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, 1998
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 $4,617,132 as of December 31, 1998.
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, 1998
904,373
Documents Incorporated by Reference:
(1) Portions of the Annual Report to the Stockholders for the year ended
December 31, 1998 (Form 10-K, Items 1, 5a, 6, 7 and 8)
(2) Portions of the Proxy Statement dated April 16, 1999, for the Annual Meeting
of Stockholders to be held May 13, 1999 (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 74% 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, 1998 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 writes credit life and credit
accident and health insurance (respectively, "Credit Life" and "Credit A&H", and
collectively "Credit Insurance") on a group basis.
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 1997 and 1998 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, 1998, 7% of the total
ordinary insurance in force was comprised of participating policies and of the
7%, 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, 1% of the
total ordinary insurance in force was comprised of participating policies with
non-guaranteed benefits.
Non-participating life insurance policies represented 93% 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.
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.
During 1998 the Company introduced a new generation of both individual and
group life products designed for the prearranged funeral market. These products
differ from the 1997 products by offering simplified underwriting for the multi-
pay policies and shorter limited benefit periods for the reduced benefit
policies. These new products, called the "Legacy 2000 Series" were implemented
throughout 1998 and have been well received in the market.
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.
Initially, FSG entered into a marketing agreement with Franklin Life
Insurance Company ("Franklin") to market Franklin's Credit Insurance products
during 1995. However, 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 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. 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.
In addition, FSG has maintained its revenues in the form of commissions from the
sale of the Company's Credit Insurance products.
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") and American
United Life Insurance Company ("AUL"). The AUL agreement was entered into
during 1998. Pursuant to those reinsurance agreements, the Company's Credit
Insurance products sold by Life Investors', Bankers Life's and AUL's agents will
be reinsured to Life Investors, Bankers Life and AUL 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 1998 were $17,390,000, 22% more than
anticipated and are anticipated to increase during 1999. As described above,
that business was ceded to Connecticut General, Life Investors and Bankers Life.
During the 3rd Quarter of 1998, the Company was advised that Connecticut
General was exiting the market as a reinsurer of Credit Insurance. Therefore,
the Company and FSG commenced a search for a new reinsurer. During the 4th
Quarter of 1998, the Company and FSG negotiated new reinsurance agreements with
Munich American Reassurance Company, Atlanta, Georgia ("Munich") and Reliastar
Life Insurance Company, Minneapolis, Minnesota ("Reliastar") whereby effective
January 1, 1999, the Company will reinsure 50% of the risk on all Credit
Insurance policies to each reinsurer. Approximately 19% 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 1997 and 1998
premium production in this area was up 68% and 27% respectively. Premiums
produced in 1997 were $2,076,752 as compared to $2,637,738 in 1998. The Company
anticipates continued growth in this area of approximately 4% during 1999. The
Company's mortgage insurance products will continue to be marketed through FSG.
Group Life. Group life accounts for the remaining 44% 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 $222,377,000.
During 1997, the Company converted to group insurance products in the
preneed market in a majority of states. The Legacy 2000 Series introduced
during 1998 is also a group product in many 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 278 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. During 1999 the Company anticipates
expanding its preneed operation into several of these states.
Risk. In many cases, the Company 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, 1998; approximately $660,887,000, or 24% 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
seventeen 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. $409,884,000 62.14%
Crown Life Insurance Co. 1,579,000 .2%
The Lincoln National Life
Insurance Co. 83,977,000 12.7%
J.M. Limited 1,286,000 .2%
Bankers Life Insurance Co. 107,270,000 16.2%
AEtna Life Insurance Co. 284,000 .04%
Indiana-Kentucky Ins. Co. Ltd. 228,000 .03%
Riverside Reinsurance Ltd. 634,000 .01%
Lancaster Life Insurance Co. 3,961,000 .6%
Business Men's Assurance Co. 5,456,000 .8%
Swiss Re America 1,100,000 .2%
Munich American Reinsurance Co. 41,372,000 6.3%
Life Investors Ins. Co. of
America 3,177,000 .48%
Other Companies (4) 679,000 .1%
TOTAL $660,887,000 100.0%
During 1998, the Company reinsured all of the risk on the Credit Insurance
policies sold by its agents to Connecticut General; however, the reinsurance
agreement effective December 31, 1998 was terminated with respect to new issues.
During 1999, the Company will reissue all of the risk on the Credit Insurance
policies sold by its agents to Munich and Reliastar however, Connecticut General
will continue to provide reinsurance on all Credit Insurance policies sold
between January 1, 1996 and December 31, 1998. As explained above, some of
these risks will also be reinsured to Life Investors, Bankers Life and AUL.
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 1998 for the
three years ending December 31, 1997. Other than three minor accounting entries
regarding reporting of EDP equipment, general expenses and receivables, the
Examination Report contains no recommendations and no adjustments were made in
the statutory financial statements.
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 2.9 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 3.9 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 5.8 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 8.4 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. Since 1993 the Company has continued to
expand its marketing capability in this area. As a result, the Company steadily
increased sales of preneed products.
During 1997 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 27% in the prearranged funeral market during 1997
over 1996, $21,104,000 compared to $16,681,000.
During 1998, 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 11%. Single premium production for these lines of business
was $23,413,000 for 1998 compared to $21,102,000 for 1997. The Company
anticipates continued growth in this segment of approximately 12-15% during
1999.
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. Additionally, FSG generates
revenues in the form of commissions. In December 1995 Franklin exited the
market and 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.
Since 1996 FSG has marketed the Company's Credit Insurance products and
will continue to do so in 1999. However, during 1999 all of the risk on all
Credit Insurance policies sold by the Company will be reinsured with Munich and
Reliastar.
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 20% in this segment of
the Company's business during 1998 due to the marketing efforts of FSG. Actual
growth in 1998 exceeded anticipated growth 25.5% due to increased sales
activity. Premium production in this area increased $535,663 from $2,076,752 in
1997 to $2,612,415 in 1998. Management anticipates an increase of approximately
5% during 1999.
Employees. The number of persons employed by the Company is 107.
The number of active independent contractual agents of the Company is 2,188.
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.
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, 1998, 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 12-31-98
2,679
(c) Dividends
Cash dividends paid in 1998 amounted to $687,745 or $.76 per share. The
1999 cash dividend, to be paid April 9, 1999, is $.76 per share, payable to
stockholders of record March 26, 1999.
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, 1998, 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 10 - 21 in the Annual Report to the Stockholders for
the year ended December 31, 1998, 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, 1998,
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 55
Chairman of the Board,
President/1963
Jimmy R. McIver 47
Treasurer/1988
Wilma Yeary 67
Secretary/1989
Jane S. Jackson 44
Assistant Secretary/1989
Howard L. Graham 64
Vice President, Corporate
Services/1969
Loretta Jane Wise 52
Vice President, Policy
Service/1988
Nancy W. Walton 59 Sister of
Vice President, Harry Lee
Underwriting/1975 Waterfield II
N. Douglas Hippe 60
Vice President,
Accounting/1974
Raymond L. Carr 50
Vice President, Admn.
Operations/1977
Donald R. Philpot 61
Vice President,
Agency/1981
Margaret J. Kays 67
Vice President,
Human Resources/1993
Helen S. Wagner 62
Director/1986
Jerry F. Howell 85
Director/1964
Jerry F. Howell, Jr. 57 Son of Jerry
Director/1987 F. Howell
Robert M. Hardy, Jr. 41 Nephew of
Vice President & General Counsel, Harry Lee
Director/1986 Waterfield II
Michael F. Dudgeon 37 Nephew of
Vice President, Financial Harry Lee
Services & Director/1988 Waterfield II
Julie Hunsinger 38
Vice President, Chief
Actuary/1999
Adron Doran 89
Director/1972
H. Glenn Doran 73
Director/1992
Gordon C. Duke 53
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 Michael F. Dudgeon.
Mr. Dudgeon was elected Vice President, Financial Services in May, 1998. Prior
to that time Mr. Dudgeon was a Regional Preneed Sales Director for the Company.
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 13, 1999, 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 pages 5 & 6 of the Proxy Statement
for the Annual Meeting of Shareholders to be held May 13, 1999 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 3, &
4 of the Proxy Statement for the Annual Meeting of Stockholders to be held May
13, 1999, 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 13, 1999,
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, 1998
(pages 30-47) filed as Exhibit 1:
Consolidated Balance Sheets -- December 31, 1998 and 1997
For each of the three years in the period ended December 31, 1998:
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, 1998, 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, 1998.
(a)3. Listing of Exhibits
Exhibit 1 - Annual Report to the Stockholders for the year ended December
31, 1998.*
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 the Commission 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, 1998 and is
incorporated herein by reference.
(b) Reports on Form 8-K
No filing of Form 8-K was made in 1998.
(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 24, 1999 /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 24, 1999
/s/
Jimmy R. McIver
Treasurer
March 24, 1999
/s/
Howard L. Graham
Vice President,
Corporate Services
March 24, 1999
/s/
Jerry F. Howell
Director
March 24, 1999
H. Glenn Doran
Director
Helen S. Wagner
Director
/s/
Adron Doran
Director
March 24, 1999
/s/
Robert M. Hardy, Jr.
Vice President,
General Counsel and Director
March 24, 1999
/s/
Jerry F. Howell, Jr.
Director
March 24, 1999
/s/
Michael F. Dudgeon, Jr.
Director
March 24, 1999
/s/
Gordon C. Duke
Director
March 24, 1999
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, 1998
and 1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, 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, 1999
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, 1999, with respect to the consolidated
financial statements and schedules of Investors Heritage Life Insurance Company
and subsidiary included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/
Ernst & Young LLP
Louisville, Kentucky
March 24, 1999
INVESTORS HERITAGE LIFE INSURANCE COMPANY AND SUBSIDIARY
SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED
PARTIES
DECEMBER 31, 1998
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 $ 21,741,471 $ 23,250,908 $ 23,250,908
States and political 1,992,186 2,064,650 2,064,650
subdivisions
Foreign 16,445,886 17,806,860 17,806,860
Mortgage-backed
securities 36,617,917 38,155,910 38,155,910
Corporate 105,079,281 112,615,514 112,615,514
Redeemable preferred stock 10,050 17,625 17,625
------------ ----------- -------------
Total $181,886,791 $193,911,467 $193,911,467
============= ============ ============
Equity securities,
available for sale:
Common stocks:
Banks, trusts &
insurance companies $ 356,279 $ 2,761,746 $ 2,761,746
Industrial, misc.
and all other 331,005 381,735 381,735
Nonredeemable preferred
stocks 225,174 233,732 233,732
----------- -------------- -----------
Total $ 912,458 $ 3,377,213 $ 3,377,213
============ ============ =============
Total securities
available for sale: $182,799,249 $197,288,680 $197,288,680
============= ============ ============
Mortgage loans
on real
estate 16,189,127 XXXXXXXX 16,189,127
Policy loans 7,203,344 XXXXXXXX 7,203,344
Other long term
investments 437,221 XXXXXXXX 437,221
Short-term
investments 1,170,970 XXXXXXXX 1,170,970
----------- ------------ ------------
Total investments $207,799,911 XXXXXXXX $222,289,342
============ =========== ===========
INVESTORS HERITAGE LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
SEGMENT
Credit
Traditional Insurance
Preneed Universal Products Corporate
Burial Life and Admn. and
Products Products Svcs. Other Total
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 17,664,830 9,527,323 60,932 35,599 27,288,684
Future
Policy
Benefits,
Losses,
Claims &
Loss
Expenses 135,613,387 65,678,058 1,196,524 4,627,756 207,115,725
Unearned
Premium -0- 7,350 19,977,443 84,772 20,069,565
Other
Policy
Claims &
Benefits
Payable 981,859 2,059,406 850,512 33,141 3,924,918
Premiums
Revenue 32,526,605 9,794,706 (59,503) 376,481 42,638,289
Net
Invest-
ment
Income
(1) and
(3) 8,788,111 4,351,374 22,021 1,311,926 14,473,432
Benefits
claims,
Losses &
Settle-
ment
Expenses 14,321,904 7,043,726 252,253 575,980 22,193,863
Amorti-
zation
Deferred
Acquisi-
tion
Costs 4,032,392 2,207,356 148,869 108,646 6,497,263
Other
Operating
Expenses(2) 3,717,781 1,599,412 593,666 98,291 6,509,150
(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, 1997
SEGMENT
Credit
Traditional Insurance
Preneed Universal Products Corporate
Burial Life and Admn. and
Products Products Svcs. Other Total
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 17,078,621 9,792,976 209,801 144,245 27,225,643
Future
Policy
Benefits,
Losses,
Claims &
Loss
Expenses 120,481,988 63,969,966 561,596 4,384,521 189,398,071
Unearned
Premium -0- 5,038 14,178,873 276,499 14,460,410
Other
Policy
Claims &
Benefits
Payable 1,458,480 2,084,336 577,344 54,480 4,174,640
Premiums
Revenue 29,273,251 9,709,932 (212,347) 358,270 39,129,106
Net
Invest-
ment
Income
(1) and
(3) 7,715,589 4,240,325 66,550 1,041,196 13,063,660
Benefits
claims,
Losses &
Settle-
ment
Expenses 11,516,357 8,374,616 517,942 388,670 20,797,585
Amorti-
zation
Deferred
Acquisi-
tion
Costs 4,337,918 1,909,292 459,646 239,803 6,946,659
Other
Operating
Expenses(2) 3,228,482 1,327,330 749,978 631,514 5,937,304
(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
Credit
Traditional Insurance
Preneed Universal Products Corporate
Burial Life and Admn. and
Products Products Svcs. Other Total
$ $ $ $ $
Deferred
Policy
Acquisi-
tion
Costs 16,852,848 10,014,831 669,447 384,048 27,921,174
Future
Policy
Benefits,
Losses,
Claims &
Loss
Expenses 104,560,102 62,458,014 290,776 3,785,478 171,094,370
Unearned
Premium -0- 4,413 8,578,377 699,452 9,282,242
Other
Policy
Claims &
Benefits
Payable 931,153 2,109,628 433,913 68,530 3,543,224
Premiums
Revenue 26,787,290 9,464,381 (728,699) 831,053 36,354,025
Net
Invest-
ment
Income
(1) and
(3) 6,408,159 3,990,107 153,854 611,927 11,164,047
Benefits
claims,
Losses &
Settle-
ment
Expenses 10,552,466 8,660,486 757,693 678,393 20,649,038
Amorti-
zation
Deferred
Acquisi-
tion
Costs 4,304,831 1,238,563 1,215,569 145,514 6,904,477
Other
Operating
Expenses
(2) 3,236,348 1,325,795 634,333 886,280 6,082,756
(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, 1998
Accident
Life Premium, and
Insurance Life Health TOTAL
In Force Insurance Insurance PREMIUMS
$ $ $ $
Gross Amount 1,692,257,000 51,242,511 6,732,327 57,974,838
Ceded to
other
Companies 660,886,585 11,510,247 6,612,882 18,123,129
Assumed
from other
Companies 1,092,914,600 2,824,135 (37,555) 2,786,580
Net Amount 2,124,285,015 42,556,399 81,890 42,638,289
Percentage
of Amount
Assumed to
Net 51% 7% -46% 7%
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 45,578,663 5,163,744 50,742,407
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 39,188,234 (59,128) 39,129,106
Percentage
of Amount
Assumed to
Net 53% 8% 202% 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 39,428,287 3,169,441 42,597,728
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 36,188,171 165,854 36,354,025
Percentage
of Amount
Assumed to
Net 53% 9% 214% 10%