding at December 31, 1997
905,611
Documents Incorporated by Reference:
(1) Portions of the Annual Report to the Stockholders for the year ended
December 31, 1997 (Form 10-K, Items 1, 5a, 6, 7 and 8)
(2) Portions of the Proxy Statement dated April 17, 1998, for the Annual
Meeting of Stockholders to be held May 14, 1998 (Form 10-K, Items 10, 11, 12
and 13.)
PART I
Item 1. Business
(a) General
(a) The business of Investors Heritage Life Insurance Company (the
"Company") is life insurance. The Company was incorporated under the laws of
Kentucky on August 31, 1960, and commenced business in April, 1961. Its
principal office is located at 200 Capital Avenue, Frankfort, Kentucky 40601,
telephone number (502) 223-2361. The Company also owns 96% of Investors
Underwriters, Inc., an investment holding company. Kentucky Investors, Inc., a
Kentucky corporation ("KII"), owns 73% of the Company's stock. In addition, KII
wholly owns Investors Heritage Printing, Inc. ("IHP") and Investors Heritage
Financial Services Group, Inc. ("FSG"). The business segments of the Company
are identified and discussed on pages 45-47 of the Annual Report to
Stockholders for the year ended December 31, 1997 and are incorporated herein
by reference.
A portfolio of the standard forms of participating, non-participating,
whole life, limited pay, endowment, split-funding, interest-sensitive whole
life, guaranteed issue whole life, universal life, term and group life is
offered by the Company. In addition, the Company has historically written
credit life and credit accident and health insurance (respectively, "Credit
Life" and "Credit A&H", and collectively "Credit Insurance") on a group basis.
During 1995, the Company exited the Credit Insurance market as an underwriter
and experienced insignificant production (less than $500,000) from the Credit
Insurance products.
During 1996 and 1997 sales operations were conducted through the
Ordinary Life sales division of the Company and through FSG which marketed the
Company's Ordinary and Credit Insurance products and other products for
unaffiliated companies identified below. See "Business-Credit Insurance" and
"Material Changes and Developments-Credit Insurance". As anticipated more than
10% of FSG's revenues for 1996 and 1997 were derived from the sale of the
Company's Credit Insurance products.
Ordinary Life. Ordinary Life sales are under the direct supervision of
the home office using a regionally supervised agency system. The method of
field operation involves independent contractual agents working with district
and regional managers. These managers contract with and train agents who work
under them. The regional managers may have several district managers under
their supervision. As a result of our growth in the preneed area, agency
relationships have been entered into directly with the funeral home owner.
Management anticipates this trend to continue and, depending on the size of the
funeral home and state law, preneed counselors will also become part of our
agency force. The Company also sells business through general agents or brokers
who may represent one or more companies.
Approximately 37% of total insurance in force is Ordinary Life.
The Ordinary Life sales are built around a standard portfolio of life
insurance products with some of the contributions to in-force business being a
participating ordinary life insurance policy, a guaranteed issue whole life
policy and non-participating life policies.
Some of the participating policies provide for payment of guaranteed
annual endowments of fixed amounts beginning at the end of the second policy
year and continuing through the premium paying period. These policies also have
an annual guaranteed benefit. As of December 31, 1997, 11% of the total
ordinary insurance in force was comprised of participating policies and of the
11%, approximately 6% was comprised of participating policies with some
guaranteed benefit.
Another block of participating policies provides for payment of a
dividend which will purchase additional insurance equal to 5% of the previous
year's total death benefit, including any additional insurance purchased in
prior years. The dividend is not guaranteed. As of December 31, 1997, 5% of the
total ordinary insurance in force was comprised of participating policies with
non-guaranteed benefits.
Non-participating life insurance policies represented 89% of the total
ordinary insurance in force.
The Company also issues two non-participating interest-sensitive
single premium whole life policies based on simplified underwriting. These
policies provide for payment of the full face amount at the death of the
insured and for increasing death benefits on a non-guaranteed basis.
During 1994, the Company introduced new products designed for the pre-
arranged funeral market. These products are single premium and modal premium
non-participating whole life policies. Single premium policies are sold on a
guaranteed issue basis and modal premium policies are fully underwritten. Both
single and modal premium policies provide for non-guaranteed increasing death
benefits and have a maximum face amount of $25,000. The Company also sells a
mortgage protection product which is being marketed by FSG.
As anticipated, during 1997 the Company introduced group life products
designed for the prearranged funeral market. Some of these products provide for
the payment of the full face amount at the death of the insured and some
provide graded death benefits during the first year. All of the products provide
for increasing death benefits on a non-guaranteed basis.
It is anticipated that during 1998 the Company will introduce a new
generation of both individual and group life products designed for the arranged
funeral market. These products are being developed and will be implemented as
required state approvals are received.
Credit Insurance. Credit Insurance is generally sold through banks,
finance companies and automobile dealerships and is offered in connection with
the extension of credit by these institutions. The amount of the insurance is
designed to cover the amount of the loan, with the financial institutions being
the beneficiary of the insurance policy to the extent of the unpaid balance of
the loan. Credit Insurance production is generally dependent on consumer debt.
In times of low unemployment, reasonable interest rates and a steadily
improving economy, consumer debt increases; therefore, Credit Insurance sales
increase. When the economy slows, consumer debt slows and therefore Credit
Insurance sales decrease.
During the fourth quarter of 1994, the Company began phasing out of the
Credit Insurance market as a direct writer and premium production from Credit
Insurance during 1995 was less than $500,000, as anticipated. The Company
continued to provide the administration and claims processing services for the
Credit Insurance operations. FSG entered into a marketing agreement with
Franklin Life Insurance Company ("Franklin") to market Franklin's Credit
Insurance products during 1995.
During the fourth quarter of 1995, the Company and FSG were advised that
Franklin was exiting the Commonwealth of Kentucky as a direct writer of Credit
Insurance products. FSG immediately began negotiations with several
unaffiliated insurance companies to market Credit Insurance for them.
Simultaneously, FSG initiated discussions with unaffiliated insurance companies
regarding a transaction where the Credit Insurance business would be written by
the Company and all of the risk would be immediately reinsured to the
unaffiliated insurance company. A reinsurance transaction was viewed favorably
because the Company would be able to generate an alternate source of income
through fees by providing administration and claim processing services
provided. In addition, FSG would be able to maintain its revenues in the form
of commissions from the sale of the Company's Credit Insurance products.
In December, 1995, the Company entered into a reinsurance agreement with
The Connecticut General Life Insurance Company, Bloomfield, Connecticut
("Connecticut General") under the terms of which the Company cedes to
Connecticut General all of the risk on all Credit Insurance policies sold by
the Company. In addition to receiving a retention fee, the Company also
receives a fee for administration and claims processing services. It has not
been necessary for the Company to add any employees to assist in the
administration of this business. No additional amounts were required to be
expended in order to utilize the Company's administrative and claims processing
capabilities. Employees will be added only when warranted.
It was and continues to be management's belief that the number of Credit
Insurance providers in the Commonwealth of Kentucky is contracting as a result
of two Kentucky domestic insurers exiting the Credit Insurance market.
Management believed there would be opportunities to administer Credit Insurance
business in Kentucky for non-domestic insurers that are expected to replace
exiting insurers. This belief has come to fruition in an alternate way through
the reinsurance agreement with Connecticut General. In addition, the Company
has entered into reinsurance agreements with two unaffiliated companies, Life
Investors and Bankers Life Insurance Company ("Bankers Life"). Pursuant to
those reinsurance agreements, the Company's Credit Insurance products sold by
Life Investors' and Bankers Life's agents will be reinsured to Life Investors
and Bankers Life, respectively. The Company and FSG will be paid a retention
fee and a marketing fee for services provided. The Company will continue to
seek contracts to operate as an administrator for other companies which sell
Credit Insurance.
FSG will continue to call on banks, finance companies and selected
automobile dealerships to market the Credit Insurance products. Credit
Insurance gross written premiums during 1997 were $13,692,000, 37% more than
anticipated and are anticipated to increase during 1998. As described above,
that business was and will continue to be ceded to Connecticut General, Life
Investors and Bankers Life. Approximately 9% of the total life insurance in
force is Credit Insurance, all of which was written directly by the Company.
In addition to selling Credit Insurance, some of the Company's bank agents
obtain an ordinary life license enabling them to sell mortgage insurance that
might be required in excess of the statutory Credit Life limitation enacted by
each state where our Credit Insurance products are sold. During 1996 and 1997
premium production in this area was up 108% and 68% respectively. Premiums
produced in 1996 were $1,239,000 as compared to $2,076,752 in 1997. The Company
anticipates continued growth in this area of approximately 16% during 1998. The
Company's mortgage insurance products will continue to be marketed through FSG.
Group Life. Group life accounts for the remaining 48% of in-force
business. Since 1990, the Company has participated in the Federal Employee
Group Life Insurance (FEGLI) Program, which is administered by Metropolitan
Life Insurance Company. As a result of the termination of the Commonwealth of
Kentucky group life contract, on November 30, 1992, the Company's participation
in the FEGLI Program has substantially decreased since 1993. The reduction of
in-force business since 1993 has been $149,736,000.
During 1997, the Company converted to group insurance products in the
preneed market in a majority of states. Therefore, group life premiums and in-
force business increased significantly while individual premiums and in-force
business decreased commensurately. Group life premiums during 1997 were
$7,324,000 as compared to $3,881,000 in 1996 which is an increase of 89%.
Principal Markets. The principal markets for the Company's products are
in the Commonwealths of Kentucky and Virginia, and the States of North
Carolina, South Carolina, Georgia, Ohio, Indiana, Florida, Tennessee, Illinois,
Kansas, West Virginia and Texas. The Company has licensed ordinary agents and
regional managers throughout these states. The Company also has licensed credit
life agents in over 168 banks and automobile dealerships throughout the
Commonwealth of Kentucky.
The Company is also licensed in sixteen other states: Alabama, Arkansas,
Mississippi, and Louisiana in the South and Southeast; Colorado, Missouri, New
Mexico, North Dakota, South Dakota, Oklahoma, Montana, Nebraska, Arizona and
Utah in the West; and Michigan in the North. The business in these states is
written mostly through general agents.
Risk. The Company in many cases requires evidence of insurability before
issuing individual life policies including, in some cases, a medical
examination or a statement by an attending physician. Home office underwriters
review the evidence of insurability required and approve the issuance of the
policy in accordance with the application if the risk is acceptable. Some
applicants who are substandard risks are rejected, but many are offered
policies with higher premiums, restricted coverages or reduced benefits during
the first two policy years. The majority of the single premium business is
written through the prearranged funeral market without evidence of
insurability, relying on safeguards such as product design, limits on the
amount of coverage, and premiums which recognize the resultant higher level of
claims.
Risk is integral to insurance but, as is customary in the insurance
business, the Company obtains reinsurance with respect to amounts in excess of
its retention limits. The maximum limit of retention by the Company on its
standard contract for any one life is $100,000 plus the amount of the return of
premium benefits, if any. The maximum is reduced for sub-standard classes of
risk. The maximum retention on Credit Life was $100,000 per life. Excess
coverages are reinsured externally to unaffiliated reinsurers. As of December
31, 1997; approximately $483,043,000, or 18% of total life insurance in force
was reinsured with non-affiliated well established insurance companies. The
Company would become liable for the reinsured risks if the reinsurers could not
meet their obligations. The Company has not experienced a reinsurer default
under any of the reinsurance agreements to which the Company is a party.
Further, the Company has no knowledge of and does not anticipate any material
default in any existing reinsurance obligations.
The Company is party to reinsurance and coinsurance agreements with
eighteen non-affiliated companies. The reinsurers for the Company and amounts
of insurance in force that are reinsured are as follows:
COMPANY REINSURANCE AMOUNT PERCENT OF TOTAL
Connecticut General Life
Insurance Co. $323,532,000 67.0%
Crown Life Insurance Co. 3,067,000 .6%
The Lincoln National Life
Insurance Co. 79,366,000 16.4%
J.M. Limited 4,060,000 .8%
Bankers Life Insurance Co. 33,031,000 6.8%
AEtna Life Insurance Co. 619,000 .1%
Indiana-Kentucky Ins. Co. Ltd. 952,000 .2%
Riverside Reinsurance Ltd. 1,630,000 .3%
Pirtle Ltd. 258,000 .1%
Lancaster Life Insurance Co. 3,779,000 .8%
Business Men's Assurance Co. 4,526,000 .9%
Swiss Re America 2,055,000 .4%
Groves Reinsurance Ltd. 464,000 .1%
Munich American Reinsurance Co. 23,407,000 4.9%
Life Investors Ins. Co. of
America 1,672,000 1.0%
Other Companies (3) 625,000 .1%
TOTAL $483,043,000 100.0%
AEtna and Crown Life reinsured Credit Life and Credit A&H policies sold
between July 1, 1988 and June 30, 1992. These reinsurance agreements were
terminated with respect to new issues by the Company during 1991 and 1992,
respectively. Neither reinsurer accepted the risk on any new policies issued
after the termination date of each agreement; however, both AEtna and Crown
Life continue to provide reinsurance on all Credit Insurance policies sold
prior to March 16, 1991 (AEtna) and June 30, 1992 (Crown Life). During 1997,
the Company reinsured all of the risk on the Credit Insurance policies sold by
its agents to Connecticut General, and will continue to do so in 1998. As
explained above, some of these risks will also be reinsured to Life Investors
and Bankers Life.
Regulation of Insurance. The business of the Company is subject to
regulation and supervision by the insurance regulatory authority of each state
in which the Company is licensed to do business. Such regulators grant licenses
to transact business; regulate trade practices; approve policy forms; license
agents; establish minimum reserve and loss ratio requirements; review form and
content of required financial statements; prescribe types and amounts of
investments permitted; and assure that capital, surplus and solvency
requirements are met. Insurance companies can also be required under the
solvency or guaranty laws of most states in which they do business to pay
assessments up to prescribed limits to fund policyholder losses or liabilities
of insolvent insurance companies. They are also required to file detailed
annual reports with supervisory agencies, and records of their business are
subject to examination at any time. Under the rules of the National Association
of Insurance Commissioners (the "NAIC"), a self-regulatory organization of
state insurance commissioners, insurance companies are examined periodically
by one or more of the regulatory authorities.
Domiciled in the Commonwealth of Kentucky, the Company is licensed by the
Kentucky Department of Insurance and is subject to its examination and
regulations. The most recent examination was completed during 1996 for the five
years ending December 31, 1994. Kentucky law now requires an examination every
three years; therefore, it is anticipated that the Company's next examination
will commence during 1998 for the three years ending December 31, 1997.
In December of 1992, the NAIC adopted a "Risk Based Capital for Life
and/or Health Insurers Model Act" (the "Model Act") which was designed to
identify inadequately capitalized life and health insurers. The Model Act
defines two key measures: (i) adjusted capital, which equals an insurer's
statutory capital and surplus plus its asset valuation reserve, plus one-half
its liability for policyholder dividends ("Adjusted Capital") and (ii)
authorized control level risk based capital ("RBC"). RBC is determined by a
complex formula which is intended to take into account the various risks
assumed by an insurer. Should an insurer's Adjusted Capital fall below certain
prescribed levels (defined in terms of its RBC), the Model Act provides for the
following four different levels of regulatory attention:
"Company Action Level:" This level of review is triggered if an insurer's
Adjusted Capital is less than 200 percent of its RBC. The insurer is required
to submit a plan to the appropriate regulatory authority that discusses
proposed corrective action. The Company's Adjusted Capital is more than 3.1
times the required amount.
"Regulatory Action Level": This level of review is triggered if an
insurer's Adjusted Capital is less than 150% of its RBC. The regulatory
authority formally requires the insurer to submit an RBC plan, and performs a
special examination of the insurer and issues an order specifying corrective
actions. The Company's Adjusted Capital is more than 4.2 times the required
amount.
"Authorized Control Level": This level of review is triggered if an
insurer's Adjusted Capital is less than 100% of its RBC. The regulatory
authority is authorized to take whatever action it deems necessary. The
Company's Adjusted Capital is more than 6.3 times the required amount.
"Mandatory Control Level": This level of review is triggered if an
insurer's Adjusted Capital falls below 70% of its RBC. The regulatory authority
is required to place the insurer under its control. The Company's Adjusted
Capital is more than 9.0 times the amount required.
Since the Adjusted Capital levels of the Company currently exceed all of
the regulatory action levels as defined by the NAIC's Model Act, the Model Act
currently has no impact on the Company's operations or financial condition.
Competition. The life insurance business is highly competitive. With the
introduction of universal life and other interest sensitive products in recent
years, competition with other financial institutions has increased. The
industry includes both stock and mutual companies, including some of the
largest financial institutions in the United States. While the Company is
responsive to the current economic environment, the life insurance market is
relatively volatile, the Company's operating results may vary with those
conditions.
The Company differentiates itself through its marketing techniques,
product features, customer service and reputation. The Company maintains its
competitive position by its focus on areas which have historically proven
profitable. Those areas include single premium pre-need products, modal premium
final expense products, traditional whole life products, mortgage protection
products and level term products. The Company's competitive position is
maintained by its ability to provide quality customer service throughout the
distribution system. Other competitive strengths include the Company's
asset/liability management system, a quality investment portfolio which
provides liquidity and the Company's non-leveraged financial position.
The business of the Company is not seasonal.
(b) Material Changes and Developments
Because changes in the life insurance business can be dramatic, new
product development and innovative sales methods must be ongoing to meet the
current economic times. The Company believes that growth from increased sales
is directly related to the constant attention paid to revising and selling the
products developed by the Company.
Ordinary Production. The Company is working diligently to increase
ordinary product sales. The largest increase in this area has been the final
expense and prearranged funeral sales. Final expense sales include the sale of
lower face amount ordinary life insurance products, the purpose of which is to
pay the insured's final expenses. Prearranged funeral sales include the sale of
modal premium and single premium ordinary life policies which are sold to fund
a specific prearranged funeral contract. The Company expanded its marketing
capability for this market through the 1993 acquisition of marketing assets and
agents from Legacy One, Inc., a former independent marketing agent for the
Company. As a result, the Company steadily increased sales during 1993 and
1994. The actual increase in 1994 over 1993 in overall ordinary premium
production was approximately 21%, significantly higher than the 10-12% increase
anticipated by management, and the increase in 1995 over 1994 was approximately
11%, as anticipated. During 1996 the Company continued to increase its
marketing operations and to expand into new states, including but not limited
to, Tennessee, Indiana, Illinois, Kansas, South Carolina and Georgia, and
experienced growth in premium production of approximately 28 percent in the
prearranged funeral market during 1996 over 1995, $16,681,000 compared to
$13,072,000.
During 1997, the Company focused on increasing its market share in
existing states and expanding into some new areas, including Arkansas. Even
though single premium growth was anticipated to be 12-15%, when combining
ordinary life, group life and individual annuities sold in the preneed market,
actual growth was 26%. Single premium production for these lines of business
was $21,104,000 for 1997 compared to $16,678,000 for 1996. The Company
anticipates continued growth in this segment of approximately 12-15% during
1998. Realizing the significant contribution of our financial marketing
group, which was successful in increasing the Company's Credit Insurance
production to record levels during the late 1980's and early 1990's, and
realizing the significant relationship our employees have developed with the
financial institutions in the Commonwealth of Kentucky, KII formed FSG as a
wholly-owned subsidiary. During 1995, FSG marketed Franklin Life Insurance
Company's ("Franklin") Credit Insurance product. However, during the fourth
quarter of 1995, FSG and the Company were advised that Franklin was exiting the
Commonwealth of Kentucky as a direct writer of Credit Insurance products. FSG
immediately began negotiating with a number of unaffiliated insurance companies
to market Credit insurance products for them. In addition, FSG began
negotiating a potential transaction with unaffiliated companies where the
Credit Insurance policies would be written by the Company and all of the risk
would be immediately reinsured to the unaffiliated company.
Under a reinsurance arrangement, the Company would generate alternative
revenues from retention fees and fees for administration and claims processing.
Additionally, FSG will continue to generate revenues in the form of
commissions. Therefore, in December 1995 the Company entered into a
reinsurance agreement with Connecticut General under the terms of which all of
the risk on all Credit Insurance policies sold by the Company would be
reinsured with Connecticut General.
The decision to reenter the Credit Insurance market as a direct writer
required careful consideration of the decision to exit the market during 1995.
The driving factors behind the decision to reenter were the ability to
structure the reinsurance transaction with a highly rated insurance company,
the ability to protect, improve and strengthen the Company's surplus and
profitability, the ability to utilize our Credit Insurance administration and
claims processing capabilities and the ability to generate alternative sources
of revenue for the Company. The structure of the reinsurance agreement with
Connecticut General accomplishes each of these goals. Further, FSG has been
successful in retaining the majority of the Credit Insurance agency accounts
and has successfully recruited another unaffiliated agency which is anticipated
to more than double overall gross written Credit Insurance premiums and will
therefore further enhance FSG's revenues.
Therefore, since 1996 FSG has marketed the Company's Credit Insurance
products and will continue to do so in 1998. In addition, FSG was responsible
for marketing products for unaffiliated companies to financial institutions
including Individual Disability (Illinois Mutual Life and Casualty Company),
Involuntary Unemployment Insurance (Vesta Fire Insurance Corp.), and GAP, which
covers the excess of the loan amount over the value of the collateral if the
collateral is a total loss (General Electric Capital Assurance Company). The
Company was not a direct writer of any of these products during 1997.
FSG will also continue to market the Company's mortgage protection
products. Management anticipated growth of approximately 3-5 percent in this
segment of the Company's business during 1996 due to the marketing efforts of
FSG. Actual growth during 1996 was 108% due to the fact that several of FSG's
agents who also had agency relationships with other companies began sending
more of the business to the Company. Actual growth in 1997 exceeded anticipated
growth 48% due to increased sales activity. Premium production in this area
increased $837,752, from $1,239,000 in 1996 to $2,076,752 in 1997. Management
anticipates an increase of approximately 20% during 1998.
Employees. The number of persons employed by the Company is 108.
The number of active independent contractual agents of the Company is 2,226.
Management of the Company considers its relationship with the employees and
agents to be satisfactory.
Item 2. Properties
The physical property of the Registrant consists of the home office
building and grounds, owned in fee, at 200 Capital Avenue, Frankfort, Kentucky.
Adjacent to the home office, the Company owns additional property on Second
Street and on Shelby Street in Frankfort, Kentucky. One building is used for
Agency and Company meetings; one building is a print shop used by IHP, one
building is used for supplies and additional storage; and one building is
leased to a commercial tenant. The Company also leases office space at One
Harbison Way, Suite 106, Columbia, South Carolina 29212.
Item 3. Legal Proceedings
There are no legal proceedings to which the Registrant is a party which
are material to the overall financial condition or the results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Matters
(a) The information relative to the market value of the Company's stock
appears on the inside back cover in the Annual Report to the Stockholders for
the year ended December 31, 1997, and is incorporated herein by reference.
(b) Approximate Number of Equity Security Holders
(A) (B)
Title of Class Number of Holders
Common Stock of Record 12-31-97
2,898
(c) Dividends
Cash dividends paid in 1996 amounted to $684,580 or $.76 per share. The
1997 cash dividend, to be paid April 17, 1998, is $.76 per share, payable to
stockholders of record April 3, 1998.
Item 6. Selected Financial Data
Selected financial data for the past five years appears on page 29 in the
Annual Report to the Stockholders for the year ended December 31, 1997, and is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of financial condition and results of
operations appears on pages 9-20 in the Annual Report to the Stockholders for
the year ended December 31, 1997, and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes appear on pages 30
through 47 in the Annual Report to Stockholders for the year ended December 31,
1997, and are incorporated herein by reference. See Part IV, Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
(a) The Executive officers and directors of the Company are:
Name, Position & Year Family
Became Officer/Director Age Relationship
Harry Lee Waterfield II 54
Chairman of the Board,
President/1963
Jimmy R. McIver 46
Treasurer/1988
Wilma Yeary 66
Secretary/1989
Jane S. Jackson 43
Assistant Secretary/1989
Howard L. Graham 63
Vice President, Corporate
Services/1969
Loretta Jane Wise 51
Vice President, Policy
Service/1988
Nancy W. Walton 58 Sister of
Vice President, Harry Lee
Underwriting/1975 Waterfield II
N. Douglas Hippe 59
Vice President,
Accounting/1974
Raymond L. Carr 49
Vice President, Admn.
Operations/1977
Donald R. Philpot 60
Vice President,
Agency/1981
Margaret J. Kays 66
Vice President,
Human Resources/1993
Helen S. Wagner 61
Director/1986
Jerry F. Howell 84
Director/1964
Jerry F. Howell, Jr. 56 Son of Jerry
Director/1987 F. Howell
Robert M. Hardy, Jr. 40 Nephew of
Vice President & General Counsel, Harry Lee
Director/1986 Waterfield II
Michael F. Dudgeon 36 Nephew of
Director/1988 Harry Lee
Waterfield II
Adron Doran 88
Director/1972
H. Glenn Doran 72
Director/1992
Clair S. Manson 70
Vice President,
Chief Actuary/1987
Gordon C. Duke 52
Director/1996
(b) The principal occupation of each of the Officers listed above for
the past five years has been that as indicated, except for Margaret J. Kays.
Ms. Kays was elected Vice President, Human Resources in 1993. Prior to that
time, Ms. Kays served as the Company's Assistant Vice President, Credit Life
Accounting. Each of the Directors has occupied the position indicated for a
period of more than five years with the exception of Gordon Duke. Mr. Duke was
elected to the Board in 1996 to fill the vacancy caused by the untimely death
of Joe R. Johnson. Information regarding the business experience of the
Directors who are not officers of the Company is shown on pages 2, 3 and 4 of
the Proxy Statement for the Annual Meeting of Shareholders to be held on May
14, 1998, and is incorporated herein by reference.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any Director or Executive Officer during the past five
years.
Officers are appointed annually by the Board of Directors at the Board
meeting immediately following the Annual Meeting of Shareholders. There are no
arrangements or any understandings between any officer and any other person
pursuant to which the office was selected.
Item 11. Executive Compensation and Transactions
Information regarding compensation of executive officers and transactions
with executive officers and directors is not restated in this Annual Report
because the response to this item is shown on page 5 & 6 of the Proxy Statement
for the Annual Meeting of Shareholders to be held May 14, 1998 and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership by Officers, Directors, and management, is not restated
in this Annual Report because the response to this item is shown on pages 2, 3
& 4 of the Proxy Statement for the Annual Meeting of Stockholders to be held
May 14, 1998, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Certain relationships and related transactions are shown on page 7 of the
Proxy Statement for the Annual Meeting of Stockholders to be held May 14, 1998,
and are incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements incorporated herein by reference in Item 8 to
the Company's Annual Report to Stockholders for the year ended December 31,
1997 (pages 30-47) filed as Exhibit 1:
Consolidated Balance Sheets -- December 31, 1997 and 1996
For each of the years in the period ended December 31, 1997:
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)2. Consolidated Financial Statement Schedules
Schedule I -- Summary of Investments -- Other than Investments in Related
Parties
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
The financial statements and schedules of Investors Heritage Life
Insurance Company, as incorporated by reference in its Annual Report on Form
10-K filed with the Securities & Exchange Commission for the year ended
December 31, 1997, are incorporated herein by reference.
All other schedules have been omitted as not applicable, not required, or
the required information has been included in the financial statements, notes
thereto, or are incorporated herein by reference to the Annual Report on Form
10-K of Investors Heritage Life Insurance Company for the year ended December
31, 1997.
(a)3. Listing of Exhibits
Exhibit 1 - Annual Report to the Stockholders for the year ended December
31, 1997.*
Exhibit 3.1-- Articles of Incorporation of the Company, as amended.
Exhibit 3.2-- By-Laws of the Company, as amended.
Exhibit 11-- Statements re Computation of Per Share Earnings.**
Exhibit 23 - Consent of Independent Auditors.
Exhibit 27 _ Financial Data Schedule.
*The material included in this Report shall not be deemed to be "filed"
with theCommission or otherwise subject to the liabilities of Section 18 of the
Act, except to the extent that this registrant specifically incorporates it in
its Annual Report on this Form 10-K by reference.
**The information required is contained in Note A to the Consolidated
Financial Statements, "Common Stock and Earnings per Share", on page 37 of the
Annual Report to the Stockholders for the year ended December 31, 1997 and is
incorporated herein by reference.
(b) Reports on Form 8-K
No filing of Form 8-K was made in 1997.
(c) See Item 14(a)(3) above.
(d) Financial Statement Schedules - The response to this portion of Item
14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Investors Heritage Life Insurance Company
March 12, 1998 /s/
DATE BY: Harry Lee Waterfield II
ITS: Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/
Harry Lee Waterfield II
Chairman of the Board,
President and Chief
Executive Officer
March 12, 1998
/s/
Jimmy R. McIver
Treasurer
March 12, 1998
/s/
Howard L. Graham
Vice President,
Corporate Services
March 12, 1998
/s/
Jerry F. Howell
Director
March 12, 1998
/s/
H. Glenn Doran
Director
March 12, 1998
/s/
Helen S. Wagner
Director
March 12, 1998
/s/
Adron Doran
Director
March 12, 1998
/s/
Robert M. Hardy, Jr.
Vice President,
General Counsel and Director
March 12, 1998
/s/
Jerry F. Howell, Jr.
Director
March 12, 1998
/s/
Michael F. Dudgeon, Jr.
Director
March 12, 1998
/s/
Gordon C. Duke
Director
March 12, 1998
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Investors Heritage Life Insurance Company
We have audited the consolidated financial statements of Investors
Heritage Life Insurance Company and subsidiary listed in the accompanying Index
to financial statements (Item 14(a)). Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Investors Heritage Life Insurance Company and subsidiary at December 31,
1997 and 1996, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/
Ernst & Young LLP
Louisville, Kentucky
March 24, 1998
CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 23
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-46722-01) pertaining to the Kentucky Investors, Inc. and
Affiliated Companies 401(k) Savings Plan and Trust Agreement and in the related
prospectus of our report dated March 24, 1998, with respect to the consolidated
financial statements and schedules of Investors Heritage Life Insurance Company
and subsidiary included or incorporated by reference in the Annual Report (Form
10-K) for the year ended December 31, 1997.
/s/
Ernst & Young LLP
Louisville, Kentucky
March 24, 1998
INVESTORS HERITAGE LIFE INSURANCE COMPANY AND SUBSIDIARY
SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED
PARTIES
DECEMBER 31, 1997
AMOUNT AT
WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE
SHEET
Fixed maturity securities
available-for-sale:
Bonds:
United States and government
agencies and authorities $ 22,472,841 $ 23,533,381 $ 23,533,381
States and political 1,990,527 2,030,570 2,030,570
subdivisions
Foreign 14,680,336 15,413,400 15,413,400
Mortgage-backed
securities 35,127,387 36,000,136 36,000,136
Corporate 90,398,974 94,790,224 94,790,224
Redeemable preferred stock 10,050 15,200 15,200
------------ ------------ ------------
Total $164,680,115 $171,782,911 $171,782,911
============ ============ ============
Equity securities,
available for sale:
Common stocks:
Banks, trusts &
insurance companies $ 356,280 $ 2,597,759 $ 2,597,759
Industrial, misc.
and all other 331,004 343,562 343,562
Nonredeemable preferred
stocks 225,174 228,049 228,049
----------- ------------ -----------
Total $ 912,458 $ 3,169,370 $ 3,169,370
=========== ============ ===========
Total securities
available for sale: $165,592,573 $174,952,281 $174,952,281
============ ============ ============
Mortgage loans
on real
estate 13,734,791 XXXXXXXX 13,734,791
Policy loans 6,976,601 XXXXXXXX 6,976,601
Other long term
investments 403,106 XXXXXXXX 403,106
Short-term
investments 1,211,165 XXXXXXXX 1,211,165
------------ --------- ------------
Total investments $187,918,236 XXXXXXXX $197,277,944
============ ========= ============
INVESTORS HERITAGE LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
SEGMENT
Life Credit Accident Cor- Total
and (Life & Health porate
Annuities and
A&H)
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 26,871,597 209,801 144,245 -0- 27,225,643
Future
Policy
Benefits,
Lossess,
Claims &
Loss
Expenses 188,727,592 561,596 108,883 -0- 189,398,071
Unearned
Premium 5,038 14,178,873 276,499 -0- 14,460,410
Other
Policy
Claims &
Benefits
Payable 3,543,916 577,344 53,380 -0- 4,174,640
Premiums
Revenue 39,005,250 67,366 56,490 -0- 39,129,106
Net
Invest-
ment
Income
(1) and
(3) 10,573,726 30,046 24,822 2,435,066 13,063,660
Benefits
claims,
Losses &
Settle-
ment
Expenses 20,043,777 517,942 235,866 -0- 20,797,585
Amorti-
zation
Deferred
Acquisi-
tion
Costs 4,786,125 459,646 239,803 -0- 5,485,574
Other
Operating
Expenses(2) 5,825,141 746,508 146,266 679,934 7,397,849
(1) Net investment income is allocated in proportion to policy liabilities and
stockholders' equity.
(2) Other operating expenses are assigned directly to the applicable segment.
(3) Includes realized investment gains or losses.
FOR THE YEAR ENDED DECEMBER 31, 1996
SEGMENT
Life Credit Accident Cor- Total
and (Life & Health porate
Annuities and
A&H)
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 26,867,679 669,447 384,048 -0- 27,921,174
Future
Policy
Benefits,
Lossess,
Claims &
Loss
Expenses 170,672,825 290,776 130,769 -0- 171,094,370
Unearned
Premium 4,413 8,578,377 699,452 -0- 9,282,242
Other
Policy
Claims &
Benefits
Payable 3,042,248 433,913 67,063 -0- 3,543,224
Premiums
Revenue 36,329,602 (506,630) 531,053 -0- 36,354,025
Net
Invest-
ment
Income
(1) and
(3) 8,984,825 82,614 48,005 2,048,603 11,164,047
Benefits
claims,
Losses &
Settle-
ment
Expenses 19,419,843 757,693 471,502 -0- 20,649,038
Amorti-
zation
Deferred
Acquisi-
tion
Costs 4,379,445 1,215,569 299,514 -0- 5,894,528
Other
Operating
Expenses
(2) 5,125,814 904,319 144,268 918,304 7,092,705
(1) Net investment income is allocated in proportion to policy liabilities and
stockholders' equity.
(2) Other operating expenses are assigned directly to the applicable segment.
(3) Includes realized investment gains or losses.
FOR THE YEAR ENDED DECEMBER 31, 1995
SEGMENT
Life Credit Accident Cor- Total
and (Life & Health porate
Annuities and
A&H)
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 25,845,535 1,885,016 529,562 -0- 28,260,113
Future
Policy
Benefits,
Lossess,
Claims &
Loss
Expenses 154,363,644 608,600 209,901 -0- 155,182,145
Unearned
Premium 7,473 5,539,142 965,747 -0- 6,512,362
Other
Policy
Claims &
Benefits
Payable 3,415,505 262,739 88,068 -0- 3,766,312
Premiums
Revenue 33,185,006 (1,167,524) 1,043,894 -0- 33,061,376
Net
Invest-
ment
Income
(1) and
(3) 9,251,927 365,529 82,783 1,171,857 10,872,096
Benefits
claims,
Losses &
Settle-
ment
Expenses 33,529,515 (3,593,030) 187,439 -0- 30,123,924
Amorti-
zation
Deferred
Acquisi-
tion
Costs 2,809,459 2,673,578 602,920 -0- 6,085,957
Other
Operating
Expenses
(2) 5,147,730 992,599 234,049 607,562 6,981,940
(1) Net investment income is allocated in proportion to policy liabilities and
stockholders' equity.
(2) Other operating expenses are assigned directly to the applicable segment.
(3) Includes realized investment gains or losses.
INVESTORS HERITAGE LIFE INSURANCE COMPANY AND SUBSIDIARY
SCHEDULE IV _ REINSURANCE
FOR THE YEAR ENDED DECEMBER 31, 1997
Accident
Life Premium, and
Insurance Life Health TOTAL
In Force Insurance Insurance PREMIUMS
$ $ $ $
Gross Amount 1,510,628,000 45,780,812 5,265,875 51,046,687
Ceded to
other
Companies 483,042,626 9,364,359 5,103,594 14,467,953
Assumed
from other
Companies 1,170,162,394 2,973,930 (119,278) 2,854,652
Net Amount 2,197,747,768 39,390,383 43,003 39,433,386
Percentage
of Amount
Assumed to
Net 53% 8% -277% 7%
FOR THE YEAR ENDED DECEMBER 31, 1996
Accident
Life Premium, and
Insurance Life Health TOTAL
In Force Insurance Insurance PREMIUMS
$ $ $ $
Gross Amount 1,388,230,107 39,614,360 3,244,892 42,859,252
Ceded to
other
Companies 316,499,131 6,619,435 3,358,570 9,978,005
Assumed
from other
Companies 1,216,370,893 3,379,319 354,983 3,734,302
Net Amount 2,288,101,869 36,374,244 241,305 36,615,549
Percentage
of Amount
Assumed to
Net 53% 9% 147% 10%
FOR THE YEAR ENDED DECEMBER 31, 1995
Accident
Life Premium, and
Insurance Life Health TOTAL
In Force Insurance Insurance PREMIUMS
$ $ $ $
Gross Amount 1,301,580,403 30,088,838 (97,463) 29,991,375
Ceded to
other
Companies 180,264,855 807,810 327,654 1,135,464
Assumed
from other
Companies 1,235,769,597 3,477,443 870,956 4,348,399
Net Amount 2,357,085,145 32,758,471 445,839 33,204,310
Percentage
of Amount
Assumed to
Net 52% 11% 195% 13%